<PAGE>
Securities Act File No. 33-79858
Investment Company Act of 1940 File No. 811-8544
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 35 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 36 /X/
UAM FUNDS TRUST
(Exact Name of Registrant as specified in Charter)
c/o UAM Fund Services, Inc.
211 Congress St., 4th Floor
Boston, Massachusetts 02110
Registrant's Telephone Number (617) 542-5440
(Address of Principal Executive Offices)
----------------------------------------
Michael E. DeFao, Esq.
Secretary
UAM Fund Services, Inc.
211 Congress Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
---------------------------------------
COPY TO:
Audrey C. Talley, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3469
It is proposed that this filing become effective (check appropriate box):
[X] Immediately upon filing pursuant to Paragraph (b)
[ ] on (date) pursuant to Paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to Paragraph (a) (2)
[ ] on (date) pursuant to Paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-
<PAGE>
PARTS A AND B
UAM FUNDS TRUST
The prospectuses and statements of additional information for the following
portfolios are included in this Post-Effective Amendment No. 35:
* BHM&S Total Return Bond Portfolio Institutional Class Shares
* BHM&S Total Return Bond Portfolio Institutional Service Class Shares
* Cambiar Opportunity Portfolio
* Chicago Asset Management Intermediate Bond Portfolio
* Chicago Asset Management Value/Contrarian Portfolio
* Clipper Focus Portfolio
* Hanson Equity Portfolio
* Jacobs International Octagon Portfolio
* MJI International Equity Portfolio Institutional Class Shares
* MJI International Equity Portfolio Institutional Service Class Shares
* Pell Rudman Mid-Cap Growth Portfolio
* TJ Core Equity Portfolio
The Institutional Class and Institutional Service Class prospectuses and the
statement of additional information for FPA Crescent Portfolio are contained in
this Post-Effective Amendment No. 34, filed on July 28, 1999.
The prospectuses and statement of additional information for Heitman Real Estate
Portfolio are contained in Post-Effective Amendment No. 30, filed on April 22,
1999.
The prospectuses and statement of additional information for Dwight Capital
Preservation Portfolio are contained in Post-Effective Amendment No. 29, filed
on April 12, 1999.
<PAGE>
PART C
UAM FUNDS TRUST
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibits previously filed by the Fund are incorporated by reference to such
filings. The following table describes the location of all exhibits. In the
table, the following references are used: PEA 34 = Post-Effective Amendment No.
34 filed on July 28, 1999, PEA 30 = Post-Effective Amendment No. 30 filed on
April 23, 1999, PEA 29 = Post-Effective Amendment No. 29 filed on April 12,
1999, PEA 27 = Post-Effective Amendment No. 27 filed on February 5, 1999, PEA 24
= Post Effective Amendment No. 24 filed on July 10, 1998; PEA 19 = Post-
Effective Amendment No. 19 filed on February 3, 1998; PEA17 = Post-Effective
Amendment No. 17 filed on December 15, 1997, PEA16 = Post-Effective Amendment
No. 16 filed on July 10, 1997.
<TABLE>
<CAPTION>
Incorporated by
Reference to
Exhibit (Location):
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
A. 1. Agreement and Declaration of Trust PEA 24
- -----------------------------------------------------------------------------------------------------------------------
2. Certificate of Trust PEA 24
- -----------------------------------------------------------------------------------------------------------------------
3. Certificate of Amendment to Certificate of Trust PEA 24
- -----------------------------------------------------------------------------------------------------------------------
B.1. By-Laws PEA 24
- -----------------------------------------------------------------------------------------------------------------------
2. Amendment to By-Laws dated December 10, 1998 PEA 27
- -----------------------------------------------------------------------------------------------------------------------
C. 1. Form of Specimen Share Certificate PEA 24
- -----------------------------------------------------------------------------------------------------------------------
2. The rights of security holders are defined in the Registrant's Agreement and Declaration of PEA 24
Trust and By-Laws
- -----------------------------------------------------------------------------------------------------------------------
D.1. Investment Advisory Agreement between Registrant and Barrow, Hanley, Mewhinney & Strauss PEA 27
- -----------------------------------------------------------------------------------------------------------------------
2. Investment Advisory Agreement between Registrant and Cambiar Investors, Inc. PEA 27
- -----------------------------------------------------------------------------------------------------------------------
3. Investment Advisory Agreement between Registrant and Chicago Asset Management Company PEA 27
(Intermediate Bond Portfolio)
- -----------------------------------------------------------------------------------------------------------------------
4. Investment Advisory Agreement between Registrant and Chicago Asset Management Company PEA 27
(Value/Contrarian Portfolio)
- -----------------------------------------------------------------------------------------------------------------------
5. Investment Advisory Agreement between Registrant and Dwight Asset Management Company PEA 27
- -----------------------------------------------------------------------------------------------------------------------
6. Investment Advisory Agreement between Registrant and First Pacific Advisors, Inc. PEA 27
- -----------------------------------------------------------------------------------------------------------------------
7. Investment Advisory Agreement between Registrant and Hanson Investment Management Company PEA 27
- -----------------------------------------------------------------------------------------------------------------------
8. Investment Advisory Agreement between Registrant and Heitman/PRA Securities Advisors, Inc. PEA 27
- -----------------------------------------------------------------------------------------------------------------------
9. Investment Advisory Agreement between Registrant and Jacobs Asset Management, L.P. PEA 27
- -----------------------------------------------------------------------------------------------------------------------
10. Investment Advisory Agreement between Registrant and Murray Johnstone International Limited PEA 27
- -----------------------------------------------------------------------------------------------------------------------
11. Investment Advisory Agreement between Registrant and Pacific Financial Research, Inc. PEA 27
- -----------------------------------------------------------------------------------------------------------------------
12. Investment Advisory Agreement between Registrant and Pell Rudman Trust Company, N.A. PEA 27
- -----------------------------------------------------------------------------------------------------------------------
13. Investment Advisory Agreement between Registrant and Tom Johnson Investment Management PEA 27
- -----------------------------------------------------------------------------------------------------------------------
E. 1. Distribution Agreement between Registrant and UAM Fund Distributors PEA 24
- -----------------------------------------------------------------------------------------------------------------------
2. Distribution Agreement between Registrant and UAM Fund Distributors, Inc. dated as of March PEA 29
31, 1999 (Advisor Class Shares)
- -----------------------------------------------------------------------------------------------------------------------
3. Distribution Agreement between Registrant and ACG Capital Corporation (Advisor Class Shares) PEA 19
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------------------------------------
4. Amendment to Distribution Agreement between Registrant and ACG Capital Corporation dated as PEA 29
of March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
5. Selling Dealer Agreement PEA 24
- -----------------------------------------------------------------------------------------------------------------------
F. Trustees' and Officers' Contracts and Programs Not applicable
- -----------------------------------------------------------------------------------------------------------------------
G. 1. Global Custody Agreement PEA 16
- -----------------------------------------------------------------------------------------------------------------------
H. 1. Fund Administration Agreement PEA 27
- -----------------------------------------------------------------------------------------------------------------------
Fund Administration Agreement Fee Schedule PEA 30
- -----------------------------------------------------------------------------------------------------------------------
2. Mutual Funds Service Agreement PEA 16
- -----------------------------------------------------------------------------------------------------------------------
I. Opinions and Consents of Counsel PEA 34
- -----------------------------------------------------------------------------------------------------------------------
J. Consent of Independent Auditors Filed herewith
- -----------------------------------------------------------------------------------------------------------------------
K. Other Financial Statements Not applicable
- -----------------------------------------------------------------------------------------------------------------------
L. Purchase Agreement PEA 24
- -----------------------------------------------------------------------------------------------------------------------
M. 1. Distribution Plan PEA 24
- -----------------------------------------------------------------------------------------------------------------------
2. Shareholder Services Plan PEA 24
- -----------------------------------------------------------------------------------------------------------------------
3. Service Agreement PEA 24
- -----------------------------------------------------------------------------------------------------------------------
N. Financial Data Schedule Not applicable
- -----------------------------------------------------------------------------------------------------------------------
O. Amended and Restated Rule 18f-3 Multiple Class Plan PEA 24
- -----------------------------------------------------------------------------------------------------------------------
P. Powers of Attorney PEA 24, PEA 27
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not applicable.
ITEM 25. INDEMNIFICATION
Reference is made to Article VI of Registrant's Declaration of Trust, which is
incorporated herein by reference. Registrant hereby also makes the undertaking
consistent with Rule 484 under the Securities Act of 1933, as amended. Insofar
as indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Provisions for indemnification of UAM Fund Services, Inc. are contained in
Section 6 of its Fund Administration Agreement with the Registrant.
Provisions for indemnification of the Registrant's investment advisers are
contained in Section 7 of their respective Investment Advisory Agreements with
the Registrant.
Provisions for indemnification of Registrant's principal underwriter, UAM Fund
Distributors, Inc., are contained in its Distribution Agreement with the
Registrant.
Provisions for indemnification of Registrant's custodian, The Chase Manhattan
Bank, are contained in Section 12 of its Fund Global Custody Agreement with the
Registrant.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
<PAGE>
Reference is made to the caption "Investment Adviser" in the Prospectuses
constituting Part A of this Registration Statement and "Investment Adviser" in
Part B of this Registration Statement. Except for information with respect to
Pell Rudman Trust Company, N.A., the information required by this Item 26 with
respect to each director, officer, or partner of each other investment adviser
of the Registrant is incorporated by reference to the Forms ADV filed by the
investment advisers listed below with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940, as amended, under the file
numbers indicated:
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser File No.
- --------------------------------------------------------------------------------
Barrow, Hanley, Mewhinney & Strauss, Inc. 801-31237
- --------------------------------------------------------------------------------
Cambiar Investors, Inc. 801-09538
- --------------------------------------------------------------------------------
Chicago Asset Management Company 801-20197
- --------------------------------------------------------------------------------
Dwight Asset Management Company 801-45304
- --------------------------------------------------------------------------------
First Pacific Advisors, Inc. 801-39512
- --------------------------------------------------------------------------------
Hanson Investment Management Company 801-14817
- --------------------------------------------------------------------------------
Heitman/PRA Securities Advisors, Inc. 801-48252
- --------------------------------------------------------------------------------
Jacobs Asset Management, L.P. 801-49790
- --------------------------------------------------------------------------------
Murray Johnstone International Ltd. 801-34926
- --------------------------------------------------------------------------------
Pacific Financial Research, Inc. 801-54352
- --------------------------------------------------------------------------------
Tom Johnson Investment Management, Inc. 801-42549
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Pell Positions and Offices with Pell
Business Address Rudman Trust Company, N.A. Rudman & Co., Inc.
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey S. Thomas Director Chief Financial Officer of
100 Federal Street Pell, Rudman & Co., Inc.
Boston, Massachusetts
- -----------------------------------------------------------------------------------------------------
Edward I. Rudman Director Chairman and President of Pell,
100 Federal Street Rudman & Co., Inc.
Boston, Massachusetts
- -----------------------------------------------------------------------------------------------------
James S. McDonald Director Executive Vice President of
100 Federal Street Pell, Rudman & Co., Inc.
Boston, Massachusetts
- -----------------------------------------------------------------------------------------------------
Susan W. Hunnewell Director Senior Vice President of Pell,
100 Federal Street Rudman & Co., Inc.
Boston, Massachusetts
</TABLE>
Barrow, Hanley, Mewhinney & Strauss, Inc., Cambiar Investors, Inc., Chicago
Asset Management Company, Dwight Asset Management Company, First Pacific
Advisors, Inc., Hanson Investment Management Company, Heitman/PRA Securities
Advisors, Inc., Jacobs Asset Management, L.P., Murray Johnstone International
Ltd., Pacific Financial Research, Inc., Pell Rudman Trust Company, N.A., and Tom
Johnson Investment Management, Inc., are affiliates of United Asset Management
Corporation ("UAM"), a Delaware corporation owning firms engaged primarily in
institutional investment management.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) UAM Fund Distributors, Inc. ("UAMFDI") acts as distributor of the
registrant's shares. ACG Capital Corporation ("ACG") also acts as
distributor of the Heitman Real Estate Portfolio Advisor Class Shares.
(b) The information required with respect to each director and officer of
UAMFDI is incorporated by reference to Schedule A of Form BD filed pursuant
to the Securities and Exchange Act of 1934 (SEC File No. 8-41126).
(c) The information required with respect to each Director and officer of ACG
is incorporated by reference to Schedule A of Form BD filed pursuant to the
Securities and Exchange Act of 1934 (SEC File No. 8-47813).
<PAGE>
(d) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
<TABLE>
<CAPTION>
Name and Address of Service Provider Relationship with Registrant
- --------------------------------------------------------------------------------
<S> <C>
The Chase Manhattan Bank Custodian bank
4 Chase MetroTech Center
Brooklyn, New York, 11245
- --------------------------------------------------------------------------------
Chase Global Funds Services Company Sub-administrator
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
UAM Fund Services, Inc. Administrator
211 Congress Street, 4th Floor
Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
UAM Shareholder Services Center, Inc. Sub-shareholder servicing agent
825 Duportail Road
Wayne, PA 19087
- --------------------------------------------------------------------------------
DST Systems, Inc. Sub-transfer agent
210 West 10th Street
Kansas City, Missouri 64105
</TABLE>
The registrant's investment advisers will also maintain physical possession of
certain of the books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940, as amended, and the rules promulgated
thereunder.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the registrant certifies that it meets all of the requirement for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Boston, and State
of Massachusetts on the 9th day of August, 1999.
UAM FUNDS TRUST
/s/ Michael E. DeFao, Esq.
_______________________________
Michael E. DeFao, Esq.
Secretary
Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities indicated on
this 9th day of August, 1999.
*
______________________________
Norton H. Reamer, Chairman and
President
*
______________________________
John T. Bennett, Jr., Trustee
*
______________________________
Nancy J. Dunn, Trustee
*
______________________________
Philip D. English, Trustee
*
______________________________
William A. Humenuk, Trustee
*
______________________________
James P. Pappas, Trustee
*
______________________________
Peter M. Whitman, Jr., Trustee
/s/ Gary L. French
______________________________
Gary L. French, Treasurer
/s/ Michael E. DeFao, Esq.
______________________________
* Michael E. DeFao, Esq.
<PAGE>
(Attorney-in-Fact)
<PAGE>
UAM FUNDS TRUST
EXHIBIT INDEX
Exhibit Description
- -------------------------------------------------------------------------------
J Consent of Independent Auditors
<PAGE>
UAM Funds
Funds for the Informed Investor/sm/
BHM&S Total Return Bond Portfolio
Institutional Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved
or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 1
How has the Portfolio Performed? .......................................... 2
What are the Fees and Expenses of the Portfolio? .......................... 3
Investing with the Uam Funds ................................................. 4
Buying Shares ............................................................. 4
Redeeming Shares .......................................................... 5
Exchanging Shares ......................................................... 5
Transaction Policies ...................................................... 6
Account Policies ............................................................. 9
Small Accounts ............................................................ 9
Distributions ............................................................. 9
Federal Taxes ............................................................. 9
Portfolio Details ........................................................... 11
Principal Investments and Risks of the Portfolio .......................... 11
Other Investment Practices and Strategies ................................. 13
Year 2000 ................................................................. 14
Investment Management ..................................................... 14
Shareholder Servicing Arrangements ........................................ 16
Additional Classes of Shares .............................................. 16
Financial Highlights ........................................................ 17
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks maximum long-term total return consistent with reason-
able risk to principal by investing in investment grade fixed income secu-
rities of varying maturities. The portfolio cannot guarantee it will meet
its investment objective. The portfolio may not change its investment ob-
jective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio invests at least 90% of its total assets in dollar-denomi-
nated investment-grade debt securities of a variety of issuers, including
corporations and governments. The portfolio tries to maintain an average
weighted duration comparable to the Salomon Brothers' Broad or Lehman
Brothers Aggregate Indices, which is approximately five years.
The adviser actively manages the portfolio, focusing on security selec-
tion, sector concentration and yield curve positioning. The adviser be-
lieves that it can minimize volatility and generate superior returns over
the long-term by investing in undervalued securities with above-average
effective yields and capital appreciation potential. The adviser does not
attempt to "time the market."
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
1
<PAGE>
BHM&S Total Return Bond Portfolio
The portfolio's main risks are those associated with investing in debt se-
curities. Debt securities may lose value because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities
to fall.
. A security's credit rating worsens or its issuer becomes unable to
honor its financial obligations.
HOW HAS THE PORTFOLIO PERFORMED?
- -------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of this class
of the portfolio has varied from year to year and provide some indication
of the risks of investing in the portfolio. The bar chart shows the in-
vestment returns of the portfolio for each full calendar year. The table
following the bar chart compares the average annual returns of the portfo-
lio to those of a broad-based securities market index. Past performance
does not guarantee future results.
Calendar Year Returns
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Quarter
Return Ended
--------------------------------------------------------
<S> <C> <C>
Highest Quarter: 3.57% 6/30/97
--------------------------------------------------------
Lowest Quarter -1.58% 3/31/96
--------------------------------------------------------
Year-To-Date -2.25% 6/30/99
Average Annual Returns For Periods Ended 12/31/98
<CAPTION>
Since
1 Year Inception*
--------------------------------------------------------
<S> <C> <C>
BHM&S Total Return Bond Portfolio 7.41% 6.99%
--------------------------------------------------------
Lehman Brothers Aggregate Bond Index 8.69% 7.86%
</TABLE>
* The portfolio began operations 11/1/95. Index comparisons begin on
10/31/95.
2
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
-----------------------
<S> <C>
Management fees 0.35%
-----------------------
Other expenses 0.84%
-----------------------
Total expenses 1.19%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above throughout the period of your investment.
Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------------------------------
<S> <C> <C> <C>
$121 $378 $654 $1,443
</TABLE>
3
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic Investment Plan (Via ACH) To set up a plan, mail a
You may not open an completed application to
account via ACH the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum Investments$2,500--regular account $100
$500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
4
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to
redeem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
ByTelephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic If your account balance is at least $10,000, you may
Withdrawal Plan transfer as little as $100 per month from your UAM Funds
(Via ACH) account to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
5
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekdays and certain
holidays.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV on any given day, your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established by
the UAM Funds. The UAM Funds may also value securities at fair value when
events occur that make established valuation methods (such as stock ex-
change closing prices) unreliable. The UAM Funds may use a pricing service
to value some of their assets, such as debt securities.
6
<PAGE>
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
7
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, the portfolio distributes its net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolio, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
9
<PAGE>
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
10
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
The portfolio invests at least 90% of its total assets in dollar-denomi-
nated investment-grade debt securities with an intermediate average matu-
rity 10 years or less. The portfolio maintains an average weighted dura-
tion comparable to the Salomon Brothers' Broad or Lehman Brothers Aggre-
gate Indices, which is approximately five years. To manage its duration,
the portfolio may hedge its interest rate risk by purchasing and selling
futures.
Investment Process
The adviser expects to manage the portfolio actively, focusing on security
selection, sector concentration and yield curve positioning. The adviser
invests the assets of the portfolio in securities, industry sectors and
maturity ranges that it believes the market has undervalued. The adviser
believes that it can minimize volatility and generate superior returns
over the long-term by investing in high quality securities that possess
above-average effective yields and the potential for capital appreciation.
The adviser does not attempt to time the market because it believes there
are too many variables to successfully forecast economic conditions con-
sistently. Therefore the portfolio will maintain a conservative intermedi-
ate maturity structure, diversifying its assets along the yield curve.
The adviser's security selection process begins by analyzing a bond's
yield-to-maturity premium (or spread) versus the most recently issued U.S.
treasury security of similar maturity. Once it identifies bonds with an
above-average premium, it then evaluates factors that could influence the
bond's future premium such as credit quality, security structure and
supply/demand. The objective of this process is to identify those issues
whose yield premium will compress or narrow over a wide range of potential
interest rate changes, supporting superior long-term performance.
11
<PAGE>
Debt Securities
A debt security is an interest bearing security that corporations and gov-
ernments use to borrow money from investors. The issuer of a debt security
promises to pay interest at a stated rate, which may be variable or fixed,
and to repay the amount borrowed at maturity (dates when debt securities
are due and payable). The portfolio may invest in debt securities issued
by corporations and the U.S. government and its agencies, mortgage-backed
and asset-backed securities (securities that are backed by pools of loans
or mortgages assembled for sale to investors), municipal notes and bonds,
Yankee bonds, zero coupon bonds, commercial paper and certificates of de-
posit.
The concept of duration is useful in assessing the sensitivity of a fixed-
income fund to interest rate movements, which are the main source of risk
for most fixed-income funds. Duration measures price volatility by esti-
mating the change in price of a debt security for a 1% change in its
yield. For example, a duration of five years means the price of a debt se-
curity will change about 5% for every 1% change in its yield. Thus, the
higher the duration, the more volatile the security.
The price of a debt security generally moves in the opposite direction
from interest rates (i.e., if interest rates go up the price of the bond
will go down, and vice versa). Some types of debt securities are more af-
fected by changes in interest rates than others. For example, changes in
rates may cause people to pay off or refinance the loans underlying mort-
gage-backed and asset-backed securities earlier or later than expected,
which would shorten or lengthen the maturity of the security. This behav-
ior can negatively affect the performance of a portfolio by shortening or
lengthening its average maturity and, thus, changing its effective dura-
tion. The unexpected timing of mortgage backed and asset-backed prepay-
ments caused by changes in interest rates may also cause the portfolio to
reinvest its assets at lower rates, reducing the yield of the portfolio.
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 risk that the issuer will fail to pay interest fully and
return principal in a timely manner. If an issuer defaults or becomes un-
able to honor its financial obligations, the security 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 security. Ad-
verse economic conditions or changing circumstances, however, may
12
<PAGE>
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 secu-
rities that are downgraded, if it believes that keeping those securities
is waranted.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Derivatives
The portfolio may use futures and options (types of derivatives) to remain
fully invested, to reduce transaction costs and to hedge interest rates.
Derivatives are often more volatile than other investments and may magnify
the portfolio's gains or losses. The portfolio may lose money if the ad-
viser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets or to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
13
<PAGE>
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Barrow, Hanley, Mewhinney & Strauss, Inc., a Texas corporation located at
One McKinney Plaza, 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204,
is the investment adviser to the portfolio. The adviser manages and super-
vises the investment of the portfolio's assets on a discretionary basis.
The adviser, an affiliate of United Asset Management Corporation, has spe-
cialized in the active management of stocks, bonds and balanced portfolios
for institutional and tax-exempt clients since 1979. The adviser currently
provides and offers investment management services to corporate, public
and Taft-Hartley employee benefit plans, foundations, endowments, health
care and other institutions and investors.
During the fiscal year ended April 30, 1999, the portfolio paid the ad-
viser 0.30% of its average net assets in management fees.
Portfolio Managers
A team of investment professionals is primarily responsible for the day-
to-day management of the portfolio. Listed below are the investment pro-
fessionals that comprise that team and a brief description of their busi-
ness experience.
14
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
John S. Williams Mr. Williams is currently a Fixed Income Principal of the
adviser. Mr. Williams joined the adviser as its first
Fixed Income Portfolio Manager in 1983. Mr. Williams has
also managed balanced and municipal portfolios during his
21-year investment career. Before joining the adviser, he
was responsible for the management of all fixed income
assets at Southland Trust, Dallas, Texas, and before that
was a Portfolio Manager and Securities Analyst at
InterFirst Bank Dallas Trust Department. Mr. Williams has
served on the Advisory Committee for the Texas Teachers
Retirement System and is an active member in the Dallas
Investment Analysts Society. He currently is a Director
of United Asset Management Corporation. Mr. Williams is a
Chartered Financial Analyst, earning his MBA in 1976 and
BBA in 1975 from Texas Christian University.
-----------------------------------------------------------------------------
David R. Hardin Mr. Hardin is currently a Fixed Income Principal and
Portfolio Manager of the adviser. Before joining the ad-
viser in 1987, Mr. Hardin was Vice President and Director
of the Fixed Income Group of RepublicBank Dallas Trust
Department. In that position, he was responsible for the
management of all taxable and tax-exempt fixed income as-
sets of the Trust Division, including all separately man-
aged accounts, collective investment fund products, and
the creation of and management of an SEC-registered mu-
tual fund. Before attaining the Director's position, Mr.
Hardin was a Taxable Portfolio Manager and served as the
Credit Analyst for the Trust Division. He started his in-
vestment career as a private placement credit analyst
while employed by American General Insurance Co. in Hous-
ton in 1976. Mr. Hardin received an M.Sc. from the London
School of Economics in 1975 and a BBA from Texas Chris-
tian University in 1973.
-----------------------------------------------------------------------------
J. Scott McDonald Mr. McDonald is currently a Fixed Income Principal and
Portfolio Manager of the adviser. Mr. McDonald joined the
adviser in 1995 to serve as a Security and Portfolio Spe-
cialist for the Fixed Income Group. In addition to Secu-
rity and Portfolio Analyst, he is responsible for systems
analytics used in the evaluation of effective/option ad-
justed yield measurements for all securities and portfo-
lios. He also serves as compliance monitor of all fixed
income portfolios to ensure commonality of structure and
diversification. Mr. McDonald previously served as the
Senior Vice President and Portfolio Manager at Life Part-
ners Group, Inc. in Dallas. While with Life Partners, he
was responsible for implementing strategy for $3 billion
in assets. Additionally, Texas Commerce Bank Houston em-
ployed him as a Credit Supervisor and Lending Officer. He
received his MBA in 1991 from the University of Texas at
Austin and his BBA from Southern Methodist University in
1986.
-----------------------------------------------------------------------------
Mark C. Luchsinger Mr. Luchsinger is currently a Fixed Income Principal and
Portfolio Manager of the adviser. Mr. Luchsinger is the
newest senior member of the fixed income product team.
Before joining the adviser in April of 1997, he had spent
years in fixed income sales at First Boston Corporation,
PaineWebber and Morgan Keegan, responsible for a wide ar-
ray of security and client types. During Mr. Luchsinger's
investment career, he has also served as Chief Investment
Officer for Great American Reserve Insurance Company in
Dallas, where he was responsible for the management of
over $1 billion in fixed income and equity portfolios;
Senior Investment Portfolio Manager for Scor Reinsurance
Company in Irving. Mr. Luchsinger is a Chartered Finan-
cial Analyst and earned his BBA from Bowling Green State
University in 1980.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Deborah J. Anderson Ms. Anderson is currently a Senior Portfolio Assistant
of the adviser. Ms. Anderson is responsible for all ad-
ministrative staff and their duties associated with the
fixed income product management, including
communication/liaison with all clients, custodial banks,
and brokerage relationships. She supervises all opera-
tional aspects of fixed income security trading and
works extensively with reporting requirements for all
clients and regulatory agencies. Before joining the ad-
viser in 1988, Ms. Anderson served as a Trust Officer
with Trust Company of Texas and its predecessor, South-
land Trust Co. She received a BBA in Accounting from the
University of Texas at Arlington in 1974.
</TABLE>
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
ADDITIONAL CLASSES OF SHARES
- -------------------------------------------------------------------------------
The portfolio also offers Institutional Service Class shares, which pay
marketing or shareholder servicing fees.
16
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the portfolio for the fiscal periods
indicated. Certain information contained in the table reflects the finan-
cial results for a single portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in
this class of the portfolio assuming all dividends and distributions were
reinvested. PricewaterhouseCoopers LLP has audited this information. The
financial statements and the unqualified opinion of PricewaterhouseCoopers
LLP are included in the annual report of the portfolio, which is available
upon request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999++ 1998++ 1997++ 1996++#
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $10.36 $ 9.96 $ 9.85 $10.00
------ ------- ------- ------
Income From Investment Operations
Net Investment Income............... 0.56 0.58 0.60 0.28
Net Realized and Unrealized Gain
(Loss) on Investments.............. (0.08)+++ 0.41 0.05 (0.27)
------ ------- ------- ------
Total from Investment Operations.... 0.48 0.99 0.65 0.01
------ ------- ------- ------
Distributions
Net Investment Income............... (0.63) (0.55) (0.54) (0.16)
Net Realized Gain................... (0.53) (0.04) -- --
------ ------- ------- ------
Total Distributions................. (1.16) (0.59) (0.54) (0.16)
------ ------- ------- ------
Net Asset Value, End of Period....... $ 9.68 $ 10.36 $ 9.96 $ 9.85
====== ======= ======= ======
Total Return+........................ 4.61% 10.16% 6.75% 0.08%**
====== ======= ======= ======
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands)......................... $3,788 $19,927 $13,062 $2,445
Ratio of Expenses to Average Net
Assets.............................. 1.07% 0.68% 0.57% 0.61%*
Ratio of Net Investment Income to
Average Net Assets.................. 5.29% 5.69% 6.01% 5.53%*
Portfolio Turnover Rate.............. 196% 210% 151% 55%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets.................. 0.12% 0.52% 1.16% 4.63%*
Ratio of Expenses to Average Net
Assets Including Expense Offsets.... 1.07% 0.68% 0.55% 0.55%*
</TABLE>
* Annualized.
** Not Annualized.
# For the period November 1, 1995 (commencement of operations) to April
30, 1996.
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the period.
++ Per share amounts are based on average outstanding shares.
+++ The amount shown for a share outstanding throughout the period does
not accord with the aggregate net gains on investments for that period
because of the timing of sales and repurchases of the Portfolio shares
in relation to fluctuating market value of the investments of the
Portfolio.
17
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
BHMSX 902556109 629
</TABLE>
<PAGE>
BHM&S Total Return Bond Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The portfolio's Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM Funds
Funds for the Informed Investor(sm)
BHM&S Total Return Bond Portfolio
Institutional Service Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 1
How has the Portfolio Performed? .......................................... 3
What are the Fees and Expenses of the Portfolio?........................... 4
Investing with the Uam Funds ................................................. 5
Buying Shares ............................................................. 5
Redeeming Shares .......................................................... 6
Exchanging Shares ......................................................... 6
Transaction Policies ...................................................... 7
Account Policies ............................................................ 10
Small Accounts ............................................................ 10
Distributions ............................................................. 10
Federal Taxes ............................................................. 10
Portfolio Details ........................................................... 12
Principal Investments and Risks of the Portfolio .......................... 12
Other Investment Practices and Strategies ................................. 13
Year 2000 ................................................................. 14
Investment Management ..................................................... 15
Shareholder Servicing Arrangements ........................................ 17
Additional Classes of Shares .............................................. 18
Financial Highlights ........................................................ 19
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks maximum long-term total return consistent with reason-
able risk to principal by investing in investment grade fixed income secu-
rities of varying maturities. The portfolio cannot guarantee it will meet
its investment objective. The portfolio may not change its investment ob-
jective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio invests at least 90% of its total assets in dollar-denomi-
nated investment-grade debt securities. The portfolio tries to maintain an
average weighted duration comparable to the Salomon Brothers' Broad or
Lehman Brothers Aggregate Indices, which is approximately five years.
The adviser actively manages the portfolio, focusing on security selec-
tion, sector concentration and yield curve positioning. The adviser be-
lieves that it can minimize volatility and generate superior returns over
the long-term by investing in undervalued securities with above-average
effective yields and capital appreciation potential. The adviser does not
attempt to "time the market."
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
BHM&S Total Return Bond Portfolio
The portfolio's main risks are those associated with investing in debt se-
curities. Debt securities may lose value because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities
to fall.
. A security's credit rating worsens or its issuer becomes unable to
honor its financial obligations.
2
<PAGE>
HOW HAS THE PORTFOLIO PERFORMED?
- -------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of this class
of the portfolio has varied from year to year and provide some indication
of the risks of investing in the portfolio. The bar chart shows the in-
vestment returns of the portfolio for each full calendar year. The table
following the bar chart compares the average annual returns of the portfo-
lio to those of a broad-based securities market index. Past performance
does not guarantee future results.
Calendar Year Returns
[BAR CHART APPEARS HERE]
Date Returns
1996 3.21%
1997 8.52%
1998 7.15%
<TABLE>
<CAPTION>
Return Quarter Ended
--------------------------------------
<S> <C> <C>
Highest Quarter 3.47% 6/30/97
--------------------------------------
Lowest Quarter -1.77% 3/31/96
--------------------------------------
Year-To-Date -2.36% 6/30/99
</TABLE>
Average annual returns For Periods Ended 12/31/98
<TABLE>
<CAPTION>
1 Year Since Inception*
-----------------------------------------------------------
<S> <C> <C>
BHM&S Total Return Bond Portfolio 7.15% 6.70%
-----------------------------------------------------------
Lehman Brothers Aggregate Index 8.69% 7.86%
</TABLE>
* The portfolio began operations 11/1/95. Index comparisons begin on
10/31/95.
3
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
----------------------------
<S> <C>
Management Fees 0.35%
----------------------------
Service (12b-1) Fees 0.25%
----------------------------
Other Expenses 1.00%
----------------------------
Total Expenses 1.60%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above throughout the period of your investment.
Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------------------------------
<S> <C> <C> <C>
$163 $505 $871 $1,900
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
-------------------
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic You may not open an ac- To set up a plan, mail a
Investment Plan count via ACH completed application to
(Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs
$250--spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
5
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic If your account balance is at least $10,000, you may
Withdrawal Plan transfer as little as $100 per month from your UAM Funds
(Via ACH) account to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
6
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV on any given day, your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established by
the UAM Funds. The UAM Funds may also value securities at fair value when
events occur that make established valuation methods (such as stock ex-
change closing prices) unreliable. The UAM Funds may use a pricing service
to value some of their assets, such as debt securities.
7
<PAGE>
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
8
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
9
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, the portfolio distributes its net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolio, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
10
<PAGE>
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
11
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
The portfolio invests at least 90% of its total assets in dollar-denomi-
nated investment-grade debt securities with an intermediate average matu-
rity. The portfolio maintains an average weighted duration comparable to
the Salomon Brothers' Broad or Lehman Brothers Aggregate Indices, which is
approximately five years. To manage its duration, the portfolio may hedge
its interest rate risk by purchasing and selling futures.
Investment Process
The adviser expects to manage the portfolio actively, focusing on security
selection, sector concentration and yield curve positioning. The adviser
invests the assets of the portfolio in securities, industry sectors and
maturity ranges that it believes the market has undervalued. The adviser
believes that it can minimize volatility and generate superior returns
over the long-term by investing in high quality securities that possess
above-average effective yields and the potential for capital appreciation.
The adviser does not attempt to time the market because it believes there
are too many variables to successfully forecast economic conditions con-
sistently. Therefore, the portfolio will maintain a conservative, interme-
diate maturity structure, diversifying its assets along the yield curve.
The adviser's security selection process begins by analyzing the yield-to-
maturity premium of a bond (or spread) versus the most recently issued
U.S. treasury security of similar maturity. Once it identifies bonds with
an above-average premium, it then evaluates factors that could influence
the bond's future premium such as credit quality, security structure and
supply/demand. The objective of this process is to identify those issues
whose yield premium will compress or narrow or compress over a wide range
of potential interest rate changes, supporting superior long-term perfor-
mance
12
<PAGE>
Debt Securities
A debt security is an interest bearing security that corporations and gov-
ernments use to borrow money from investors. The issuer of a debt security
promises to pay interest at a stated rate, which may be variable or fixed,
and to repay the amount borrowed at maturity (dates when debt securities
are due and payable). The portfolio may invest in debt securities issued
by corporations and the U.S. government and its agencies, mortgage-backed
and asset-backed securities (securities that are backed by pools of loans
or mortgages assembled for sale to investors), municipal notes and bonds,
Yankee bonds, zero coupon bonds, commercial paper and certificates of de-
posit.
The concept of duration is useful in assessing the sensitivity of a fixed-
income fund to interest rate movements, which are the main source of risk
for most fixed-income funds. Duration measures price volatility by esti-
mating the change in price of a debt security for a 1% change in its
yield. For example, a duration of five years means the price of a debt se-
curity will change about 5% for every 1% change in its yield. Thus, the
higher the duration, the more volatile the security.
The price of a debt security generally moves in the opposite direction
from interest rates (i.e., if interest rates go up the price of the bond
will go down, and vice versa). Some types of debt securities are more af-
fected by changes in interest rates than others. For example, changes in
rates may cause people to pay off or refinance the loans underlying mort-
gage-backed and asset-backed securities earlier or later than expected,
which would shorten or lengthen the maturity of the security. This behav-
ior can negatively affect the performance of a portfolio by shortening or
lengthening its average maturity and, thus, changing its effective dura-
tion. The unexpected timing of mortgage backed and asset-backed prepay-
ments caused by changes in interest rates may also cause the portfolio to
reinvest its assets at lower rates, reducing the yield of the portfolio.
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 risk that the issuer will fail to pay interest fully and
return principal in a timely manner. If an issuer defaults or becomes un-
able to honor its financial obligations, the security 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 ca-
pacity of the issuer to pay interest and repay principal. If a security
13
<PAGE>
is not rated or is rated under a different system, the adviser may deter-
mine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is war-
ranted.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Derivatives
The portfolio may use futures and options (types of derivatives) to remain
fully invested, to reduce transaction costs and to hedge interest rates.
Derivatives are often more volatile than other investments and may magnify
the portfolio's gains or losses. The portfolio may lose money if the ad-
viser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets or to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
14
<PAGE>
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Barrow, Hanley, Mewhinney & Strauss, Inc., a Texas corporation located at
One McKinney Plaza, 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204,
is the investment adviser to the portfolio. The adviser manages and super-
vises the investment of the portfolio's assets on a discretionary basis.
The adviser, an affiliate of United Asset Management Corporation, has spe-
cialized in the active management of stocks, bonds and balanced portfolios
for institutional and tax-exempt clients since 1979. The adviser currently
provides and offers investment management services to corporate, public
and Taft-Hartley employee benefit plans, foundations, endowments, health
care and other institutions and investors.
During the fiscal year ended April 30, 1999, the portfolio paid the ad-
viser 0.30% of its average net assets in management fees.
15
<PAGE>
Portfolio Managers
A team of investment professionals is primarily responsible for the day-
to-day management of the portfolio. Listed below are the investment pro-
fessionals that comprise that team and a brief description of their busi-
ness experience.
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
John S. Williams Mr. Williams is currently a Fixed Income Principal of the
adviser. Mr. Williams joined the adviser as its first
Fixed Income Portfolio Manager in 1983. Mr. Williams has
also managed balanced and municipal portfolios during his
21-year investment career. Before joining the adviser, he
was responsible for the management of all fixed income as-
sets at Southland Trust, Dallas, Texas, and before that
was a Portfolio Manager and Securities Analyst at
InterFirst Bank Dallas Trust Department. Mr. Williams has
served on the Advisory Committee for the Texas Teachers
Retirement System and is an active member in the Dallas
Investment Analysts Society. He currently is a Director of
United Asset Management Corporation. Mr. Williams is a
Chartered Financial Analyst, earning his MBA in 1976 and
BBA in 1975 from Texas Christian University.
-----------------------------------------------------------------------------
David R. Hardin Mr. Hardin is currently a Fixed Income Principal and Port-
folio Manager of the adviser. Before joining the adviser
in 1987, Mr. Hardin was Vice President and Director of the
Fixed Income Group of RepublicBank Dallas Trust Depart-
ment. In that position, he was responsible for the manage-
ment of all taxable and tax-exempt fixed income assets of
the Trust Division, including all separately managed ac-
counts, collective investment fund products, and the crea-
tion of and management of an SEC-registered mutual fund.
Before attaining the Director's position, Mr. Hardin was a
Taxable Portfolio Manager and served as the Credit Analyst
for the Trust Division. He started his investment career
as a private placement credit analyst while employed by
American General Insurance Co. in Houston in 1976. Mr.
Hardin received an M.Sc. from the London School of Econom-
ics in 1975 and a BBA from Texas Christian University in
1973.
-----------------------------------------------------------------------------
J. Scott McDonald Mr. McDonald is currently a Fixed Income Principal and
Portfolio Manager of the adviser. Mr. McDonald joined the
adviser in 1995 to serve as a Security and Portfolio Spe-
cialist for the Fixed Income Group. In addition to Secu-
rity And Portfolio Analyst, he is responsible for systems
analytics used in the evaluation of effective/option ad-
justed yield measurements for all securities and portfo-
lios. He also serves as compliance monitor of all fixed
income portfolios to ensure commonality of structure and
diversification. Mr. McDonald previously served as the Se-
nior Vice President and Portfolio Manager at Life Partners
Group, Inc. in Dallas. While with Life Partners, he was
responsible for implementing strategy for $3 billion in
assets. Additionally, Texas Commerce Bank Houston employed
him as a Credit Supervisor and Lending Officer. He re-
ceived his MBA in 1991 from the University of Texas at
Austin and his BBA from Southern Methodist University in
1986.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Mark C. Luchsinger Mr. Luchsinger is currently a Fixed Income Principal and
Portfolio Manager of the adviser. Mr. Luchsinger is the
newest senior member of the fixed income product team.
Before joining the adviser in April of 1997, he had
spent years in fixed income sales at First Boston Corpo-
ration, PaineWebber and Morgan Keegan responsible for a
wide array of security and client types. During Mr.
Luchsinger's investment career, he has also served as
Chief Investment Officer for Great American Reserve In-
surance Company in Dallas, where he was responsible for
the management of over $1 billion in fixed income and
equity portfolios; Senior Investment Portfolio Manager
for Scor Reinsurance Company in Irving. Mr. Luchsinger
is a Chartered Financial Analyst and earned his BBA from
Bowling Green State University in 1980.
-----------------------------------------------------------------------------
Deborah J. Anderson Ms. Anderson is currently a Senior Portfolio Assistant
of the adviser. Ms. Anderson is responsible for all ad-
ministrative staff and their duties associated with the
fixed income product management, including
communication/liaison with all clients, custodial banks,
and brokerage relationships. She supervises all opera-
tional aspects of fixed income security trading and
works extensively with reporting requirements for all
clients and regulatory agencies. Before joining the ad-
viser in 1988, Ms. Anderson served as a Trust Officer
with Trust Company of Texas and its predecessor, South-
land Trust Co. She received a BBA in Accounting from the
University of Texas at Arlington in 1974.
</TABLE>
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Broker, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
Distribution Plans
The UAM Funds have adopted a Distribution Plan and a Shareholder Services
Plan under Rule 12b-1 of the Investment Company Act of 1940 that permit
them to pay broker-dealers, financial institutions and other third parties
for marketing, distribution and shareholder services. The UAM Funds' 12b-1
plans allow them to pay up to 1.00% of its average daily net assets annu-
ally for these services. However, they are currently authorized to pay
only 0.25% per year. Because Institutional Service Class Shares pay these
fees out of their assets on an ongoing basis, over time, your shares may
cost more than if you had paid another type of sales charge. Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by rules of the National Association of
Securities Dealers, Inc.
17
<PAGE>
Shareholder Servicing
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
ADDITIONAL CLASSES OF SHARES
- -------------------------------------------------------------------------------
The portfolio also offers an Institutional Class shares, which do not pay
marketing or shareholder servicing fees.
18
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the portfolio for the fiscal periods
indicated. Certain information contained in the table reflects the finan-
cial results for a single portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in
this class of the portfolio assuming all dividends and distributions were
reinvested. PricewaterhouseCoopers LLP has audited this information. The
financial statements and the unqualified opinion of PricewaterhouseCoopers
LLP are included in the annual report of the portfolio, which is available
upon request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30 1999++ 1998++ 1997++ 1996++#
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.34 $ 9.95 $ 9.84 $10.00
------- ------- ------ ------
Income From Investment Operations
Net Investment Income.............. 0.51 0.56 0.57 0.27
Net Realized and Unrealized Gain
(Loss) on Investments............. (0.05)+++ 0.40 0.05 (0.27)
------- ------- ------ ------
Total from Investment Operations... 0.46 0.96 0.62 --
------- ------- ------ ------
Distributions
Net Investment Income.............. (0.61) (0.53) (0.51) (0.16)
Net Realized Gain.................. (0.53) (0.04) -- --
------- ------- ------ ------
Total Distributions................ (1.14) (0.57) (0.51) (0.16)
------- ------- ------ ------
Net Asset Value, End of Period...... $ 9.66 $ 10.34 $ 9.95 $ 9.84
======= ======= ====== ======
Total Return+....................... 4.45% 9.85% 6.47% (0.07)%**
======= ======= ====== ======
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands)........................ $11,095 $15,732 $4,045 $2,871
Ratio of Expenses to Average Net
Assets............................. 1.44% 0.95% 0.82% 0.83%*
Ratio of Net Investment Income to
Average Net Assets................. 4.79% 5.42% 5.76% 5.44%*
Portfolio Turnover Rate............. 196% 210% 151% 55%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets................. 0.16% 0.45% 1.43% 3.99%*
Ratio of Expenses to Average Net
Assets Including Expense Offsets... 1.44% 0.94% 0.80% 0.80%*
</TABLE>
* Annualized.
** Not Annualized.
# For the period November 1, 1995 (commencement of operations) to April
30, 1996.
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the period.
++ Per share amounts are based on average outstanding shares.
+++ The amount shown for a share outstanding throughout the period does
not accord with the aggregate net gains on investments for that period
because of the timing of sales and repurchases of the Portfolio shares
in relation to fluctuating market value of the investments of the
Portfolio.
19
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
BHYYX 902556208 630
</TABLE>
<PAGE>
BHM&S Total Return Bond Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The portfolio's Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM FUNDS
Funds for the Informed Investor(SM)
Cambiar Opportunity Portfolio
Institutional Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What are the Objectives of the Portfolio?.................................. 1
What are the Principal Investment Strategies of the Portfolio?............. 1
What are the Principal Risks of the Portfolio?............................. 1
What are the Fees and Expenses of the Portfolio?........................... 3
Investing with the UAM Funds ................................................. 4
Buying Shares.............................................................. 4
Redeeming Shares........................................................... 5
Exchanging Shares.......................................................... 5
Transaction Policies....................................................... 6
Account Policies ............................................................. 9
Small Accounts............................................................. 9
Distributions.............................................................. 9
Federal Taxes.............................................................. 9
Portfolio Details ........................................................... 11
Principal Investments and Risks of the Portfolio........................... 11
Other Investment Practices and Strategies.................................. 12
Year 2000.................................................................. 14
Investment Management...................................................... 14
Shareholder Servicing Arrangements......................................... 17
Financial Highlights ........................................................ 18
</TABLE>
<PAGE>
Portfolio Summary
WHAT ARE THE OBJECTIVES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks capital growth and preservation by investing primarily
in common stocks. The portfolio seeks to provide above-average performance
in both rising and falling market periods by investing in stocks that have
limited downside and with positive upside potential. The portfolio cannot
guarantee it will meet its investment objectives. The portfolio may not
change its investment objectives without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
Normally, the portfolio invests at least 65% of its total assets in common
stocks of companies that are relatively large in terms of revenues and as-
sets with market capitalizations over $1 billion at the time of purchase.
The adviser looks for financially strong companies:
. Undergoing positive developments that the market has not yet
recognized.
. Selling at historically low prices.
. Having seasoned management.
. Enjoying product or market advantages.
The adviser uses a team approach that focuses first on individual stocks
and then on industries or sectors.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
Cambiar Opportunity Portfolio
The portfolio's main risks are those associated with investing in equity
securities. Equity securities may experience sudden, unpredictable drops
in value or long periods of decline in value. This may occur because of
factors affecting the securities markets generally, an entire industry or
sector or a particular company.
2
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
-----------------------
<S> <C>
Management Fees 1.00%
-----------------------
Other Expenses 7.45%
-----------------------
Total Expenses* 8.45%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolio actually paid the total operating expenses listed in the table
below. The adviser may change or cancel its expense limitation at any
time.
<TABLE>
-----------------------
<S> <C>
Actual Expenses 1.30%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$830 $2,406 $3,875 $7,127
</TABLE>
3
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic Investment Plan (Via ACH)
You may not open an ac- To set up a plan, mail a
count via ACH. completed application to
the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
MinimumInvestments $2,500--regular account $100
$500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
4
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may
transfer as little as $100 per month from your UAM account
to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
5
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAV by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available
6
<PAGE>
market prices are valued at fair value, according to guidelines estab-
lished by the UAM Funds. The UAM Funds may also value securities at fair
value when events occur that make established valuation methods (such as
stock exchange closing prices) unreliable.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
7
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC allows the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, it distributes its net capital gains once a year. The UAM
Funds will automatically reinvest dividends and distributions in addi-
tional shares of the portfolio, unless you elect on your account applica-
tion to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
9
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
10
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objectives. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
Normally, the portfolio invests at least 65% of its total assets in common
stocks of companies that are relatively large in terms of revenues, assets
with market capitalizations over $1 billion at the time of initial pur-
chase. The portfolio may also invest in other types of equity securities.
Investment Process
The adviser's investment professionals work as a team to develop invest-
ment ideas by analyzing company and industry statements, monitoring Wall
Street and other research sources and interviewing company management. It
also evaluates economic conditions and fiscal and monetary policies.
The adviser's approach focuses first on individual stocks and then on in-
dustries or sectors. The adviser does not attempt to time the market. The
adviser tries to select quality companies:
. Possessing above-average financial characteristics.
. Having seasoned management.
. Enjoying product or market advantages.
. Whose stock is selling at a relatively low price based on historical
price-to-earnings, price-to-book, price-to-sales and price-to-cash
flow ratios.
. Experiencing positive developments not yet recognized by the markets,
such as positive changes in management, improved margins, corporate
restructuring or new products.
. Possessing the potential to appreciate by 50% within 12 to 18 months.
11
<PAGE>
The portfolio may sell a stock because:
. It realizes positive developments and achieves its target price.
. Its price moves too far too fast.
. It becomes overweighted.
. The positive developments the adviser expected fail to unfold.
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
investment strategies described below. It may also employ investment prac-
tices that this prospectus does not describe, such as repurchase agree-
ments, when-issued and forward commitment transactions, lending of securi-
ties, borrowing and other techniques. For information concerning these in-
vestment practices and their risks, you should read the SAI.
American Depositary Receipts (ADRs)
The portfolio may invest up to 25% of its assets in ADRs. ADRs are certif-
icates evidencing ownership of shares of a foreign issuer that are issued
by depository banks and generally trade on an established market in the
United States or elsewhere. Although they are alternatives to directly
purchasing the underlying foreign securities in their national markets and
currencies, ADRs continue to be subject to many of the risks associated
with investing directly in foreign securities.
12
<PAGE>
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for the portfolio to sell its securities and could reduce
the value of your shares. Changes in tax and accounting standards and dif-
ficulties obtaining information about foreign companies can negatively af-
fect investment decisions.
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro have the
same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of a portfo-
lio.
Derivatives
The portfolio may use futures and options (types of derivatives), to re-
main fully invested or to reduce transaction costs. Derivatives are often
more volatile than other investments and may magnify the portfolio's gains
or losses. The portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets or to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
13
<PAGE>
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Cambiar Investors, Inc., a Colorado corporation located at 8400 East Pren-
tice Avenue, Suite 460, Englewood, Colorado 80111, is the investment ad-
viser to the portfolio. The adviser manages and supervises the investment
of the portfolio's assets on a discretionary basis. The adviser, an affil-
iate of United Asset Management Corporation, has provided investment man-
agement services to corporations, foundations, endowments, pension and
profit sharing plans, trusts, estates and other institutions as well as
individuals since 1973.
The adviser has voluntarily agreed to limit the expenses of the portfolio
to 1.30% of its average net assets. To maintain this expense limit, the
adviser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the fiscal period ended April 30,
1999, the adviser waived its entire management fee.
14
<PAGE>
Portfolio Managers
A team of investment professionals is primarily responsible for the day-
to-day management of the portfolio.
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts reflects deductions for all fees and expenses on an individ-
ual account basis. All fees and expenses of the separate accounts were
less than the operating expenses of the portfolio. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolio, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
15
<PAGE>
<TABLE>
<CAPTION>
Cambiar Investors, Inc.
Composite Returns* S&P 500 Index
---------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1975 34.80% 37.20%
---------------------------------------------------------------------------
1976 32.40% 23.80%
---------------------------------------------------------------------------
1977 14.40% (7.20)%
---------------------------------------------------------------------------
1978 22.50% 6.60%
---------------------------------------------------------------------------
1979 24.00% 18.40%
---------------------------------------------------------------------------
1980 25.50% 32.40%
---------------------------------------------------------------------------
1981 9.80% (4.90)%
---------------------------------------------------------------------------
1982 33.30% 21.60%
---------------------------------------------------------------------------
1983 22.60% 22.40%
---------------------------------------------------------------------------
1984 2.90% 6.10%
---------------------------------------------------------------------------
1985 29.30% 31.57%
---------------------------------------------------------------------------
1986 23.67% 18.21%
---------------------------------------------------------------------------
1987 6.10% 5.17%
---------------------------------------------------------------------------
1988 17.11% 16.50%
---------------------------------------------------------------------------
1989 23.23% 31.43%
---------------------------------------------------------------------------
1990 2.83% (3.19)%
---------------------------------------------------------------------------
1991 31.51% 30.55%
---------------------------------------------------------------------------
1992 9.56% 7.68%
---------------------------------------------------------------------------
1993 13.66% 10.00%
---------------------------------------------------------------------------
1994 1.00% 1.33%
---------------------------------------------------------------------------
1995 33.54% 37.50%
---------------------------------------------------------------------------
1996 23.92% 23.25%
---------------------------------------------------------------------------
1997 33.69% 33.36%
---------------------------------------------------------------------------
1998 13.57% 28.57%
---------------------------------------------------------------------------
Average Annual Returns For The Periods Ended 6/30/99
1-year 15.94% 22.77%
---------------------------------------------------------------------------
5-years 24.01% 27.91%
---------------------------------------------------------------------------
10-years 18.10% 18.77%
---------------------------------------------------------------------------
Cumulative Since Inception (1/1/75) 8425.97% 4809.06%
</TABLE>
* During the period shown (1/1/75-6/30/99), fees on the adviser's individ-
ual accounts ranged from 0.25% to 2.0%. The advisers composite has not
been audited, for this period.
16
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
17
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the fiscal period indicated.
Certain information contained in the table reflects the financial results
for a single portfolio share. The total returns in the table represent the
rate that an investor would have earned on an investment in the portfolio
assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the portfolio, which is available upon
request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Period Ended April 30, 1999*
------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.00
------
Income From Investment Operations
Net Investment Income............................................ 0.04
Net Realized and Unrealized Gain on Investments.................. 2.29
------
Total from Investment Operations................................. 2.33
------
Distributions
Net Investment Income............................................ (0.04)
------
Net Asset Value, End of Period.................................... $12.29
------
Total Return+..................................................... 23.44%***
======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)............................. $2,389
Ratio of Expenses to Average Net Assets........................... 1.31%**
Ratio of Net Investment Income to Average Net Assets.............. 0.42%**
Portfolio Turnover Rate........................................... 78%
Ratio of Voluntarily Waived Fees and Expenses Assumed by the
Adviser to Average Net Assets.................................... 7.14%**
Ratio of Expenses to Average Net Assets Including
Expense Offsets.................................................. 1.30%**
</TABLE>
* For the period June 30, 1998 (commencement of operations) to April 30,
1999
** Annualized
*** Not Annualized
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser
18
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
CUSIP Number Portfolio Number
----------------------------------------------------------------------------
<S> <C>
902555408 637
</TABLE>
<PAGE>
Cambiar Opportunity Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolios and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM Funds
Funds for the Informed Investor/sm/
Chicago Asset Management Portfolios
Institutional Class Prospectus August 9, 1999
Chicago Asset Management Intermediate Bond Portfolio
Chicago Asset Management Value/Contrarian
UAM(R)
The Securities and Exchange Commission (SEC) has not approved
or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What are the Objectives of the Portfolios? ................................ 1
What are the Principal Investment Strategies of the Portfolios? ........... 1
What are the Principal Risks of the Portfolios? ........................... 2
How have the Portfolios Performed? ........................................ 4
What are the Fees and Expenses of the Portfolios? ......................... 6
Investing with the UAM Funds ................................................. 7
Buying Shares ............................................................. 7
Redeeming Shares .......................................................... 8
Exchanging Shares ......................................................... 8
Transaction Policies ...................................................... 9
Account Policies ............................................................ 12
Small Accounts ............................................................ 12
Distributions ............................................................. 12
Federal Taxes ............................................................. 12
Portfolio Details ........................................................... 14
Principal Investments and Risks of the Portfolios ......................... 14
Other Investment Practices and Strategies ................................. 17
Year 2000 ................................................................. 19
Investment Management ..................................................... 19
Shareholder Servicing Arrangements ........................................ 23
Financial Highlights ........................................................ 25
</TABLE>
<PAGE>
Portfolio Summary
WHAT ARE THE OBJECTIVES OF THE PORTFOLIOS?
- -------------------------------------------------------------------------------
Listed below are the investment objectives of the portfolios. The portfo-
lios cannot guarantee they will meet their investment objectives. A port-
folio may not change its investment objective without shareholder
approval.
Intermediate Bond Portfolio
The portfolio seeks a high level of current income consistent with moder-
ate interest rate exposure by investing primarily in investment-grade
bonds with an average weighted maturity between 3 and 10 years.
Value/Contrarian Portfolio
The portfolio seeks capital appreciation by investing in the common stock
of large companies.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIOS."
Intermediate Bond Portfolio
The portfolio normally invests at least 65% of its total assets in invest-
ment-grade debt securities with maturities that range from 3 to 10 years.
The adviser manages the portfolio to limit the risk of investing in the
bond market and to offer some protection from changes in the prices (vola-
tility) of debt securities. The adviser does not depend on interest rate
forecasting. The adviser believes it can add to the return of the portfo-
lio by:
. Taking an approach that is the opposite of what most investors are
doing at a particular time (a "contrarian" approach).
. Focusing its efforts on the more traditional aspects of portfolio
management, such as sector valuations, coupons, call features and the
shape of the yield curve.
1
<PAGE>
Value/Contrarian Portfolio
The portfolio seeks to outperform the market by investing primarily in
common stocks of large, high-quality companies whose stocks are selling at
attractive prices due to short-term market misperceptions. The investment
approach of the adviser focuses on individual stocks rather than indus-
tries or sectors of the economy. The adviser attempts to pick stocks:
. That it believes the market has priced below their true value because
of a failure to recognize the potential of the stock or value of the
company.
. Of companies that are currently out-of-favor (typically, rated as
"hold" or "sell" by most analysts), but present strong long-term
opportunities.
The adviser does not attempt to time the market.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIOS."
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in a portfolio may
be worth more or less than the price that you originally paid for it. You
may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and
unpredictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
2
<PAGE>
Intermediate Bond Portfolio
The portfolio's main risks are those associated with investing in debt se-
curities using a value oriented approach. Debt securities may lose value
because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities
to fall.
. A security's credit rating worsens or its issuer becomes unable to
honor its financial obligations.
Value/Contrarian Portfolio
The portfolio's main risks are those associated with investing in equity
securities using a value oriented approach. Equity securities may experi-
ence sudden, unpredictable drops in value or long periods of decline in
value. This may occur because of factors affecting the securities markets
generally, an entire industry or sector or a particular company.
Intermediate Bond Portfolio and Value/Contrarian Portfolio
Since the adviser selects securities for each portfolio using a value ori-
ented approach, each portfolio takes on the risks that are associated with
a value oriented investment approach. Value oriented mutual funds may not
perform as well as certain other types of mutual funds using different ap-
proaches during periods when value investing is out of favor.
3
<PAGE>
HOW HAVE THE PORTFOLIOS PERFORMED?
- -------------------------------------------------------------------------------
The bar charts and tables below illustrate how the performance of each
portfolio has varied from year to year and provide some indication of the
risks of investing in the portfolios. The bar chart shows the investment
returns of each portfolio for each full calendar year. The table following
the bar chart compares the average annual returns of each portfolio to
those of a broad-based securities market index. Past performance does not
guarantee future results.
Intermediate Bond Portfolio
Calendar Year Returns
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Return Quarter Ended
--------------------------------------
<S> <C> <C>
Highest Quarter 5.38% 6/30/95
--------------------------------------
Lowest Quarter -0.94% 3/31/96
--------------------------------------
Year-To-Date -0.67% 6/30/99
</TABLE>
Average Annual Returns For Periods Ended 12/31/98
<TABLE>
<CAPTION>
1 Year Since Inception*
---------------------------------------------------------------------------
<S> <C> <C>
Intermediate Bond Portfolio 7.34% 7.93%
---------------------------------------------------------------------------
Lehman Brothers Intermediate Government/Corporate
Bond Index 8.44% 8.85%
</TABLE>
*The portfolio began operations 1/24/95. Index comparisons begin on
1/31/95.
4
<PAGE>
Value/Contrarian Portfolio
Calendar Year Returns
[BAR GRAPH APPEARS HERE]
27.88% 13.81% 18.90% 15.86%
- -------------------------------------------------
1995 1996 1997 1998
<TABLE>
<CAPTION>
Return Quarter Ended
--------------------------------------
<S> <C> <C>
Highest Quarter 16.81% 12/31/98
--------------------------------------
Lowest Quarter -8.80% 9/30/98
--------------------------------------
Year-To-Date 18.71% 6/30/99
</TABLE>
Average Annual Returns (for periods ended 12/31/98)
<TABLE>
<CAPTION>
1 Year Since Inception*
----------------------------------------------------
<S> <C> <C>
Value/Contrarian Portfolio 15.86% 19.22%
----------------------------------------------------
S&P 500 Index 28.60% 30.49%
</TABLE>
*The portfolio began operations 12/16/94. Index comparisons begin on
12/31/94.
5
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIOS?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of a Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolios.
<TABLE>
<CAPTION>
Intermediate Bond Value/Contrarian
Portfolio Portfolio
----------------------------------------------------
<S> <C> <C>
Management Fees 0.48% 0.63%
----------------------------------------------------
Other Expenses 1.17% 1.01%
----------------------------------------------------
Total Expenses* 1.65% 1.64%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolios actually paid the total operating expenses listed in the ta-
ble below. The adviser may change or cancel its expense limitation at
any time.
<TABLE>
<CAPTION>
Intermediate Bond Value/Contrarian
Portfolio Portfolio
----------------------------------------------------
<S> <C> <C>
Actual Expenses 0.80% 1.25%
</TABLE>
Example
This example can help you to compare the cost of investing in these port-
folios to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in a portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate Bond Portfolio $168 $520 $897 $1,955
-------------------------------------------------------------
Value/Contrarian Portfolio $167 $517 $892 $1,499
</TABLE>
6
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number and wire your money to the UAM
then send your com- Funds as follows:
pleted account applica-
tion to the UAM Funds.
Wire your money to the
UAM Funds as follows:
Wiring Instructions
-------------------
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic Investment Plan (Via ACH)
You may not open an ac- To set up a plan, mail a
count via ACH. completed application to
the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum Investments$2,000--regular account $100
$500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
7
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to
redeem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may
transfer as little as $100 per month from your UAM Funds
account to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
8
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolios calculate their NAVs as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and na-
tional holidays.
Securities that are traded on foreign exchanges may trade on days when a
portfolio does not price its shares. Consequently, the value of the port-
folios may change on days when you are unable to purchase or redeem shares
of the portfolios.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV on any given day, your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available
9
<PAGE>
market prices are valued at fair value, according to guidelines estab-
lished by the UAM Funds. The UAM Funds may also value securities at fair
value when events occur that make established valuation methods (such as
stock exchange closing prices) unreliable. The UAM Funds may use a pricing
service to value some of their assets, such as debt securities.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
10
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting
management and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC allows the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
11
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum
because of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolios distribute their net investment income quarterly.
In addition, the portfolios distribute any net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolios, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in these portfolios. You may also have to pay state and local
taxes on your investment. You should always consult your tax advisor for
specific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolios will generally be taxable to share-
holders as ordinary income or capital gains (which may be taxable at dif-
ferent rates depending on the length of time the portfolio held the rele-
vant assets). You will be subject to income tax on these distributions re-
gardless of whether they are paid in cash or reinvested in additional
shares. Once a year the UAM Funds will send you a statement showing the
types and total amount of distributions you received during the previous
year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
12
<PAGE>
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolios expect to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolios invest in foreign securities, they may be
subject to foreign withholding taxes with respect to dividends or interest
the portfolios received from sources in foreign countries. The portfolios
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
13
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolios may employ in seeking their objectives. For more information
concerning these investment practices and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on each
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with their objectives and other policies
described in the SAI, each portfolio may change these strategies without
shareholder approval.
Intermediate Bond Portfolio
The portfolio normally invests at least 65% of its total assets in
investment-grade debt securities with maturities that range from 3 to 10
years. The portfolio also may invest up to 10% of its assets in debt secu-
rities rated below investment-grade (junk bonds).
Investment Process
The adviser manages the portfolio to limit the risk of investing in the
bond market and to offer some protection from changes in the prices (vola-
tility) of debt securities. Since many different factors affect bond pric-
es, bond fund managers have historically found it difficult to outperform
a bond market index. The adviser believes this is particularly true of
bond fund managers that try to anticipate interest rates. To avoid wide
variations in performance that tend to accompany interest rate predic-
tions, the adviser does not depend on interest rate forecasting.
At market tops and bottoms, market psychology tends to drive bond prices
to extremes, overshooting their long-term equilibrium levels. Consequent-
ly, "conventional wisdom" about a given security or sector's price move-
ment or relative value is often wrong. The adviser believes it can add to
the return of the portfolio by taking an approach that is the opposite of
what most investors are doing at a particular time (a "contrarian" ap-
proach).
The adviser also focuses its efforts on the more traditional aspects of
managing a bond portfolio, such as:
. Relative value of particular securities within the major industry
categories (sector valuations).
. Interest paid by particular securities (coupons).
14
<PAGE>
. Call features.
. Weighting the maturities of the securities held (shape of the yield
curve).
Debt Securities
A debt security is an interest bearing security that corporations and gov-
ernments use to borrow money from investors. The issuer of a debt security
promises to pay interest at a stated rate, which may be variable or fixed,
and to repay the amount borrowed at maturity (dates when debt securities
are due and payable). The portfolio may invest in debt securities issued
by corporations and the U.S. government and its agencies, mortgage-backed
and asset-backed securities (securities that are backed by pools of loans
or mortgages assembled for sale to investors), municipal notes and bonds,
commercial paper and certificates of deposit.
The concept of duration is useful in assessing the sensitivity of a fixed-
income fund to interest rate movements, which are the main source of risk
for most fixed-income funds. Duration measures price volatility by esti-
mating the change in price of a debt security for a 1% change in its
yield. For example, a duration of five years means the price of a debt se-
curity will change about 5% for every 1% change in its yield. Thus, the
higher the duration, the more volatile the security.
The price of a debt security generally moves in the opposite direction
from interest rates (i.e., if interest rates go up the price of the bond
will go down, and vice versa). Some types of debt securities are more af-
fected by changes in interest rates than others. For example, changes in
rates may cause people to pay off or refinance the loans underlying mort-
gage-backed and asset-backed securities earlier or later than expected,
which would shorten or lengthen the maturity of the security. This behav-
ior can negatively affect the performance of a portfolio by shortening or
lengthening its average maturity and, thus, changing its effective dura-
tion. The unexpected timing of mortgage backed and asset-backed prepay-
ments caused by changes in interest rates may also cause the portfolio to
reinvest its assets at lower rates, reducing the yield of the portfolio.
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 risk that the issuer will fail to pay interest fully and
return principal in a timely manner. If an issuer defaults or becomes un-
able to honor its financial obligations, the security 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
15
<PAGE>
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the ca-
pacity 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.
Value/Contrarian Portfolio
The portfolio invests primarily in common stocks of companies with large
market capitalizations (typically over $1 billion at the time of pur-
chase). The portfolio also may invest in other types of equity securities.
Investment Process
The portfolio seeks to outperform the market by identifying attractive
stocks, but not by attempting to time the market (i.e., trying to taking
advantage of shifts in the overall direction of the market). The portfolio
invests primarily in established, high-quality companies whose stock is
selling at attractive prices due to short-term market misperceptions.
The portfolio generally attempts to weight each of the equity securities
it holds similarly. The adviser regularly monitors the market value of
each security the portfolio holds and will buy or sell shares of a partic-
ular security depending on whether the portion of the portfolio repre-
sented by that security decreases or increases.
The investment philosophy and process of the adviser is qualitative rather
than quantitative. The adviser:
. Focuses on individual stocks rather than industry groups or sectors or
on trying to forecast the overall strength of the stock market. The
adviser looks for companies that are market leaders with sound balance
sheets and capable, experienced management.
. Tries to invest in stocks that the market has priced below their true
value because of a failure to recognize the potential of the stock or
value of the company. At the time of initial investment, these stocks
typically trade below the mid-point of the price range for the last 12
months.
. Looks for out-of-favor companies (typically, rated as "hold" or "sell"
by most analysts) that present strong long-term opportunities. The
adviser believes the market overreacts to temporary bad news. By
closely monitoring research analysts, market commentators and others
and then evaluating the impact of their opinions on stock prices, the
adviser attempts to determine whether the market has properly valued a
particular stock.
16
<PAGE>
The adviser generally sells a stock:
. When it reaches the price objective the adviser has set for the stock.
. If the fundamental business operation or financial stability of the
company turns negative.
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
Undervalued companies may have experienced adverse business developments
or other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not rec-
ognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to their principal investment strategies, the portfolios may
use the investment strategies described below. They may also employ in-
vestment practices that this prospectus does not describe, such as repur-
chase agreements, when-issued and forward commitment transactions, lending
of securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Derivatives
The portfolios may use various derivatives, including futures, forward
foreign currency exchange contracts, options and swaps to hedge their in-
vestments. Derivatives are often more volatile than other investments
17
<PAGE>
and may magnify a portfolio's gains or losses. A portfolio may lose money
if the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Foreign Securities
The Intermediate Bond Portfolio may invest foreign securities and the
Value/Contrarian Portfolio may invest up to 25% of its assets in American
Depositary Receipts (ADRs). ADRs are certificates evidencing ownership of
shares of a foreign issuer that are issued by depository banks and gener-
ally trade on an established market in the United States or elsewhere. Al-
though they are alternatives to directly purchasing the underlying foreign
securities in their national markets and currencies, ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for a portfolio to sell its securities and could reduce the
value of your shares. Changes in tax and accounting standards and diffi-
culties obtaining information about foreign companies can negatively af-
fect investment decisions.
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro have the
same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of a portfo-
lio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the assets of a
portfolio in a variety of high-quality, short-term debt securities, such
as U.S. government securities. The adviser may invest in these types of
securities for temporary defensive purposes, to earn a return on
uninvested assets or to meet redemptions. The adviser may temporarily
adopt a defensive position to reduce changes in the value of the shares of
a portfolio
18
<PAGE>
that may result from adverse market, economic, political or other
developments.
When the adviser pursues a temporary defensive strategy, a portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent a portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Chicago Asset Management Company, a Delaware corporation located at 70
West Madison Street, 56th Floor, Chicago, Illinois 60602, is the invest-
ment adviser to the portfolios. The adviser manages and supervises the in-
vestment of the portfolios' assets on a discretionary basis. The adviser,
an affiliate of United Asset Management Corporation, has specialized in
the active management of stocks, bonds and balanced portfolios for insti-
tutional and tax-exempt clients since 1983. The adviser provides invest-
ment management services to corporations, unions, pension and profit shar-
ing plans, trusts and other institutions.
Listed in the table below are the management fees the portfolios paid to
the adviser during their most recent fiscal year, expressed as a percent-
age
19
<PAGE>
of average net assets. In addition, the adviser has voluntarily agreed to
limit the total expenses of the portfolios to the amounts listed in the
table below, expressed as a percentage of average net assets. To maintain
these expense limits, the adviser may waive a portion of its management
fee and/or reimburse certain expenses (excluding interest, taxes and ex-
traordinary expenses) of the portfolios. The adviser intends to continue
its expense limitation until further notice.
<TABLE>
<CAPTION>
Intermediate Value/Contrarian
Bond Portfolio Portfolio
-------------------------------------------------
<S> <C> <C>
Management fees 0.00%* 0.00%*
-------------------------------------------------
Expense Limit 0.80% 1.25%
</TABLE>
* The adviser waived its entire management fee.
Portfolio Managers
Teams of investment professionals are primarily responsible for the day-
to-day management of the portfolios. Listed below are the investment pro-
fessionals that comprise those teams and a brief description of their
business experience.
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Intermediate Bond Portfolio
Jon F. Holsteen Mr. Holsteen founded the adviser in 1983 and is currently
President, Chief Executive Officer and Chief Investment
Officer. He earned a BA from Lake Forest College.
-----------------------------------------------------------------------------
William W. Zimmer Mr. Zimmer joined the adviser in 1988 and is currently an
Executive Vice President and Chief Fixed Income Portfolio
Manager. He earned a BA from Cornell College (Iowa) and
an MBA from Cornell University (New York).
-----------------------------------------------------------------------------
Gary R. Dhein, CFA Mr. Dhein joined the adviser in 1997 and is currently
Vice President and Senior Portfolio Manager. From 1978-
1997, he was with the Bank of America. He earned a BA
from Loyola University and an MBA from the University of
Chicago.
-----------------------------------------------------------------------------
Frank F. Holsteen Mr. Holsteen joined the Adviser in 1993 and is currently
a Vice Presient. He earned a BA from Lake Forest College.
-----------------------------------------------------------------------------
Value/Contrarian Portfolio
Jon F. Holsteen You can find Mr. Holsteen's biographical information un-
der Intermediate Bond Portfolio above.
-----------------------------------------------------------------------------
Kevin J. McGrath Mr. McGrath joined the adviser in 1991 and is currently a
Senior Vice President and Senior Portfolio Manager. From
1985-1991, he was Vice President of Smith Barney, Harris
Upham, Inc. Mr. McGrath earned a B.A from Regis College
and an M.B.A from St. Thomas College.
-----------------------------------------------------------------------------
Donald G. Adams Mr. Adams joined the adviser in 1996 and is currently a
Vice President. From 1986-1996, he was Vice President of
Zurich Insurance. He earned an A.D. from the College of
DuPage.
</TABLE>
20
<PAGE>
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolios. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolios. Composites of the performance of
these separate accounts are listed below. The performance data for the
managed accounts reflects deductions for the average fees and expenses of
such accounts. The average fees and expenses of the separate accounts were
less than the operating expenses of the portfolios. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolios, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folios.
21
<PAGE>
<TABLE>
<CAPTION>
Chicago Asset Lehman Brothers
Management Company Intermediate
Intermediate Bond Government/Corporate
Composite* Bond Index
-------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1985 22.00% 18.10%
-------------------------------------------------------------------
1986 15.20% 13.10%
-------------------------------------------------------------------
1987 0.70% 3.70%
-------------------------------------------------------------------
1988 7.00% 6.70%
-------------------------------------------------------------------
1989 13.0% 12.80%
-------------------------------------------------------------------
1990 8.80% 9.20%
-------------------------------------------------------------------
1991 17.10% 14.70%
-------------------------------------------------------------------
1992 8.60% 7.20%
-------------------------------------------------------------------
1993 10.20% 8.80%
-------------------------------------------------------------------
1994 (2.40)% (1.90)%
-------------------------------------------------------------------
1995 15.80% 15.30%
-------------------------------------------------------------------
1996 3.90% 4.10%
-------------------------------------------------------------------
1997 7.70% 7.90%
-------------------------------------------------------------------
1998 8.10% 8.40%
-------------------------------------------------------------------
Average Annual Returns For Periods Ended 6/30/99
1 Year 3.80% 4.20%
-------------------------------------------------------------------
5 Years 7.20% 7.00%
-------------------------------------------------------------------
10 Years 8.10% 7.70%
-------------------------------------------------------------------
Since Inception (1/1/85) 9.20% 8.60%
</TABLE>
* The adviser's returns are net of an average annual fee of 0.30%. During
the period, fees on the adviser's individual accounts ranged from 0.26%
to 0.625%. The adviser's composite has not been audited.
22
<PAGE>
<TABLE>
<CAPTION>
Chicago Asset
Management Company
Equity Composite* S&P 500 Index
------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1985 36.10% 32.00%
------------------------------------------------------------
1986 21.90% 18.40%
------------------------------------------------------------
1987 4.70% 5.20%
------------------------------------------------------------
1988 26.40% 16.80%
------------------------------------------------------------
1989 21.50% 31.60%
------------------------------------------------------------
1990 (8.10%) (3.20%)
------------------------------------------------------------
1991 29.30% 30.60%
------------------------------------------------------------
1992 14.40% 7.60%
------------------------------------------------------------
1993 13.40% 10.10%
------------------------------------------------------------
1994 7.60% 1.30%
------------------------------------------------------------
1995 30.30% 37.60%
------------------------------------------------------------
1996 15.00% 23.00%
------------------------------------------------------------
1997 19.40% 33.40%
------------------------------------------------------------
1998 16.80% 28.60%
------------------------------------------------------------
Average Annual Returns For Periods Ended 6/30/99
1 Year 27.70% 22.76%
------------------------------------------------------------
5 Years 22.10% 27.88%
------------------------------------------------------------
10 Years 15.90% 18.77%
------------------------------------------------------------
Since Inception (1/1/85) 18.50% 18.72%
</TABLE>
* The adviser's returns are net of an average annual fee of 0.40%. During
the period, fees on the adviser's individual accounts ranged from 0.25%
to 1.00%. The adviser's composite has not been audited.
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
23
<PAGE>
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
24
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
financial performance of the portfolios for the fiscal periods indicated.
Certain information contained in the table reflects the financial results
for a single portfolio share. The total returns in the table represent
the rate that an investor would have earned on an investment in the
portfolios assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the portfolios, which is available upon
request by calling the UAM Funds at 1-877-826-5465.
INTERMEDIATE BOND PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999 1998 1997 1996 1995***
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 10.54 $ 10.30 $ 10.39 $10.33 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net Investment Income........ 0.56 0.57 0.61 0.64 0.17
Net Realized and Unrealized
Gain (Loss) on Investments.. 0.04 0.24 (0.05) 0.14++ 0.26
------- ------- ------- ------ ------
Total from Investment
Operations.................. 0.60 0.81 0.56 0.78 0.43
------- ------- ------- ------ ------
Distributions
Net Investment Income........ (0.57) (0.57) (0.62) (0.64) (0.10)
Net Realized Gain............ (0.06) -- @ (0.03) (0.08) --
------- ------- ------- ------ ------
Total Distributions.......... (0.63) (0.57) (0.65) (0.72) (0.10)
------- ------- ------- ------ ------
Net Asset Value, End of
Period....................... $ 10.51 $ 10.54 $ 10.30 $10.39 $10.33
======= ======= ======= ====== ======
Total Return+................. 5.72% 8.08% 5.53% 7.62% 4.31%**
======= ======= ======= ====== ======
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands).................. $13,542 $13,261 $10,044 $7,981 $5,267
Ratio of Expenses to Average
Net Assets................... 0.80% 0.80% 0.80% 0.84% 0.80%*
Ratio of Net Investment Income
to Average Net Assets........ 5.29% 5.64% 5.88% 6.17% 6.20%*
Portfolio Turnover Rate....... 48% 40% 31% 24% 0%
Ratio of Voluntarily Waived
Fees and Expenses Assumed by
the Adviser to Average Net
Assets....................... 0.85% 0.93% 1.39% 1.20% 2.78%*
Ratio of Expenses to Average
Net Assets Including
Expense Offsets.............. 0.80% 0.80% 0.80% 0.80% 0.80%*
</TABLE>
* Annualized
** Not Annualized
*** For the period from January 24, 1995 (commencement of operations) to
April 30, 1995.
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser for the periods indicated.
++ The amount shown for a share outstanding throughout the year does not
accord with the aggregate net losses on investments for that year be-
cause of the timing of sales and repurchases of the Portfolio shares
in relation to fluctuating market value of the investments of the
Portfolio.
@ Amount is less than $0.01 per share.
25
<PAGE>
VALUE/CONTRARIAN PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999 1998 1997 1996 1995***
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 15.96 $ 13.07 $ 13.67 $11.14 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net Investment Income........ 0.15 0.17 0.18 0.19 0.05
Net Realized and Unrealized
Gain on Investments......... 2.98 3.84 0.30 2.86 1.13
------- ------- ------- ------ ------
Total from Investment
Operations.................. 3.13 4.01 0.48 3.05 1.18
------- ------- ------- ------ ------
Distributions
Net Investment Income........ (0.16) (0.18) (0.24) (0.23) (0.04)
Net Realized Gain............ (1.40) (0.94) (0.84) (0.29) --
------- ------- ------- ------ ------
Total Distributions.......... (1.56) (1.12) (1.08) (0.52) (0.04)
------- ------- ------- ------ ------
Net Asset Value, End of
Period....................... $ 17.53 $ 15.96 $ 13.07 $13.67 $11.14
======= ======= ======= ====== ======
Total Return+................. 21.68% 31.71% 3.72% 28.00% 11.81%**
======= ======= ======= ====== ======
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands).................. $26,852 $22,552 $13,804 $ 892 $ 696
Ratio of Expenses to Average
Net Assets................... 0.99% 0.95% 0.95% 1.06% 0.95%*
Ratio of Net Investment Income
to Average Net Assets........ 0.97% 1.16% 1.89% 1.51% 1.54%*
Portfolio Turnover Rate....... 39% 55% 21% 33% 4%
Ratio of Voluntarily Waived
Fees and Expenses Assumed by
the Adviser to Average Net
Assets....................... 0.65% 0.64% 6.32% 12.20% 17.05%*
Ratio of Expenses to Average
Net Assets Including
Expense Offsets.............. 0.99% 0.95% 0.95% 0.95% 0.95%*
</TABLE>
* Annualized
** Not Annualized
*** For the period from December 16, 1994 (commencement of operations) to
April 30, 1995.
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the periods indicated.
26
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading CUSIP Portfolio
Symbol Number Number
---------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Portfolio CAMBX 902556406 635
---------------------------------------------------------
Value/Contrarian Portfolio CAMEX 902556307 636
</TABLE>
<PAGE>
Chicago Asset Management Portfolios
For investors who want more information about the portfolios, the follow-
ing documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolios provide additional
information about their investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolios during their last fis-
cal year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolios and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolios and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The portfolio's Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
[LOGO OF GCIU APPEARS HERE]
<PAGE>
UAM Funds
Funds for the Informed Investor(SM)
Clipper focus Portfolio
Institutional Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 2
What are the Fees and Expenses of the Portfolio? .......................... 3
Investing with the UAM Funds ................................................. 4
Buying Shares ............................................................. 4
Redeeming Shares .......................................................... 5
Exchanging Shares ......................................................... 5
Transaction Policies ...................................................... 6
Account Policies ............................................................. 9
Small Accounts ............................................................ 9
Distributions ............................................................. 9
Federal Taxes ............................................................. 9
Portfolio Details ........................................................... 11
Principal Investments and Risks of the Portfolio .......................... 11
Other Investment Practices and Strategies ................................. 12
Year 2000 ................................................................. 13
Investment Management ..................................................... 14
Shareholder Servicing Arrangements ........................................ 16
Financial Highlights ........................................................ 18
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks long-term capital growth. The portfolio cannot guaran-
tee it will meet its investment objective. The portfolio may change its
investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The adviser invests like a long-term business partner would invest--it
values a company's assets, projects long-term free cash flows and seeks
shareholder-oriented management. The adviser's investment process is very
research intensive and includes:
. Meeting with company management, competitors and customers.
. Preparing detailed valuation models to identify companies whose stock
is undervalued compared to the company's intrinsic value.
The adviser believes this approach will lead to investments in dominant
companies that:
. Have leading market positions.
. Are in industries that are often "out-of-favor" in the investment com-
munity.
The adviser may sometimes invest in special situations that have charac-
teristics other than the ones mentioned above.
The portfolio is a nondiversified mutual fund that generally holds between
15 to 35 stocks. The adviser believes that concentrating the investments
of the portfolio in the adviser's best investment ideas will produce supe-
rior long-term performance.
1
<PAGE>
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
Clipper Focus Portfolio
The portfolio's main risks are those associated with being a non-
diversified mutual fund that invests principally in equity securities us-
ing a value oriented approach. Equity securities may experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors affecting the securities markets generally, an
entire industry or sector or a particular company.
Value oriented mutual funds may not perform as well as certain other types
of equity mutual funds during periods when value stocks are out of favor.
Diversifying a mutual fund's investment can reduce the risks of investing
by limiting the amount of money it invests in any one issuer or, on a
broader scale, in any one industry. Since the portfolio is not diversi-
fied, it may invest a greater percentage of its assets in a particular is-
suer than a diversified fund. Therefore, being non-diversified may cause
the value of its shares to be more sensitive to changes in the market
value of a single issuer or industry relative to diversified mutual funds.
The portfolio expects to remain fully invested in equity securities at all
times. In bear markets a fully invested mutual fund will generally decline
further than a portfolio with cash and or bond reserves.
2
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
-----------------------
<S> <C>
Management Fees 1.00%
-----------------------
Other Expenses 1.08%
-----------------------
Total Expenses* 2.08%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolio actually paid the total operating expenses listed in the table
below. The adviser may change or cancel its expense limitation at any
time.
<TABLE>
-----------------------
<S> <C>
Actual Expenses 1.40%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1
Year 3 Years 5 Years 10 Years
--------------------------------
<S> <C> <C> <C>
$211 $652 $1,119 $2,410
</TABLE>
3
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account
To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic You may not open an ac- To set up a plan, mail a
Investment Plan count via ACH. completed application to
(Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
4
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic If your account balance is at least $10,000, you may
Withdrawal Plan transfer as little as $100 per month from your UAM account
(Via ACH) to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
5
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAV by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established
6
<PAGE>
by the UAM Funds. The UAM Funds may also value securities at fair value
when events occur that make established valuation methods (such as stock
exchange closing prices) unreliable.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
7
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC allows the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, it distributes its net capital gains once a year. The UAM
Funds will automatically reinvest dividends and distributions in addi-
tional shares of the portfolio, unless you elect on your account applica-
tion to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
9
<PAGE>
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
10
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. The portfolio may change these strategies without shareholder ap-
proval.
Investment Process
The adviser invests like a long-term business partner would invest--it
values a company's assets, projects long-term free cash flows and seeks
shareholder-oriented management. The adviser's investment process is very
research intensive and includes meeting with company management, competi-
tors and customers. Some of the major factors the adviser considers when
appraising an investment include balance sheet strength and the ability to
generate earnings and free cash flow. The adviser's analysis gives little
weight to current dividend income.
The adviser prepares valuation models for each company being researched to
identify companies that it believes the market has undervalued. The valua-
tion models attempt to calculate each company's intrinsic value based on
private market transactions and discounted cash flow. The adviser adds
companies to the portfolio when their share price trades below the advis-
er's estimate of intrinsic value and sells companies when their share
prices reach the adviser's estimate of intrinsic value.
The adviser believes that its approach will lead to investments in domi-
nant companies that:
. Have leading market positions.
. Are in industries that are often "out-of-favor" in the investment com-
munity.
The adviser believes that it can produce superior long-term performance by
concentrating on its best investment ideas. Therefore, the portfolio will
be more concentrated than the average equity mutual fund. The portfolio,
which is a "non-diversified" mutual fund, generally contains between 15 to
35 stocks. The portfolio will generally hold its investment in a particu-
lar company for an extended period.
11
<PAGE>
The adviser expects to invest fully the assets of the portfolio. Conse-
quently, the adviser generally expects cash reserves to be less than 5% of
the total assets of the portfolio.
Special Situations
The portfolio may invest in special situations. A special situation arises
when the adviser believes the securities of a particular company will ap-
preciate in value within a reasonable period because of unique circum-
stances applicable to that company. Special situations are events that
could change or temporarily hamper the ongoing operations of a company,
including, but not limited to:
. Liquidations, reorganizations, recapitalizations, mergers or temporary
financial liquidity restraints.
. Material litigation, technological breakthroughs or temporary produc-
tion or product introduction problems.
. Natural disaster, sabotage or employee error and new management or
management policies.
Special situations affect companies of all sizes and generally occur re-
gardless of general business conditions or movements of the market as a
whole.
Special situations often involve much greater risk than is inherent in or-
dinary investment securities. In addition, the market price of companies
subject to special situations may never reflect any perceived intrinsic
values.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Foreign Securities
The portfolio may invest in foreign securities. Foreign securities, espe-
cially those of companies in emerging markets, can be riskier and more
12
<PAGE>
volatile than domestic securities. Adverse political and economic develop-
ments or changes in the value of foreign currency can make it harder for
the portfolio to sell its securities and could reduce the value of your
shares. Changes in tax and accounting standards and difficulties obtaining
information about foreign companies can negatively affect investment
decisions.
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro have the
same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of a portfo-
lio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets or to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time
13
<PAGE>
the degree to which the year 2000 issue will affect the UAM Funds' invest-
ments or operations cannot be predicted. Any negative consequences could
adversely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Pacific Financial Research, Inc., a Massachusetts corporation located at
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210, is
the investment adviser to the portfolio. The adviser manages and super-
vises the investment of the portfolio's assets on a discretionary basis.
The adviser, an affiliate of United Asset Management Corporation, has pro-
vided investment management services to corporations, foundations, endow-
ments, pension funds and other institutions as well as individuals since
1981.
During the fiscal period ended April 30, 1999, the portfolio paid the ad-
viser 0.21% of its average net assets in management fees. In addition, the
adviser has voluntarily agreed to limit the expenses of the portfolio to
1.40% of its average net assets. To maintain this expense limit, the ad-
viser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice.
Portfolio Managers
A team of investment professionals is primarily responsible for the day-
to-day management of the portfolio. Listed below are the investment pro-
fessionals that comprise that team and a brief description of their busi-
ness experience.
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
James Gipson Jim founded the adviser in 1980 and is currently President
and a Principal. Jim received his B.A. and M.A. degrees in
Economics with honors from the University of California, Los
Angeles, and his M.B.A. degree with honors from Harvard
Business School. Before entering the investment industry, he
served as an officer in the U.S. Navy and as a consultant
for McKinsey & Co. Before founding the adviser, he was a
portfolio manager at Source Capital Co. and at Batterymarch
Financial. He authored Winning the Investment Game: A Guide
for All Seasons.
-----------------------------------------------------------------------------
Michael Sandler Michael received his B.B.A. with distinction, M.B.A. and
J.D. degrees from the University of Iowa. He spent two years
with International Harvester as a Manager of Asset Redeploy-
ment and one year with Enterprise Systems, Inc. as Vice
President of Business Development. He joined the adviser in
1984 as an analyst and has been a Vice President, Portfolio
Manager and Principal since 1985.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Bruce Veaco Bruce graduated summa cum laude from the University of Califor-
nia, Los Angeles with a B.A. degree in Economics. He spent five
years as a certified public accountant in the Los Angeles of-
fice of Price Waterhouse where he was an Audit Manager. Bruce
received his M.B.A. degree from Harvard Business School. Bruce
joined the adviser in 1986 as an analyst and has been a Vice
President, Portfolio Manager and Principal since 1989.
-----------------------------------------------------------------------------
Douglas Grey Doug received his B.E. cum laude in Mechanical/Materials Engi-
neering and Economics from Vanderbilt University, and his
M.B.A. from the University of Chicago. He was a General Motors
Scholar and worked for General Motors as a design analysis en-
gineer. Mr. Grey joined the adviser as an analyst in 1986 and
has been a Vice President, Portfolio Manager and Principal
since 1989.
-----------------------------------------------------------------------------
Peter Quinn Peter received his B.S. degree in Finance from Boston College
and his M.B.A. degree from the Peter F. Drucker School of Man-
agement at the Claremont Graduate School. He joined the adviser
as a research associate in 1987 and has been a Vice President,
Portfolio Manager and Principal since 1996.
</TABLE>
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts reflects deductions for the average fees and expenses of
such accounts. The average fees and expenses of the separate accounts were
less than the operating expenses of the portfolio. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolio, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, it results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
15
<PAGE>
<TABLE>
<CAPTION>
Pacific Financial
Research, Inc.
Composite* S&P 500 Index
- ---------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1991** 13.5 9.1%
-------------------------------------------------------------
1992 19.0 7.6%
-------------------------------------------------------------
1993 9.8 10.1%
-------------------------------------------------------------
1994 -1.5 1.3%
-------------------------------------------------------------
1995 48.4 37.6%
-------------------------------------------------------------
1996 24.3 23.0%
-------------------------------------------------------------
1997 38.8 33.4%
-------------------------------------------------------------
1998 22.7 28.6%
-------------------------------------------------------------
Average Annual Returns For Periods Ended
6/30/99
1-year 15.9 22.8%
-------------------------------------------------------------
3-years 25.3 29.1%
-------------------------------------------------------------
5-years 27.6 27.9%
-------------------------------------------------------------
Since Inception (7/31/91) 22.0 20.1%
</TABLE>
* The adviser's returns presented above are net of an average annual fee
over of approximately 0.78%. During the period, fees on the adviser's
individual accounts ranged from 0.52% to 0.90%. The adviser's composite
has not been audited.
** For the period 8/1/91 to 12/31/91.
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares pur-
16
<PAGE>
chased directly. In addition, the adviser and its affiliates may, at their
own expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
17
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the finan-
cial performance of the portfolio for the fiscal period indicated. Certain in-
formation contained in the table reflects the financial results for a single
portfolio share. The total returns in the table represent the rate that an in-
vestor would have earned on an investment in the portfolio assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has au-
dited this information. The financial statements and the unqualified opinion
of PricewaterhouseCoopers LLP are included in the annual report of the
portfolio, which is available upon request by calling the UAM Funds at
1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Period Ended April 30, 1999*
- ------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period............................ $ 10.00
-------
Income From Investment Operations
Net Investment Income.......................................... 0.05
Net Realized and Unrealized Gain on Investments................ 2.18
-------
Total from Investment Operations............................... 2.23
-------
Distributions
Net Investment Income.......................................... (0.04)
Net Realized Gain.............................................. -- @
-------
Total Distributions............................................ (0.04)
-------
Net Asset Value, End of Period.................................. $ 12.19
=======
Total Return+................................................... 22.33%***
=======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)........................... $64,135
Ratio of Expenses to Average Net Assets......................... 1.40%**
Ratio of Net Investment Income to Average Net Assets............ 1.05%**
Portfolio Turnover Rate......................................... 22%
Ratio of Voluntarily Waived Fees and Expenses Assumed by the
Adviser to Average Net Assets.................................. 0.68%**
</TABLE>
* For the period September 10, 1998 (commencement of operations) to April
30, 1999.
** Annualized.
*** Not Annualized.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the Adviser.
@ Amount is less than $0.01 per share.
18
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
CLPRX 902556786 781
</TABLE>
<PAGE>
Clipper Focus Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM Funds
Funds for the Informed Investor
Hanson Equity Portfolio
Institutional Prospectus August 9, 1999
UAM (R)
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary............................................................. 1
What is the Objective of the Portfolio?.................................... 1
What are the Principal Investment Strategies of the Portfolio?............. 1
What are the Principal Risks of the Portfolio?............................. 1
How has the Portfolio Performed?........................................... 3
What are the Fees and Expenses of the Portfolio?........................... 4
Investing with the UAM Funds.................................................. 5
Buying Shares ............................................................. 5
Redeeming Shares .......................................................... 6
Exchanging Shares ......................................................... 6
Transaction Policies ...................................................... 7
Account Policies............................................................. 10
Small Accounts ............................................................ 10
Distributions ............................................................. 10
Federal Taxes ............................................................. 10
Portfolio Details............................................................ 12
Principal Investments and Risks of the Portfolio .......................... 12
Other Investment Practices and Strategies ................................. 13
Year 2000.................................................................. 14
Investment Management ..................................................... 15
Shareholder Servicing Arrangements ........................................ 17
Financial Highlights......................................................... 19
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks maximum long-term total return, consistent with rea-
sonable risk to principal, by investing in a diversified portfolio of eq-
uity securities, primarily the common stock of large, United States-based
companies with outstanding financial characteristics and strong growth
prospects that can be purchased at reasonable valuations. The portfolio
cannot guarantee it will meet its investment objective. The portfolio may
not change its investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio invests primarily in common stocks of large companies. The
adviser selects stocks using a bottom-up approach, which means it focuses
on individual stocks rather than industries or sectors. The adviser at-
tempts to invest in a select number of well-managed, industry-leading com-
panies that have clear business plans, demonstrated consistent earnings,
and prospects for above-average earnings growth. Moreover, the adviser
looks for companies whose shares it can buy at a reasonable valuation.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
Hanson Equity Portfolio
The portfolio's main risks are those associated with investing in equity
securities. Equity securities may experience sudden, unpredictable drops
in value or long periods of decline in value. This may occur because of
factors affecting the securities markets generally, an entire industry or
sector or a particular company.
2
<PAGE>
HOW HAS THE PORTFOLIO PERFORMED?
- -------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the port-
folio and provide some indication of the risks of investing in the portfo-
lio. The bar chart shows the investment returns of the portfolio for its
first full calendar year. The table following the bar chart compares the
average annual returns of the portfolio to those of a broad-based securi-
ties market index. Past performance does not guarantee future results.
Calendar Year Returns
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Return Quarter Ended
--------------------------------------------------
<S> <C> <C>
Highest Quarter 21.86% 12/31/98
--------------------------------------------------
Lowest Quarter -11.41% 9/30/98
--------------------------------------------------
Year-To-Date 15.04% 6/30/99
Average Annual Returns For Periods Ended 12/31/98
<CAPTION>
1 Year Since Inception*
--------------------------------------------------
<S> <C> <C>
Hanson Equity Portfolio 18.57% 18.33%
--------------------------------------------------
S&P 500 Index 28.60% 29.88%
</TABLE>
*The portfolio began operations 10/3/97. Index comparisons begin on
9/30/97.
3
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
-----------------------
<S> <C>
Management fees 0.70%
-----------------------
Other expenses 0.70%
-----------------------
Total expenses 1.40%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above throughout the period of your investment.
Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic Investment Plan (Via ACH)
You may not open an ac- To set up a plan, mail a
count via ACH. completed application to
the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum Investments $2,500--regular account $100
$500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
5
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic If your account balance is at least $10,000, you may
Withdrawal Plan transfer as little as $100 per month from your UAM Funds
(Via ACH) account to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
6
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV on any given day, your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established by
the UAM Funds. The UAM Funds may also value securities at fair value when
events occur that make established valuation methods (such as stock ex-
change closing prices) unreliable.
7
<PAGE>
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
8
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
9
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, the portfolio distributes its net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolio, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
11
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
Normally, the portfolio invests at least 80% of its total assets in equity
securities. These investments will consist primarily of common stocks of
companies with large market capitalizations (typically over $1 billion at
the time of purchase).
Investment Process
The basis of the adviser's investment philosophy is to "buy the company,
not the stock." The adviser believes that the portfolio can achieve supe-
rior long-term results by investing in a select number of well managed
companies that have clear business plans, specific financial goals, above-
average earnings and dividend growth rates, and whose shares can be pur-
chased at reasonable valuations.
The adviser's stock selection process is bottom-up, which means it focuses
on individual stocks rather than industries or sectors. (Top-down invest-
ors would first decide which industries or sectors they want to emphasize
and then would look for stocks that fit those requirements.) This process
has three steps. First, the adviser asks three questions:
. Does the adviser understand the company's business?
. Is the company's management shareholder-conscious?
. Is the company's long-term outlook favorable?
Next, the adviser screens for companies that:
. Have reasonable price-to-earnings ratios.
. Have above average total return potential.
. Are leaders in their industries.
. Are highly profitable.
. Are financially strong (low levels of debt).
12
<PAGE>
Finally, all investment decisions must receive the approval of the advis-
er's internal investment committee.
The adviser sells shares of a company when:
. The company fails to meet the adviser's investment criteria.
. The adviser finds a more attractive investment.
. The valuation of the company's shares becomes excessive.
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
American Depositary Receipts (ADRs)
The portfolio may invest up to 20% of its assets in ADRs. ADRs are certif-
icates evidencing ownership of shares of a foreign issuer that are issued
by depository banks and generally trade on an established market in the
United States or elsewhere. Although ADRs are alternatives to directly
purchasing the underlying foreign securities in their national markets and
currencies, ADRs continue to be subject to many of the risks associated
with investing directly in foreign securities.
13
<PAGE>
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for the portfolio to sell its securities and could reduce
the value of your shares. Changes in tax and accounting standards and dif-
ficulties obtaining information about foreign companies can negatively af-
fect investment decisions.
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro have the
same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of a portfo-
lio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these securities for
temporary defensive purposes, to earn a return on uninvested assets or to
meet redemptions. The adviser may temporarily adopt a defensive position
to reduce changes in the value of the shares of the portfolio that may re-
sult from adverse market, economic, political or other developments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted
14
<PAGE>
before that date. They are also requesting information on each service
provider's state of readiness and contingency plan. However, at this time
the degree to which the year 2000 issue will affect the UAM Funds' invest-
ments or operations cannot be predicted. Any negative consequences could
adversely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Hanson Investment Management Company, a California corporation located at
4000 Civic Center Drive, Suite 200, San Rafael, California 94903, is the
investment adviser to the portfolio. The adviser manages and supervises
the investment of the portfolio's assets on a discretionary basis. The ad-
viser, an affiliate of United Asset Management Corporation, has provided
investment management services to corporations, unions, pension and profit
sharing plans, trusts, estates and other institutions as well as individu-
als since 1973.
During the fiscal year ended April 30, 1999, the portfolio paid the ad-
viser 0.70% of its average net assets in management fees.
Portfolio Managers
A team of investment professionals is primarily responsible for the day-
to-day management of the portfolio. Listed below are the investment pro-
fessionals that comprise that team and a brief description of their busi-
ness experience.
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
David E. Post Mr. Post is currently Chief Executive Officer and a
Portfolio Manager of the adviser. Mr. Post joined the
adviser in 1994 as a portfolio manager. Mr. Post heads
the adviser's Management Committee. Before joining the
adviser, Mr. Post directed the investment of all managed
assets at CSI Capital Management, the investment firm
which he founded in 1983. Previously, he served as pres-
ident of HS Partners, Inc. Mr. Post began his career in
1979 at Merrill Lynch, Pierce, Fenner & Smith. Mr. Post
received a BA from the University of California, Berke-
ley.
-----------------------------------------------------------------------------
Steven E. Cutcliffe Mr. Cutcliffe is currently a Managing Director and Port-
folio Manager of the adviser. Mr. Cutcliffe joined the
adviser in 1991 as a portfolio manager. Mr. Cutcliffe is
a member of the Management Committee. Previously, Mr.
Cutcliffe was Vice President, Corporate Finanace for Mc-
Ginn, Smith & Company and before that was an Assistant
Secretary of Manufacturers Hanover Trust Company. Mr.
Cutcliffe received an AB from Dartmouth College and an
MBA from Dartnouth's Amos Tuck School.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Steven W. Enos, CFA Mr. Enos is currently a Vice President of Research of
the adviser. Mr. Enos joined the adviser in 1998. Before
joining the adviser, Mr. Enos was a Principal and Vice
President of Wells Capital Management. Previously, Mr.
Enos worked at Dolan Capital Management where he was a
research analyst. Mr. Enos began his investment career
in 1985 with First Interstate Financial Advisors, where
he was a portfolio manager. Mr. Enos is a Chartered Fi-
nancial Analyst and a member of the Security Analysts of
San Francisco. Mr. Enos received a BS from the Univer-
sity of California at Davis.
-----------------------------------------------------------------------------
John D. Schaeffer Mr. Schaeffer is currently a Vice President of Research
of the adviser. Mr. Schaeffer joined the adviser in
1997. Before joining the Adviser, Mr. Schaeffer was a
research analyst for Barbary Coast Capital, a hedge
fund. Previously, Mr. Schaeffer was a senior analyst at
Bridgewater Associates, a quantitative investment man-
agement firm. Mr. Schaeffer received a BA from Duke Uni-
versity and an MBA from the University of California,
Berkeley.
-----------------------------------------------------------------------------
Jason E. Blattberg Jason E. Blattberg is currently a Research Associate
with the adviser. Mr. Blattberg joined the adviser in
1998. Before joining the Adviser, Mr. Blattberg was a
member of the investment strategy team at Lehman Broth-
ers. Mr. Blattberg received a BA from the University of
Virginia, attended the London School of Economics, and
received an MBA from the Anderson Graduate School of
Management at UCLA.
-----------------------------------------------------------------------------
Reynold Samoranos Mr. Samoranos is currently a Vice President of Trading
and Operations for the adviser. Mr. Samoranos joined the
adviser in 1991. In addition to his responsibility as
primary trader, Mr. Samoranos serves the adviser in sev-
eral other areas, including accounting and general staff
management. Before joining the adviser, Mr. Samoranos
worked for Citibank North America as the regional finan-
cial controller. Mr. Samoranos received as BS from the
University of California, Berkeley and an MBA from the
University of Chicago.
</TABLE>
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts reflects deductions for all fees and expenses on an individ-
ual account basis. All fees and expenses of the separate accounts were
less than the operating expenses of the portfolio. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolio, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
16
<PAGE>
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
<TABLE>
<CAPTION>
Hanson Investment
Management Company
Composite* S&P 500 Index
--------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1981 11.4% (5.3)%
--------------------------------------------------------
1982 26.8% 21.4%
--------------------------------------------------------
1983 26.9% 22.6%
--------------------------------------------------------
1984 7.7% 6.3%
--------------------------------------------------------
1985 33.0% 31.7%
--------------------------------------------------------
1986 18.8% 18.7%
--------------------------------------------------------
1987 (1.0)% 5.3%
--------------------------------------------------------
1988 24.1% 16.6%
--------------------------------------------------------
1989 28.5% 31.7%
--------------------------------------------------------
1990 0.3% (3.1)%
--------------------------------------------------------
1991 33.8% 30.4%
--------------------------------------------------------
1992 9.0% 7.7%
--------------------------------------------------------
1993 1.6% 10.1%
--------------------------------------------------------
1994 (4.5)% 1.2%
--------------------------------------------------------
1995 34.0% 37.8%
--------------------------------------------------------
1996 22.4% 22.9%
--------------------------------------------------------
1997 35.1% 33.4%
--------------------------------------------------------
1998 19.9% 28.6%
--------------------------------------------------------
Average Annual Return For Periods Ended 6/30/99
1 Year 26.2% 22.8%
--------------------------------------------------------
5 Years 25.8% 27.9%
--------------------------------------------------------
10 Years 17.1% 18.8%
</TABLE>
* During the period, fees on the adviser's individual accounts ranged from
0.31% to 1.00% and the adviser's average annual management fee (1/1/81-
6/30/99) was 0.40%. The adviser's composite has not been audited.
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
17
<PAGE>
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
18
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the portfolio for the fiscal periods indicated.
Certain information contained in the table reflects the financial results
for a single portfolio share. The total returns in the table represent the
rate that an investor would have earned on an investment in the portfolio
assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the portfolio, which is available upon
request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999 1998*
-----------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................. $ 11.38 $ 10.00
------- -------
Income From Investment Operations
Net Investment Loss.................................. (0.04) (0.02)
Net Realized and Unrealized Gain on Investments...... 1.91 1.40
------- -------
Total from Investment Operations..................... 1.87 1.38
------- -------
Distributions
Net Realized Gain.................................... (0.06) --
------- -------
Net Asset Value, End of Period........................ $ 13.19 $ 11.38
======= =======
Total Return.......................................... 16.52% 13.80%***
======= =======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)................. $30,450 $25,690
Ratio of Expenses to Average Net Assets............... 1.40% 1.56%**
Ratio of Net Investment Loss to Average Net Assets.... (0.38)% (0.35)%**
Portfolio Turnover Rate............................... 28% 11%
Ratio of Expenses to Average Net Assets Including
Expense Offsets...................................... 1.40% 1.56%**
</TABLE>
* For the period October 3, 1997 (commencement of operations) to April
30, 1998.
** Annualized
*** Not Annualized
19
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
HANSX 902556844 649
</TABLE>
<PAGE>
Hanson Equity Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The portfolio's Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM FUNDS
Funds for the Informed Investor(SM)
Jacobs International Octagon Portfolio
Institutional Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 1
How has the Portfolio Performed? .......................................... 3
What are the Fees and Expenses of the Portfolio? .......................... 4
Investing with the Uam Funds ................................................. 5
Buying Shares ............................................................. 5
Redeeming Shares .......................................................... 6
Exchanging Shares ......................................................... 6
Transaction Policies ...................................................... 7
Account Policies ............................................................ 10
Small Accounts ............................................................ 10
Distributions ............................................................. 10
Federal Taxes ............................................................. 10
Portfolio Details ........................................................... 12
Principal Investments and Risks of the Portfolio .......................... 12
Other Investment Practices and Strategies ................................. 16
Year 2000 ................................................................. 17
Investment Management ..................................................... 17
Shareholder Servicing Arrangements ........................................ 20
Financial Highlights ........................................................ 21
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks to provide long-term capital appreciation by investing
in equity securities of companies in developed and emerging markets. The
portfolio cannot guarantee that it will meet its objective. The portfolio
may not change its objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio normally invests at least 80% of its total assets in equity
securities of companies located in at least three countries outside the
United States. Typically, the portfolio may invest about 20% to 40% of to-
tal assets in small companies (typically, companies with market capital-
izations of less than $1.5 billion at the time of purchase).
The adviser expects to diversify the investments of the portfolio through-
out the world and within markets to minimize specific country and currency
risks. Although it may invest entirely in countries with developed or
emerging markets, the portfolio usually invests 10% to 40% of its assets
in companies located in emerging markets.
The adviser looks for companies that it believes will benefit from global
trends, promising business or product developments and changing economic,
social and political trends. The adviser selects investments for the port-
folio using a flexible, value-oriented approach that tries to identify
stocks selling at the greatest discount to their intrinsic future value.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
Jacobs International Octagon Portfolio
The portfolio's main risks are those associated with investing in foreign
equity securities using a value oriented approach. Foreign securities, es-
pecially those of companies in emerging markets, can be riskier and more
volatile than domestic securities. Adverse political and economic develop-
ments or changes in the value of foreign currency can make it harder for a
portfolio to sell its securities and could reduce the value of your
shares. Differences in tax and accounting standards and difficulties in
obtaining information about foreign companies can negatively affect in-
vestment decisions.
Equity securities may experience sudden, unpredictable drops in value or
long periods of decline in value. This may occur because of factors af-
fecting the securities markets generally, an entire industry or sector or
a particular company.
Value oriented mutual funds may not perform as well as certain other types
of equity mutual funds during periods when value stocks are out of favor.
Investing in stocks of smaller companies can be riskier than investing in
larger, more mature companies. Smaller companies may be more vulnerable to
adverse developments than larger companies because they tend to have more
narrow product lines and more limited financial resources. Their stocks
may trade less frequently and in limited volume.
2
<PAGE>
HOW HAS THE PORTFOLIO PERFORMED?
- -------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the port-
folio has varied from year to year and provide some indication of the
risks of investing in the portfolio. The bar chart shows the investment
returns of the portfolio for each full calendar year. The table following
the bar chart compares the average annual returns of the portfolio to
those of a broad-based securities market index. Past performance does not
guarantee future results.
Calendar Year Returns
[BAR CHART APPEARS HERE]
6.39% -5.01%
1997 1998
<TABLE>
<CAPTION>
Return Quarter Ended
--------------------------------------------------------------------------
<S> <C> <C>
Highest Quarter 11.64% 3/31/98
--------------------------------------------------------------------------
Lowest Quarter -20.74% 9/30/98
--------------------------------------------------------------------------
Year-To-Date 7.38% 6/30/99
Average Annual Returns For Periods Ended 12/31/98
<CAPTION>
1 Year Since Inception*
--------------------------------------------------------------------------
<S> <C> <C>
Jacobs International Octagon Portfolio -5.01% 1.06%
--------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 20.33% 10.82%
</TABLE>
* The portfolio began operations 1/2/97. Index comparisons begin on
12/31/96.
3
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
<S> <C>
Management fees 1.00%
----------------------------------------------------------------------------
Other expenses 0.54%
----------------------------------------------------------------------------
Total expenses 1.54%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above throughout the period of your investment.
Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------------------
$157 $486 $839 $1,834
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Ssend your completed Funds as follows:
account application to
the UAM Funds. Wire
your money to the UAM
Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic You may not open an ac- To set up a plan, mail a
Investment count via ACH. completed application to
Plan (Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
5
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may have to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may
transfer as little as $100 per month from your UAM account
to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
6
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV on any given day, your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available
7
<PAGE>
market prices are valued at fair value, according to guidelines estab-
lished by the UAM Funds. The UAM Funds may also value securities at fair
value when events occur that make established valuation methods (such as
stock exchange closing prices) unreliable. The UAM Funds value debt secu-
rities that will mature in 60 days or less at amortized cost, which ap-
proximates market value.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
8
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
9
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, the portfolio distributes its net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolio, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In
10
<PAGE>
this case, you would be taxed on the entire amount of the distribution re-
ceived, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
11
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
The portfolio normally invests at least 80% of its total assets in equity
securities of companies located in at least three countries outside the
United States. These countries that are developed or emerging. Typically,
the portfolio may invest about 20% to 40% of its total assets in small
companies (typically, companies with market capitalizations of less than
$1.5 billion at the time of purchase).
Investment Process
The adviser selects investments for the portfolio using a flexible, value-
oriented approach that focuses on companies rather than on countries or
markets.
Security Selection
The adviser looks for companies that it believes will benefit from global
trends, promising business or product developments and changing economic,
social and political trends. The adviser seeks to identify stocks selling
at the greatest discount to their intrinsic future value by comparing its
estimate of the company's future earnings and cash flow to the company's
industry average. In attempting to identify value across disparate econo-
mies in the international marketplace, the adviser believes that rigid ad-
herence to a single model results in missed opportunities. Therefore, the
adviser ascertains a company's value using a variety of measurements, in-
cluding its stock price-to-cash flow, enterprise value-to-cash flow and
price-to-future earnings ratios.
After concluding that a particular company is a good investment, the ad-
viser sets a purchase price, calculates its potential appreciation and
ranks the investment versus other potential investments.
12
<PAGE>
The portfolio intends to purchase and hold securities for two to four
years and does not expect to trade for short-term gain. The portfolio
sells a security:
. When it reaches its target price. Target prices are determined based
on the adviser's valuation models and perception of risk in a particu-
lar country or region
. To make room for more attractive alternatives.
Country Allocation
The adviser expects to diversify the investments of the portfolio through-
out the world and within markets to minimize specific country and currency
risks. The adviser allocates investments to countries based on its percep-
tion of risks in that country and not on any predetermined guidelines. The
following table lists some of the countries in which the portfolio may in-
vest:
<TABLE>
<S> <C> <C>
Argentina Greece Peru
Australia Hong Kong Philippines
Austria Indonesia Poland
Bermuda Ireland Portugal
Brazil Israel Russia
Czech Republic Italy Singapore
Chile Korea Spain
China Japan Sweden
Denmark Malaysia Switzerland
Finland Mexico Thailand
France Netherlands United Kingdom
Germany Norway
</TABLE>
The adviser may invest 10% to 40% of the portfolio's assets in equity se-
curities of companies located in emerging countries. A company is located
in an emerging country if it has one or more of the following
characteristics:
. Its principal securities trading market is in an emerging country.
. It derives 50% or more of its annual revenue from goods produced,
sales made or services performed in emerging countries.
. It is organized under the laws of, and has a principal office in, an
emerging country.
It may be too difficult or too risky for the portfolio to invest in some
emerging countries. Consequently, the portfolio will focus its investments
on those countries where it believes the economies are developing and the
markets are becoming more sophisticated.
13
<PAGE>
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
senti- ment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
Undervalued companies may have experienced adverse business developments
or other events that have caused their stocks to be out of favor. If the
adviser's assessment of a company is wrong, or if the market does not rec-
ognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
Foreign Securities
The portfolio may invest directly in equity securities of companies lo-
cated outside the United States and in American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and other similar global
instruments.
ADRs are certificates evidencing ownership of shares of a foreign issuer
that are issued by depository banks and generally trade on an established
market in the United States or elsewhere. EDRs are similar to ADRs, except
that they are typically issued by European banks or trust companies. Al-
though ADRs and EDRs are alternatives to directly purchasing the under-
lying foreign securities in their national markets and currencies, they
continue to be subject to many of the risks associated with investing di-
rectly in foreign securities.
Foreign securities, foreign currencies, and securities issued by U.S. en-
tities with substantial foreign operations may involve significant risks
in addition to the risks inherent in U.S. investments.
14
<PAGE>
Local political, economic, regulatory or social instability, military ac-
tion or unrest, or adverse diplomatic developments may affect the value of
foreign investments. A foreign government may act adversely to the inter-
ests of U.S. investors. Such actions may include expropriation or nation-
alization of assets, confiscatory taxation and other restrictions on U.S.
investment.
The securities of foreign companies are often denominated in foreign cur-
rencies. Since the portfolio's net asset value is denominated in U.S. dol-
lars, changes in foreign currency rates and in exchange control regula-
tions may positively or negatively affect the value of its securities. In
January 1999, certain European nations began to use the new European com-
mon currency, called the Euro. The nations that use the Euro have the same
monetary policy regardless of their domestic economy, which could have ad-
verse effects on those economies. In addition, difficulties in converting
to the Euro could negatively affect the investments of the portfolio.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those are in the United States. Securities
of some foreign issuers may be less liquid and more volatile than securi-
ties of comparable U.S. issuers. In addition, the costs associated with
foreign investments, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than the costs associated with
U.S. investments.
Foreign countries generally have different legal systems and different
regulations concerning financial disclosure, accounting and auditing stan-
dards than the United States. This could make corporate financial informa-
tion more difficult to obtain or understand and less reliable than infor-
mation about U.S. companies.
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 govern-
ments, may present the risks of nationalization of businesses, re-
strictions on foreign ownership and prohibitions on the repatriation
of assets.
. They may protect property rights less than more developed countries.
15
<PAGE>
. The economies of countries with emerging markets may be based on only
a few industries, may be highly vulnerable to changes in local or
global trade conditions and may suffer from extreme and volatile debt
burdens or inflation rates.
. Local securities markets may trade a small number of securities and
may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of holdings difficult or impos-
sible at times.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. The portfolio may also employ
investment practices that this prospectus does not describe, such as re-
purchase agreements, when-issued and forward commitment transactions,
lending of securities, borrowing and other techniques. For more informa-
tion concerning the risks associated with these investment practices, you
should read the SAI.
Derivatives
The portfolio may use forward foreign currency exchange contracts (a type
of derivative) to minimize currency fluctuations and assist in settling
trades. Derivatives are often more volatile than other investments and may
magnify the portfolio's gains or losses. The portfolio may lose money if
the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets or to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
16
<PAGE>
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest. Foreign issuers may be more vulnerable than those lo-
cated in the United States to negative effects from year 2000 related
problems.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Jacobs Asset Management, a Delaware limited partnership located at 200
East Broward Boulevard, Suite 1920, Fort Lauderdale, Florida 33301, is the
investment adviser to the portfolio. The adviser manages and supervises
the investment of the portfolio's assets on a discretionary basis. The ad-
viser, an affiliate of United Asset Management Corporation, provides in-
vestment management services to corporations, unions, pension and profit
sharing plans, trusts, estates and other institutions as well as individu-
als.
17
<PAGE>
During the fiscal year ended April 30, 1999, the portfolio paid the ad-
viser 1.00% of its average net assets in management fees. In addition, the
adviser has voluntarily agreed to limit the expenses of the portfolio to
1.75% of its average net assets. To maintain this expense limit, the ad-
viser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice.
Portfolio Managers
Daniel L. Jacobs, CFA is primarily responsible for the day-to-day manage-
ment of the portfolio. Mr. Jacobs has been President and Chief Investment
Officer of the adviser since July 1995. From 1984-1995, Mr. Jacobs managed
$3.4 billion in international and global equity portfolios as Executive
Vice President and Director of Templeton Investment Counsel. Mr. Jacobs
was Portfolio Manager of Templeton's $1.4 billion Smaller Companies Growth
Fund and was a Senior Portfolio Manager of institutional separate ac-
counts. Mr. Jacobs served as President of the Templeton Variable Annuity
Fund and Portfolio Manager for the Equity Fund and the equity portion of
the Balanced Fund in the Templeton Variable Annuity Series. From May 1,
1992 to June 30, 1995 Mr. Jacobs was the Portfolio Manager for the Temple-
ton International Fund, a series of the Templeton Variable Product Series
Fund. From 1976-1984, he was Vice President/Portfolio Manager, Institu-
tional Investment Group and International Division of the First National
Bank of Atlanta. Mr. Jacobs received an MBA in Finance from Emory Univer-
sity (1976) and a BA in Economics from Miami University (1974). In addi-
tion to holding a CFA and CIC, Mr. Jacobs is a founding member of the In-
ternational Society of Financial Analysts.
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts does not reflect the deduction for fees and expenses. If the
performance of the managed accounts was adjusted to reflect the fees and
expenses of the portfolio, the composite's performance would have been
lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calcu-
18
<PAGE>
lated its performance using the SEC's methods, its results might have dif-
fered.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
<TABLE>
<CAPTION>
Jacobs Asset
Management Morgan Stanley
International Capital International
Composite* EAFE Index
---------------------------------------------------------------
Average Annual Return For Periods Ended 6/30/99
<S> <C> <C>
1-year -10.45% 7.92%
---------------------------------------------------------------
3-years 7.94% 9.12%
---------------------------------------------------------------
Since Inception (10/1/95) 11.18% 9.72%
</TABLE>
* The adviser's average annual management fee over the period shown
(10/1/95 through 6/30/99) was approximately 0.75%.
Historical Performance of Another Mutual Fund Managed By Mr. Jacobs
Set forth below is performance data Mr. Jacobs has provided regarding the
Templeton International Fund, a series of the Templeton Variable Product
Series Fund. That other mutual fund is a registered, open-end investment
company with substantially similar, though not always identical, invest-
ment objectives, policies and strategies as the portfolio. Daniel Jacobs
was the lead portfolio manager for that other fund from its inception (May
1, 1992) to June 30, 1995. During that time, Mr. Jacobs had primary re-
sponsibility for the day-to-day management of the fund and no other person
played a significant role in achieving the performance of the fund.
The portfolio and the other mutual fund are separate funds and members of
different fund families. Their investment returns may differ because they
have different fees and expenses. The performance of the other mutual fund
is not intended to predict or suggest the performance that an investor
might achieve by investing in the portfolio.
<TABLE>
<CAPTION>
Three Years
Year Ended Ended
June 30, June 30,
1995 1995
------------------------------------------------------------------------
<S> <C> <C>
Templeton International Fund 11.43% 14.55%
------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 1.66% 12.68%
------------------------------------------------------------------------
Lipper International Index 0.95% 7.22%
</TABLE>
19
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
20
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the fiscal periods indicated.
Certain information contained in the table reflects the financial results
for a single portfolio share. The total returns in the table represent the
rate that an investor would have earned on an investment in the portfolio
assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the portfolio, which is available upon
request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999 1998 1997*
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 11.85 $ 10.17 $ 10.00
------- -------- -------
Income From Investment Operations
Net Investment Income..................... 0.11 0.10 0.06
Net Realized and Unrealized Gain (Loss)
on Investments........................... (1.49) 1.82 0.11++
------- -------- -------
Total from Investment Operations.......... (1.38) 1.92 0.17
------- -------- -------
Distributions
Net Investment Income..................... (0.08) (0.09) --
Net Realized Gain......................... (0.20) (0.15) --
------- -------- -------
Total Distributions....................... (0.28) (0.24) --
------- -------- -------
Net Asset Value, End of Period............. $ 10.19 $ 11.85 $ 10.17
======= ======== =======
Total Return............................... (11.51)% 19.19% 1.70%***+
======= ======== =======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)...... $73,053 $113,033 $35,833
Ratio of Expenses to Average Net Assets.... 1.54% 1.49% 1.75%**
Ratio of Net Investment Income to Average
Net Assets................................ 0.97% 1.23% 3.67%**
Portfolio Turnover Rate.................... 108% 39% 7%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets........................ N/A N/A 0.40%**
Ratio of Expenses to Average Net Assets
Including Expense Offsets................. 1.54% 1.49% 1.75%**
</TABLE>
* For the period from January 2, 1997 (commencement of operations) to
April 30, 1997.
** Annualized
*** Not Annualized
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the period.
++ The amount shown for a share outstanding throughout the period does
not accord with the aggregate net loss on investments for that period
because of the timing of sales and repurchases of the Portfolio shares
in relation to fluctuating market value of the investments of the
Portfolio.
21
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
JIOPX 902556828 900
</TABLE>
<PAGE>
Jacobs International Octagon Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual/Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[LOGO OF UAM FUNDS APPEARS HERE]
<PAGE>
UAM Funds
Funds for the Informed Investor(SM)
MJI International Equity Portfolio
Institutional Service Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC)has not approved or
disapproved these securities or passed upon the adequary or accurace of
this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary .......................................................... 1
What is the Objective of the Portfolio? .................................. 1
What are the Principal Investment Strategies of the Portfolio? ........... 1
What are the Principal Risks of the Portfolio? ........................... 1
How Has the Portfolio Performed? ......................................... 3
What are the Fees and Expenses of the Portfolio? ......................... 4
Investing with the UAM Funds ............................................... 5
Buying Shares ............................................................ 5
Redeeming Shares ......................................................... 6
Exchanging Shares ........................................................ 6
Transaction Policies ..................................................... 7
Account Policies ........................................................... 10
Small Accounts ........................................................... 10
Distributions ............................................................ 10
Federal Taxes ............................................................ 10
Portfolio Details .......................................................... 12
Principal Investments and Risks of the Portfolio ......................... 12
Other Investment Practices and Strategies ................................ 15
Year 2000 ................................................................ 15
Investment Management .................................................... 16
Shareholder Servicing Arrangements ....................................... 17
Additional Classes of Shares ............................................. 18
Financial Highlights ....................................................... 19
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks to maximize total return, including both capital
appreciation and current income, by investing primarily in the common
stocks of companies based outside of the United States. The portfolio can-
not guarantee it will meet its investment objective. The portfolio may not
change its investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio normally invests at least 65% of its total assets in common
stocks (including rights or warrants to purchase common stocks) of compa-
nies located in at least three countries outside the United States. While
the portfolio invests primarily in securities of companies domiciled in
developed countries, it may also invest in developing countries.
The investment process of the adviser begins by determining which interna-
tional stock markets the portfolio should invest in and in what propor-
tion. The adviser makes its decision by evaluating the various markets
through a proprietary system that analyzes economic factors, stock prices
in each market, market performance and trends in monetary policy. The ad-
viser then compares the companies in each of those markets in an effort to
select stocks that it believes the market has undervalued compared to in-
dustry norms within their countries.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
MJI International Equity Portfolio
The portfolio's main risks are those associated with investing in foreign
equity securities. Foreign securities, especially those of companies in
emerging markets, can be riskier and more volatile than domestic securi-
ties. Adverse political and economic developments or changes in the value
of foreign currency can make it harder for a portfolio to sell its securi-
ties and could reduce the value of your shares. Differences in tax and ac-
counting standards and difficulties in obtaining information about foreign
companies can negatively affect investment decisions.
Equity securities may experience sudden, unpredictable drops in value or
long periods of decline in value. This may occur because of factors af-
fecting the securities markets generally, an entire industry or sector or
a particular company.
2
<PAGE>
HOW HAS THE PORTFOLIO PERFORMED?
- -------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of this class
of the portfolio has varied from year to year and provide some indication
of the risks of investing in the portfolio. The bar chart shows the in-
vestment returns of the portfolio for each full calendar year. The table
following the bar chart compares the average annual returns of the portfo-
lio to those of a broad-based securities market index. Past performance
does not guarantee future results.
Calendar Year Returns
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Return Quarter Ended
---------------------------------------
<S> <C> <C>
Highest Quarter 18.46% 12/31/98
---------------------------------------
Lowest Quarter -13.99% 9/30/98
---------------------------------------
Year-To-Date 5.15% 6/30/99
</TABLE>
Average Annual Returns For Periods Ended 12/31/98
<TABLE>
<CAPTION>
1 Year Since Inception*
-------------------------------------------------------------------------
<S> <C> <C>
MJI International Equity Portfolio 15.25% 10.42%
-------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 20.33% 30.95%
</TABLE>
*This class of this portfolio began operations on 12/31/96. Index compari-
sons begin on 1/1/97.
3
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
----------------------------
<S> <C>
Management fees 0.75%
----------------------------
Service (12b-1) Fees 0.25%
----------------------------
Other expenses 0.88%
----------------------------
Total expenses* 1.88%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolio actually paid the total operating expenses listed in the table
below. The adviser may change or cancel its expense limitation at any
time.
<TABLE>
------------------------------------------------------------------
<S> <C>
Actual Expenses 1.75%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------------
$191 $591 $1,016 $2,201
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the portfolio into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By You may not open an ac- To set up a plan, mail a
Automatic count via ACH completed application to
Investment the UAM Funds. To cancel
Plan (Via or change a plan, write to
ACH) the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
5
<PAGE>
REDEEMING SHARES
- --------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to
redeem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-UAM-Link to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may
transfer as little as $100 per month from your UAM account
to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
6
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated on the close
of trading at the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAV by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established
7
<PAGE>
by the UAM Funds. The UAM Funds may also value securities at fair value
when events occur that make established valuation methods (such as stock
exchange closing prices) unreliable.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
8
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
9
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income and net cap-
ital gains once a year. The UAM Funds will automatically reinvest divi-
dends and distributions in additional shares of the portfolio, unless you
elect on your account application to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
10
<PAGE>
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
11
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
The portfolio normally invests at least 65% of its total assets in common
stocks (including rights or warrants to purchase common stocks) of compa-
nies located in at least three countries outside the United States. Gener-
ally, the portfolio invests in common stocks of companies listed on stock
exchanges of the United States or foreign countries, but it may also in-
vest in stocks traded in the over-the-counter market. While the portfolio
invests primarily in securities of companies domiciled in developed coun-
tries, it may also invest in developing countries.
Investment Process
The adviser tries to minimize specific country and currency risks by di-
versifying the investments of the portfolio throughout the world and
within markets. The investment process of the adviser begins by determin-
ing which international stock markets the portfolio should invest in and
in what proportion. The adviser makes its decision by evaluating the vari-
ous markets through a proprietary system called the Twenty Questions Anal-
ysis that analyzes macro-economic factors, value factors, market perfor-
mance and trends in monetary policy.
Once the adviser decides how to allocate the assets of the portfolio among
the various international stock markets, it then compares the companies in
each of those markets according to:
. Quality of management.
. Market position.
. Financial strength.
. Ability to earn competitive returns on equity and assets.
. Growth potential.
The adviser selects stocks that it believes the market has undervalued
compared to industry norms within their countries.
12
<PAGE>
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
Foreign Securities
The portfolio may invest directly in equity securities of companies lo-
cated outside the United States and in American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and other similar global
instruments.
ADRs are certificates evidencing ownership of shares of a foreign issuer
that are issued by depository banks and generally trade on an established
market in the United States or elsewhere. EDRs are similar to ADRs, except
that they are typically issued by European banks or trust companies. Al-
though ADRs and EDRs are alternatives to directly purchasing the under-
lying foreign securities in their national markets and currencies, they
continue to be subject to many of the risks associated with investing di-
rectly in foreign securities.
Foreign securities, foreign currencies, and securities issued by U.S. en-
tities with substantial foreign operations may involve significant risks
in addition to the risks inherent in U.S. investments.
Local political, economic, regulatory or social instability, military ac-
tion or unrest, or adverse diplomatic developments may affect the value of
foreign investments. A foreign government may act adversely to the inter-
ests of U.S. investors. Such actions may include expropriation or nation-
alization of assets, confiscatory taxation and other restrictions on U.S.
investment.
The securities of foreign companies are often denominated in foreign cur-
rencies. Since the portfolio's net asset value is denominated in U.S. dol-
lars, changes in foreign currency rates and in exchange control regula-
13
<PAGE>
tions may positively or negatively affect the value of its securities. In
January 1999, certain European nations began to use the new European com-
mon currency, called the Euro. The nations that use the Euro have the same
monetary policy regardless of their domestic economy, which could have ad-
verse effects on those economies. In addition, difficulties in converting
to the Euro could negatively affect the investments of the portfolio.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States. Securities of
some foreign issuers may be less liquid and more volatile than securities
of comparable U.S. issuers. In addition, the costs associated with foreign
investments, including withholding taxes, brokerage commissions and custo-
dial costs, are generally higher than the costs associated with U.S. in-
vestments.
Foreign countries generally have different legal systems and different
regulations concerning financial disclosure, accounting and auditing stan-
dards than the United States. This could make corporate financial informa-
tion more difficult to obtain or understand and less reliable than infor-
mation about U.S. companies.
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 govern-
ments, may present the risks of nationalization of businesses, re-
strictions on foreign ownership and prohibitions on the repatriation
of assets.
. They may protect property rights less than more developed countries.
. The economies of countries with emerging markets may be based on only
a few industries, may be highly vulnerable to changes in local or
global trade conditions and may suffer from extreme and volatile debt
burdens or inflation rates.
. Local securities markets may trade a small number of securities and
may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of holdings difficult or impos-
sible at times.
14
<PAGE>
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Derivatives
The portfolio may use futures contracts, forward foreign currency exchange
contracts, options and swaps (types of derivatives) to hedge its invest-
ments. Derivatives are often more volatile than other investments and may
magnify the portfolio's gains or losses. The portfolio may lose money if
the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets and to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary
15
<PAGE>
functions and could disrupt the operations of the UAM Funds or financial
markets in general. The year 2000 issue affects all companies and organi-
zations, including those that provide services to the UAM Funds and those
in which the UAM Funds invest. Foreign issuers may be more vulnerable than
those located in the United States to negative effects from year-2000 re-
lated problems.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Murray Johnstone International, Ltd., located in Glasgow, Scotland, is the
investment adviser to the portfolio. The adviser manages and supervises
the investment of the portfolio's assets on a discretionary basis. The ad-
viser, an affiliate of United Asset Management Corporation, is an interna-
tional investment adviser whose origins date back to 1907.
During the fiscal year ended April 30, 1999, the portfolio paid the ad-
viser 0.63% of its average net assets in management fees. In addition, the
adviser has voluntarily agreed to limit the expenses of the portfolio to
1.75% of its average net assets. To maintain this expense limit, the ad-
viser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio (excluding interest, taxes and extraordinary ex-
penses). The adviser intends to continue its expense limitation until fur-
ther notice.
Portfolio Managers
Since the country decision is of first importance, the members of the
Country Allocation Team are the key decision makers for the portfolio, and
their experience and judgment is critical. The team members are James
Clunie (Head of Allocation) and Andrew Preston.
16
<PAGE>
James Clunie is the Senior Investment Officer in charge of North American
clients and a Director of Murray Johnstone International. James is also
responsible for research into the performance and continued development of
the Twenty Questions Analysis. James came to Murray Johnstone in 1989 af-
ter receiving his BS with Honors in Mathematics and Statistics from Edin-
burgh University. He has worked in the adviser's UK department and spent
time in the US as a Product Specialist. He is a Certified Financial Ana-
lyst.
Andrew Preston is a Senior Investment Officer and a Director of Murray
Johnstone International. He has been with Murray Johnstone for fourteen
years, and has been a member of the adviser's UK and Japan teams. Earlier
in his career, Andrew was a diplomat in the Australian Department of For-
eign Affairs, and he is fluent in Japanese and Chinese.
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
Distribution Plans
The UAM Funds have adopted a Distribution Plan and a Shareholder Services
Plan under Rule 12b-1 of the Investment Company Act of 1940 that permit
them to pay broker-dealers, financial institutions and other third parties
for marketing, distribution and shareholder services. The UAM Funds' 12b-1
plans allow them to pay up to 1.00% of its average daily net assets annu-
ally for these services. However, they are currently authorized to pay
only 0.25% per year. Because Institutional Service Class Shares pay these
fees out of their assets on an ongoing basis, over time, your shares may
cost more than if you had paid another type of sales charge. Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by rules of the National Association of
Securities Dealers, Inc.
Shareholder Servicing
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
17
<PAGE>
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
ADDITIONAL CLASSES OF SHARES
- -------------------------------------------------------------------------------
The portfolio also offers Institutional Class shares, which do not pay
marketing or shareholder servicing fees.
18
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the portfolio for the fiscal periods
indicated. Certain information contained in the table reflects the finan-
cial results for a single portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in
this class of the portfolio assuming all dividends and distributions were
reinvested. PricewaterhouseCoopers LLP has audited this information. The
financial statements and the unqualified opinion of PricewaterhouseCoopers
LLP are included in the annual report of the portfolio, which is available
upon request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30 1999++ 1998 1997***
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 12.26 $10.65 $10.53
------- ------ ------
Income from Investment Operations
Net Investment Income (Loss)................... (0.01) 0.04 0.01
Net Realized and Unrealized Gain on
Investments................................... 0.82 2.02 0.11
------- ------ ------
Total from Investment Operations............... 0.81 2.06 0.12
------- ------ ------
Distributions:
Net Investment Income.......................... (0.04) (0.04) --
Net Realized Gain.............................. (0.22) (0.41) --
------- ------ ------
Total Distributions............................ (0.26) (0.45) --
------- ------ ------
Net Asset Value, End of Period.................. $ 12.81 $12.26 $10.65
======= ====== ======
Total Return+................................... 6.90% 20.11% 1.14%**
======= ====== ======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands).......... $10,391 $7,251 $3,920
Ratio of Expenses to Average Net Assets........ 1.75% 1.75% 1.76%*
Ratio of Net Investment Income (Loss) to
Average Net Assets............................ (0.12)% 0.29% 0.59%*
Portfolio Turnover Rate........................ 48% 80% 47%
Ratio of Voluntarily Waived Fees and Expenses
Assumed by the Adviser to Average Net Assets.. 0.13% 0.06% 0.47%*
Ratio of Expenses to Average Net Assets
Including Expense Offsets..................... 1.75% 1.75% 1.75%*
</TABLE>
* Annualized
** Not Annualized
*** For period from December 31, 1996 inception of Institutional Service
Class shares to April 30, 1997.
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the periods indicated.
++ Per share amounts are based on average outstanding shares.
19
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
MJIFX 902556836 911
</TABLE>
<PAGE>
MJI International Equity Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual/Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
How to Get More Information
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[LOGO OF UAM FUNDS APPEARS HERE]
<PAGE>
UAM Funds
Funds for the Informed Investor(SM)
MJI International Equity Portfolio
Institutional Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 1
How has the Portfolio Performed? .......................................... 3
What are the Fees and Expenses of the Portfolio? .......................... 4
Investing with the Uam Funds ................................................. 5
Buying Shares ............................................................. 5
Redeeming Shares .......................................................... 6
Exchanging Shares ......................................................... 6
Transaction Policies ...................................................... 7
</TABLE>
<TABLE>
<S> <C>
Account Policies ............................................................ 10
Small Accounts ............................................................ 10
Distributions ............................................................. 10
Federal Taxes ............................................................. 10
Portfolio Details ........................................................... 12
Principal Investments and Risks of the Portfolio .......................... 12
Other Investment Practices and Strategies ................................. 15
Year 2000 ................................................................. 15
Investment Management ..................................................... 16
Shareholder Servicing Arrangements ........................................ 17
Additional Classes of Shares............................................... 18
Financial Highlights ........................................................ 19
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks to maximize total return, including both capital ap-
preciation and current income, by investing primarily in the common stocks
of companies based outside of the United States. The portfolio cannot
guarantee it will meet its investment objective. The portfolio may not
change its investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio normally invests at least 65% of its total assets in common
stocks (including rights or warrants to purchase common stocks) of compa-
nies located in at least three countries outside the United States. While
the portfolio invests primarily in securities of companies domiciled in
developed countries, it may also invest in developing countries.
The investment process of the adviser begins by determining which interna-
tional stock markets the portfolio should invest in and in what propor-
tion. The adviser makes its decision by evaluating the various markets
through a proprietary system that analyzes economic factors, stock prices
in each market, market performance and trends in monetary policy. The ad-
viser then compares the companies in each of those markets in an effort to
select stocks that it believes the market has undervalued compared to in-
dustry norms within their countries.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
MJI International Equity Portfolio
The portfolio's main risks are those associated with investing in foreign
equity securities. Foreign securities, especially those of companies in
emerging markets, can be riskier and more volatile than domestic securi-
ties. Adverse political and economic developments or changes in the value
of foreign currency can make it harder for a portfolio to sell its securi-
ties and could reduce the value of your shares. Differences in tax and ac-
counting standards and difficulties in obtaining information about foreign
companies can negatively affect investment decisions.
Equity securities may experience sudden, unpredictable drops in value or
long periods of decline in value. This may occur because of factors af-
fecting the securities markets generally, an entire industry or sector or
a particular company.
2
<PAGE>
HOW HAS THE PORTFOLIO PERFORMED?
- -------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of this class
of the portfolio has varied from year to year and provide some indication
of the risks of investing in the portfolio. The bar chart shows the in-
vestment returns of the portfolio for each full calendar year. The table
following the bar chart compares the average annual returns of the portfo-
lio to those of a broad-based securities market index. Past performance
does not guarantee future results.
Calendar Year Returns
[BAR CHART APPEARS HERE]
1995 9.64%
1996 7.79%
1997 6.01%
1998 15.53%
<TABLE>
<CAPTION>
Return Quarter Ended
---------------------------------------
<S> <C> <C>
Highest Quarter 18.52% 12/31/98
---------------------------------------
Lowest Quarter -13.87% 9/30/98
---------------------------------------
Year-To-Date 5.31% 6/30/99
</TABLE>
Average Annual Returns For Periods Ended 12/31/98
<TABLE>
<CAPTION>
1 Year Since Inception*
-------------------------------------------------------------------------
<S> <C> <C>
MJI International Equity Portfolio 15.53% 6.46%
-------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 20.33% 9.02%
</TABLE>
*This class of the portfolio began operations on 9/16/94. Index compari-
sons begin on 9/30/94.
3
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses (Expenses That Are Deducted From the Assets of
the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
------------------------------------------------------------------
<S> <C>
Management fees 0.75%
------------------------------------------------------------------
Other expenses 0.90%
------------------------------------------------------------------
Total expenses* 1.65%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolio actually paid the total operating expenses listed in the table
below. The adviser may change or cancel its expense limitation at any
time.
<TABLE>
------------------------------------------------------------------
<S> <C>
Actual Expenses 1.50%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------------------------------
<S> <C> <C> <C>
$168 $520 $897 $1,955
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the portfolio into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds on follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic You may not open an To set up a plan, mail a
Investment Plan account via ACH. completed application to
(Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
5
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic If your account balance is at least $10,000, you may
Withdrawal Plan transfer as little as $100 per month from your UAM account
(Via ACH) to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
6
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAV by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established
7
<PAGE>
by the UAM Funds. The UAM Funds may also value securities at fair value
when events occur that make established valuation methods (such as stock
exchange closing prices) unreliable.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
8
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
9
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income and net cap-
ital gains once a year. The UAM Funds will automatically reinvest divi-
dends and distributions in additional shares of the portfolio, unless you
elect on your account application to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
10
<PAGE>
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
11
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. As long as it is consistent with its objective and other policies
described in the SAI, the portfolio may change these strategies without
shareholder approval.
The portfolio normally invests at least 65% of its total assets in common
stocks (including rights or warrants to purchase common stocks) of compa-
nies located in at least three countries outside the United States. Gener-
ally, the portfolio invests in common stocks of companies listed on stock
exchanges of the United States or foreign countries, but it may also in-
vest in stocks traded in the over-the-counter market. While the portfolio
invests primarily in securities of companies domiciled in developed coun-
tries, it may also invest in developing countries.
Investment Process
The adviser tries to minimize specific country and currency risks by di-
versifying the investments of the portfolio throughout the world and
within markets. The investment process of the adviser begins by determin-
ing which international stock markets the portfolio should invest in and
in what proportion. The adviser makes its decision by evaluating the vari-
ous markets through a proprietary system called the Twenty Questions Anal-
ysis that analyzes macro-economic factors, value factors, market perfor-
mance and trends in monetary policy.
Once the adviser decides how to allocate the assets of the portfolio among
the various international stock markets, it then compares the companies in
each of those markets according to:
.Quality of management.
.Market position.
.Financial strength.
.Ability to earn competitive returns on equity and assets.
.Growth potential.
The adviser selects stocks that it believes the market has undervalued
compared to industry norms within their countries.
12
<PAGE>
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
Foreign Securities
The portfolio may invest directly in equity securities of companies lo-
cated outside the United States and in American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and other similar global in-
struments.
ADRs are certificates evidencing ownership of shares of a foreign issuer
that are issued by depository banks and generally trade on an established
market in the United States or elsewhere. EDRs are similar to ADRs, except
that they are typically issued by European banks or trust companies. Al-
though ADRs and EDRs are alternatives to directly purchasing the under-
lying foreign securities in their national markets and currencies, they
continue to be subject to many of the risks associated with investing di-
rectly in foreign securities.
Foreign securities, foreign currencies, and securities issued by U.S. en-
tities with substantial foreign operations may involve significant risks
in addition to the risks inherent in U.S. investments.
Local political, economic, regulatory or social instability, military ac-
tion or unrest, or adverse diplomatic developments may affect the value of
foreign investments. A foreign government may act adversely to the inter-
ests of U.S. investors. Such actions may include expropriation or nation-
alization of assets, confiscatory taxation and other restrictions on U.S.
investment.
The securities of foreign companies are often denominated in foreign cur-
rencies. Since the portfolio's net asset value is denominated in U.S. dol-
13
<PAGE>
lars, changes in foreign currency rates and in exchange control regula-
tions may positively or negatively affect the value of its securities. In
January 1999, certain European nations began to use the new European com-
mon currency, called the Euro. The nations that use the Euro have the same
monetary policy regardless of their domestic economy, which could have ad-
verse effects on those economies. In addition, difficulties in converting
to the Euro could negatively affect the investments of a portfolio.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States. Securities of
some foreign issuers may be less liquid and more volatile than securities
of comparable U.S. issuers. In addition, the costs associated with foreign
investments, including withholding taxes, brokerage commissions and custo-
dial costs, are generally higher than the costs associated with U.S. in-
vestments.
Foreign countries generally have different legal systems and different
regulations concerning financial disclosure, accounting and auditing stan-
dards than the United States. This could make corporate financial informa-
tion more difficult to obtain or understand and less reliable than infor-
mation about U.S. companies.
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 govern-
ments, may present the risks of nationalization of businesses, re-
strictions on foreign ownership and prohibitions on the repatriation
of assets.
. They may protect property rights less than more developed countries.
. The economies of countries with emerging markets may be based on only
a few industries, may be highly vulnerable to changes in local or
global trade conditions and may suffer from extreme and volatile debt
burdens or inflation rates.
. Local securities markets may trade a small number of securities and
may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of holdings difficult or impos-
sible at times.
14
<PAGE>
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Derivatives
The portfolio may use futures contracts, forward foreign currency exchange
contracts, options and swaps (types of derivatives) to hedge its invest-
ments. Derivatives are often more volatile than other investments and may
magnify the portfolio's gains or losses. The portfolio may lose money if
the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may invest up to 100% of the portfolio's assets in
a variety of high-quality, short-term debt securities, such as U.S. gov-
ernment securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets
and to meet redemptions. The adviser may temporarily adopt a defensive po-
sition to reduce changes in the value of the shares of the portfolio
that may result from adverse market, economic, political or other develop-
ments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
15
<PAGE>
Consequently, these programs may not be able to perform necessary func-
tions and could disrupt the operations of the UAM Funds or financial mar-
kets in general. The year 2000 issue affects all companies and organiza-
tions, including those that provide services to the UAM Funds and those in
which the UAM Funds invest. Foreign issuers may be more vulnerable than
those located in the United States to negative effects from year-2000 re-
lated problems.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Murray Johnstone International, Ltd., located in Glasgow, Scotland, is the
investment adviser to the portfolio. The adviser manages and supervises
the investment of the portfolio's assets on a discretionary basis. The ad-
viser, an affiliate of United Asset Management Corporation, is an interna-
tional investment adviser whose origins date back to 1907.
During the fiscal year ended April 30, 1999, the portfolio paid the ad-
viser 0.63% of its average net assets in management fees. In addition, the
adviser has voluntarily agreed to limit the expenses of the portfolio to
1.50% of its average net assets. To maintain this expense limit, the ad-
viser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio (excluding interest, taxes and extraordinary ex-
penses). The adviser intends to continue its expense limitation until fur-
ther notice.
Portfolio Managers
Since the country decision is of first importance, the members of the
Country Allocation Team are the key decision makers for the portfolio, and
that experience and judgment is critical. The team members are James
Clunie (Head of Allocation) and Andrew Preston.
16
<PAGE>
James Clunie is the Senior Investment Officer in charge of North American
clients and a Director of Murray Johnstone International. James is also
responsible for research into the performance and continued development of
the Twenty Questions Analysis. James came to Murray Johnstone in 1989 af-
ter receiving his BS with Honors in Mathematics and Statistics from Edin-
burgh University. He has worked in the adviser's UK department and spent
time in the US as a Product Specialist. He is a Certified Financial Ana-
lyst.
Andrew Preston is a Senior Investment Officer and a Director of Murray
Johnstone International. He has been with Murray Johnstone for fourteen
years, and has been a member of the adviser's UK and Japan teams. Earlier
in his career, Andrew was a diplomat in the Australian Department of For-
eign Affairs, and he is fluent in Japanese and Chinese.
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
17
<PAGE>
ADDITIONAL CLASSES OF SHARES
- -------------------------------------------------------------------------------
The portfolio also offers Institutional Service Class shares, which pay
marketing or shareholder servicing fees.
18
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the portfolio for the fiscal periods
indicated. Certain information contained in the table reflects the finan-
cial results for a single portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in
this class of the portfolio assuming all dividends and distributions were
reinvested. PricewaterhouseCoopers LLP has audited this information. The
financial statements and the unqualified opinion of PricewaterhouseCoopers
LLP are included in the annual report of the portfolio, which is available
upon request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999+++ 1998 1997 1996 1995***
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 12.29 $ 10.65 $ 10.27 $ 9.50 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net Investment Income........ 0.03 0.07 0.06 0.07 0.04
Net Realized and Unrealized
Gain (Loss) on Investments.. 0.82 2.02 0.42 0.75 (0.54)++
------- ------- ------- ------ ------
Total from Investment
Operations.................. 0.85 2.09 0.48 0.82 (0.50)
------- ------- ------- ------ ------
Distributions
Net Investment Income........ (0.07) (0.04) (0.01) -- @ --
In Excess of Net Investment
Income...................... -- -- -- (0.03) --
Net Realized Gain............ (0.22) (0.41) (0.09) (0.02) --
------- ------- ------- ------ ------
Total Distributions........... (0.29) (0.45) (0.10) (0.05) --
------- ------- ------- ------ ------
Net Asset Value, End of
Period....................... $ 12.85 $ 12.29 $ 10.65 $10.27 $ 9.50
======= ======= ======= ====== ======
Total Return+................. 7.17% 20.39% 4.67% 8.67% (5.00)%**
======= ======= ======= ====== ======
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands).................. $21,006 $32,296 $28,818 $8,592 $5,535
Ratio of Expenses to Average
Net Assets................... 1.50% 1.50% 1.50% 1.45% 1.00%*
Ratio of Net Investment Income
to Average Net Assets........ 0.21% 0.60% 0.68% 0.88% 1.49%*
Portfolio Turnover Rate....... 48% 80% 47% 59% 81%
Ratio of Voluntarily Waived
Fees and Expenses Assumed by
the Adviser to Average Net
Assets....................... 0.15% 0.07% 0.53% 1.62% 5.50%*
Ratio of Expenses to Average
Net Assets Including
Expense Offsets.............. 1.50% 1.50% 1.50% 1.43% 1.00%*
</TABLE>
* Annualized
** Not Annualized
*** For the period September 16, 1994 (commencement of operations) to
April 30, 1995.
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the periods indicated.
++ The amount shown for a share outstanding throughout the period does
not accord with the aggregate net gain on investments for that period
because of the timing of sales and repurchases of the Portfolio shares
in relation to fluctuating market value of the investments of the
Portfolio.
+++ Per share amounts are based on average outstanding shares.
@ Amount is less than $0.01 per share.
19
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
MJIEX 902556703 910
</TABLE>
<PAGE>
MJI International Equity Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO]
<PAGE>
UAM Funds
Funds for the Informed Investor(SM)
Pell Rudman Mid-Cap Growth Portfolio
Institutional Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 1
What are the Fees and Expenses of the Portfolio? .......................... 3
Investing with the UAM Funds ................................................. 4
Buying Shares ............................................................. 4
Redeeming Shares .......................................................... 5
Exchanging Shares ......................................................... 5
Transaction Policies ...................................................... 6
Account Policies ............................................................. 9
Small Accounts ............................................................ 9
Distributions ............................................................. 9
Federal Taxes ............................................................. 9
Portfolio Details ........................................................... 11
Principal Investments and Risks of the Portfolio .......................... 11
Other Investment Practices and Strategies ................................. 12
Year 2000 ................................................................. 13
Investment Management ..................................................... 14
Shareholder Servicing Arrangements ........................................ 16
Financial Highlights ........................................................ 18
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks long-term capital appreciation. The portfolio cannot
guarantee it will meet its investment objective. The portfolio may change
its investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The primary focus of the portfolio is on quality growth companies with me-
dium market capitalizations. The portfolio normally invests at least 65%
of its total assets in common stocks of companies with market capitaliza-
tions between $200 million and $10 billion at the time of purchase. The
adviser emphasizes bottom up (i.e., it focuses on individual stocks rather
than industries or sectors) fundamental stock selection that concentrates
on:
. Companies that can deliver consistently strong earnings growth, cash
flow growth and return on equity.
. Companies that have strong management.
. Companies that may outperform in the future and/or possess a catalyst
that will allow the stock to recognize its potential.
. Diversification in terms of sectors of the economy and the number of
securities.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
1
<PAGE>
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
Pell Rudman Mid-Cap Growth Portfolio
The portfolio's main risks are those associated with investing in equity
securities using a growth-oriented approach. Equity securities may experi-
ence sudden, unpredictable drops in value or long periods of decline in
value. This may occur because of factors affecting the securities markets
generally, an entire industry or sector or a particular company.
Growth funds may not perform as well as other types of mutual funds when
growth investing is out of favor. The values of growth stocks may be more
sensitive to changes in current or expected earnings than the values of
other stocks.
Investing in stocks of smaller companies can be riskier than investing in
larger, more mature companies. Smaller companies may be more vulnerable to
adverse developments than larger companies because they tend to have more
narrow product lines and more limited financial resources. Their stocks
may trade less frequently and in limited volume.
2
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<S> <C>
-----------------------
Management fees 1.00%
-----------------------
Other expenses 6.74%
-----------------------
Total expenses* 7.74%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolio actually paid the total operating expenses listed in the table
below. The adviser may change or cancel its expense limitation at any
time.
<TABLE>
<S> <C>
-----------------------
Actual Expenses 1.30%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------------------------------
<S> <C> <C> <C>
$763 $2,228 $3,613 $6,758
</TABLE>
3
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic You may not open an ac- To set up a plan, mail a
Investment Plan count via ACH. completed application to
(Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
4
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may
transfer as little as $100 per month from your UAM account
to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
5
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAV by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to value
their investments. Investments that do not have readily available
6
<PAGE>
market prices are valued at fair value, according to guidelines estab-
lished by the UAM Funds. The UAM Funds may also value securities at fair
value when events occur that make established valuation methods (such as
stock exchange closing prices) unreliable.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from the
purchase date. You may avoid these delays by paying for shares with a cer-
tified check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
7
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC allows the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, the portfolio distributes its net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolio, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
9
<PAGE>
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying into a div-
idend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
10
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objective. For more information con-
cerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on the
portfolio's recent strategies and holdings in its annual/semi-annual re-
port. The portfolio may change these strategies without shareholder
approval.
The portfolio normally invests at least 65% of its total assets in common
stocks of medium-sized companies (companies that have market capitaliza-
tions between $200 million and $10 billion at the time of purchase). The
portfolio may also invest in other types of equity securities.
Investment Process
The adviser emphasizes bottom-up (i.e., it focuses on individual stocks
rather than industries or sectors) fundamental stock selection that con-
centrates on companies that can deliver consistently strong earnings
growth, cash flow growth, and return on equity. Importantly, the adviser
looks for a proven history of growth because it believes that such a his-
tory is indicative of the value of the underlying franchise or market po-
sition. These companies typically have a proprietary product or business
approach that allows them to be leaders within their respective indus-
tries.
The adviser also looks for strong management that is shareholder-oriented
and is pursuing a clear, profit-oriented business strategy.
In addition, the adviser emphasizes diversification in terms of sector ex-
posure as well as the number of securities held, and normally expects low
turnover of holdings.
The adviser narrows potential candidates by looking for companies that may
outperform in the future and/or possess a catalyst that may allow the
stock to recognize its potential. Typical catalysts include:
. New products.
. Acceleration in revenues.
. Expanding profit margins.
. Companies with strong growth-oriented fundamentals that have experi-
enced a recent and/or significant correction in valuation.
. Companies with positive earnings momentum.
11
<PAGE>
Companies are constantly evaluated in terms of growth characteristics rel-
ative to valuations by comparing the price-to-earnings growth rate of cur-
rent portfolio holdings to potential purchase candidates.
The adviser screens the portfolio regularly for potential securities to
sell. Securities are considered to be candidates for sale based on their
performance relative to the certain benchmarks. In addition, the adviser
may sell a security at any time because of deteriorating fundamentals,
valuations or relative performance.
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
Growth stocks, which are stocks of companies that the adviser believes
have earnings that will grow relatively rapidly, typically trade at higher
multiples of current earnings than other stocks. Therefore, the values of
growth stocks may be more sensitive to changes in current or expected
earnings than the values of other stocks.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Foreign Securities
The portfolio may invest in foreign securities. Foreign securities, espe-
cially those of companies in emerging markets, can be riskier and more
volatile than
12
<PAGE>
domestic securities. Adverse political and economic developments or
changes in the value of foreign currency can make it harder for the port-
folio to sell its securities and could reduce the value of your shares.
Changes in tax and accounting standards and difficulties obtaining infor-
mation about foreign companies can negatively affect investment decisions.
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro have the
same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of a portfo-
lio.
Short-Term Investing
At times, the adviser may invest up to 100% of the portfolio's assets in a
variety of high-quality, short-term debt securities, such as U.S. govern-
ment securities. The adviser may invest in these types of securities for
temporary defensive purposes, to earn a return on uninvested assets and to
meet redemptions. The adviser may temporarily adopt a defensive position
to reduce changes in the value of the shares of the portfolio that may re-
sult from adverse market, economic, political or other developments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
13
<PAGE>
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Pell Rudman Trust Company, N.A., a nationally chartered trust company lo-
cated at 100 Federal Street, Boston, Massachusetts 02110, is the invest-
ment adviser to the portfolio. The adviser manages and supervises the in-
vestment of the portfolio's assets on a discretionary basis. The adviser,
an affiliate of United Asset Management Corporation, has provided compre-
hensive and integrated financial services to individuals and selected in-
stitutional clients since 1980.
The adviser has voluntarily agreed to limit the expenses of the portfolio
to 1.30% of its average net assets. To maintain this expense limit, the
adviser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice. During the fiscal period ended April 30,
1999, the adviser waived its entire management fee.
Portfolio Managers
A team of investment professionals manages the portfolio; however, Jeffrey
S. Thomas has overall responsibility for the day-to-day management of the
portfolio. Listed below are the investment professionals that comprise
that team and a brief description of their business experience.
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Jeffrey S. Thomas, CFA Mr. Thomas joined the adviser in 1986 and he is cur-
rently Chief Investment Officer. Mr. Thomas heads
the Investment Committee and oversees the portfolio
management of all client portfolios of the adviser.
Before joining the adviser, he was Vice President,
Scudder Stevens & Clark, 1981-1986; Senior Invest-
ment Officer, Bank of New England, 1979-1981; and
Investment Officer, The Northern Trust Company,
1973-1979. Mr. Thomas is a member of the Boston Se-
curity Analysts Society, Bank Analysts Association
of Boston and President of Boston Media Analysts
Group. He earned his BS in Finance and Economics
from Miami University (Ohio) and his MBA in Finance
from the University of Chicago. He is a Chartered
Financial Analyst and Chartered Investment Counsel-
or.
-----------------------------------------------------------------------------
Frederick L. Weiss, CFA Mr. Weiss is Director of Research and heads the re-
search efforts of the investment team. Before join-
ing the adviser in 1989, he was Vice President and
Senior Analyst, Adams, Harkness & Hill, 1989; Vice
President State Street Research and Management,
1983-1988; and Analyst, State Street Research and
Management, 1979-1983. Mr. Weiss is a member of the
Boston Security Analyst Society and Healthcare,
Technology and Chemicals Analysts Society. He earned
his AB from Harvard College, Magna Cum Laude, and
his MBA from Harvard Business School, with honors.
He is a Chartered Financial Analyst.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Jay Pearlstein, CFA, CPA Mr. Pearlstein is a Senior Research Analyst and
Portfolio Manager providing equity research on a
number of industries. Before joining the adviser in
1996, he was a Vice President of the Equity Re-
search Department and on the Investment Policy Com-
mittee, Loomis Sayles & Co., 1981-1996; Staff Ana-
lyst, Gulf Oil Corporation, 1980; and Senior Audi-
tor at Coopers & Lybrand, 1977-1979. Mr. Pearlstein
earned his BA in Accounting from Michigan State
University, Summa Cum Laude. He received the Board
of Trustees Award for graduating first in his class
and was the recipient of a National Merit Scholar-
ship, Financial Executives Institute Award and Al-
pha Kappa Psi Scholarship Key. He also earned his
MBA, with distinction, from Harvard University
Graduate School of Business Administration where he
received First-Year Honors. He is a Chartered Fi-
nancial Analyst and a Certified Public Accountant.
</TABLE>
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts reflects deductions for the average fees and expenses of
such accounts. The average fees and expenses of the separate accounts were
less than the operating expenses of the portfolio. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolio, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
15
<PAGE>
<TABLE>
<CAPTION>
Pell Rudman Trust Russell
Company, N.A. Mid-Cap
Composite* Growth Index
-------------------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1992 35.93% 14.09%
-------------------------------------------------------------------------------------
1993 28.44% 11.19%
-------------------------------------------------------------------------------------
1994 2.12% (2.16)%
-------------------------------------------------------------------------------------
1995 36.26% 33.98%
-------------------------------------------------------------------------------------
1996 18.64% 17.48%
-------------------------------------------------------------------------------------
1997 22.52% 22.54%
-------------------------------------------------------------------------------------
1998 23.95%
-------------------------------------------------------------------------------------
Average Annual Returns For Periods Ended 6/30/99
1-year 16.03% 22.54%
-------------------------------------------------------------------------------------
3-years 21.18% 22.35%
-------------------------------------------------------------------------------------
5-years 24.13% 20.31%
-------------------------------------------------------------------------------------
Since Inception (6/1/92) 24.64% 17.97%
</TABLE>
* The adviser's returns presented above are net of an average annual fee
of 0.70%. During the period shown (6/1/92-6/30/99), fees on the advis-
er's individual accounts ranged from 0.50% to 1.00%. The adviser's com-
posite has not been audited.
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
16
<PAGE>
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
17
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the fiscal period indicated.
Certain information contained in the table reflects the financial results
for a single portfolio share. The total returns in the table represent the
rate that an investor would have earned on an investment in the portfolio
assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the portfolio, which is available upon
request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Period Ended April 30, 1999*
------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.00
------
Income From Investment Operations
Net Investment Loss.............................................. (0.02)
Net Realized and Unrealized Gain on Investments.................. 2.78
------
Total from Investment Operations................................. 2.76
------
Net Asset Value, End of Period.................................... $12.76
======
Total Return+..................................................... 27.50%***
======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)............................. $6,185
Ratio of Expenses to Average Net Assets........................... 1.30%**
Ratio of Net Investment Loss to Average Net Assets................ (0.68)%**
Portfolio Turnover Rate........................................... 24%
Ratio of Voluntarily Waived Fees and Expenses Assumed by the
Adviser to Average Net Assets.................................... 6.44%**
</TABLE>
* For the period September 10, 1998 (commencement of operations) to
April 30, 1999.
** Annualized
*** Not Annualized
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the Adviser during the period.
18
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<S> <C>
CUSIP Number Portfolio Number
----------------------------------------------------------------------------
902556760 920
</TABLE>
<PAGE>
Pell Rudman Mid-Cap Growth Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM FUNDS
Funds for the Informed Investor/SM/
TJ Core Equity Portfolio
Institutional Service Class Prospectus August 9, 1999
UAM(R)
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Portfolio Summary ............................................................ 1
What is the Objective of the Portfolio? ................................... 1
What are the Principal Investment Strategies of the Portfolio? ............ 1
What are the Principal Risks of the Portfolio? ............................ 1
How has the Portfolio Performed? .......................................... 2
What are the Fees and Expenses of the Portfolio? .......................... 3
Investing with the UAM Funds ................................................. 4
Buying Shares ............................................................. 4
Redeeming Shares .......................................................... 5
Exchanging Shares ......................................................... 5
Transaction Policies ...................................................... 6
Account Policies ............................................................. 9
Small Accounts ............................................................ 9
Distributions ............................................................. 9
Federal Taxes ............................................................. 9
Portfolio Details ........................................................... 11
Principal Investments and Risks of the Portfolio .......................... 11
Other Investment Practices and Strategies ................................. 12
Year 2000 ................................................................. 13
Investment Management ..................................................... 14
Shareholder Servicing Arrangements ........................................ 15
Financial Highlights ........................................................ 16
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks maximum total return consistent with reasonable risk
to principal by investing in the common stock of quality companies with
lower valuations in sectors of the economy exhibiting strong, or improv-
ing, relative performance. The portfolio cannot guarantee it will meet its
investment objective. The portfolio may not change its investment objec-
tive without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal investment strategies of the portfo-
lio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
Normally, the portfolio invests primarily in common stocks of companies
with market capitalizations of over $800 million at the time of purchase.
The adviser chooses stocks by first examining key economic variables to
identify industry sectors that exhibit strong or improving economic funda-
mentals. The adviser then looks for companies in those industries that of-
fer the best value by emphasizing low cost industry leaders that are cur-
rently out-of-favor and selling at attractive prices relative to other
companies in that sector.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS
OF THE PORTFOLIO."
Risks Common to All Mutual Funds
As with all mutual funds, at any time, your investment in the portfolio
may be worth more or less than the price that you originally paid for it.
You may lose money by investing in the portfolio because:
. The value of the securities it owns changes, sometimes rapidly and un-
predictably.
. The portfolio is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
1
<PAGE>
TJ Core Equity Portfolio
The portfolio's main risks are those associated with investing in equity
securities. Equity securities may experience sudden, unpredictable drops
in value or long periods of decline in value. This may occur because of
factors affecting the securities markets generally, an entire industry or
a particular company.
HOW HAS THE PORTFOLIO PERFORMED?
- --------------------------------------------------------------------------------
The bar chart and table below illustrate how the performance of the port-
folio has varied from year to year and provide some indication of the
risks of investing in the portfolio. The bar chart shows the investment
returns of the portfolio for each full calendar year. The table following
the bar chart compares the average annual returns of the portfolio to
those of a broad-based securities market index. Past performance does not
guarantee future results.
Calendar Year Returns
[LOGO OF CALENDAR YEAR RETURNS APPEARS HERE]
<TABLE>
<CAPTION>
Return Quarter Ended
--------------------------------------
<S> <C> <C>
Highest Quarter 20.65% 12/31/98
--------------------------------------
Lowest Quarter -5.90% 9/30/98
--------------------------------------
Year-To-Date 20.28% 6/30/99
</TABLE>
Average Annual Returns For Periods Ended 12/31/98
<TABLE>
<CAPTION>
1 Year Since Inception*
--------------------------------------------------
<S> <C> <C>
TJ Core Equity Portfolio 30.10% 25.60%
--------------------------------------------------
S&P 500 Index 28.60% 28.08%
</TABLE>
*The portfolio began operations 9/28/95. Index comparisons begin on
9/30/95.
2
<PAGE>
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (Expenses That Are Deducted From the
Assets of the Portfolio)
This table describes the fees and expenses that you may pay if you buy and
hold shares of the portfolio.
<TABLE>
<CAPTION>
----------------------------
<S> <C>
Management Fees 0.75%
----------------------------
Service (12b-1) Fees 0.25%
----------------------------
Other Expenses 1.20%
----------------------------
Total Expenses* 2.20%
</TABLE>
* Actual Fees and Expenses The percentages stated in the table above are
higher than the expenses you would have actually paid. Due to certain
expense limits by the adviser and expense offsets, investors in the
portfolio actually paid the total operating expenses listed in the table
below. The adviser intends to continue its expense limitation until Jan-
uary 1, 2001, but may change or cancel it at any time.
<TABLE>
<CAPTION>
-----------------------
<S> <C>
Actual Expenses 1.25%
</TABLE>
Example
This example can help you to compare the cost of investing in this portfo-
lio to the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the portfolio for the periods shown and then redeem
all of your shares at the end of those periods. The example also assumes
that you earned a 5% return on your investment each year and that you paid
the total expenses stated above (which do not reflect any expense limita-
tions) throughout the period of your investment. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
---------------------------------
$223 $688 $1,180 $2,534
</TABLE>
3
<PAGE>
Investing with the UAM Funds
BUYING SHARES
- --------------------------------------------------------------------------------
To open an account To buy more shares
---------------------------------------------------------------------------
By Mail Send a check or money Send a check and, if pos-
order and your account sible, the "Invest by
application to the UAM Mail" stub that accompa-
Funds. Make checks pay- nied your statement to the
able to "UAM Funds" UAM Funds. Be sure your
(the UAM Funds will not check identifies clearly
accept third-party your name, account number
checks). and the UAM Fund into
which you want to invest.
---------------------------------------------------------------------------
By Wire Call 1-877-826-5465 for Call 1-877-826-5465 to get
an account number and a wire control number and
wire control number. wire your money to the UAM
Send your completed ac- Funds as follows:
count application to
the UAM Funds. Wire
your money to the UAM
Funds as follows:
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
---------------------------------------------------------------------------
By Automatic You may not open an ac- To set up a plan, mail a
Investment Plan count via ACH. completed application to
(Via ACH) the UAM Funds. To cancel
or change a plan, write to
the UAM Funds. Allow up to
15 days to create the plan
and 3 days to cancel or
change it.
---------------------------------------------------------------------------
Minimum $2,500--regular account $100
Investments $500--IRAs $250--
spousal IRAs
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
4
<PAGE>
REDEEMING SHARES
- -------------------------------------------------------------------------------
By Mail Send a letter signed by all registered parties on the ac-
count to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to re-
deem.
Certain shareholders may need to include additional docu-
ments to redeem shares. Please see the Statement of Addi-
tional Information (SAI) if you need more information.
---------------------------------------------------------------------------
By Telephone You must first establish the telephone redemption privi-
lege (and, if desired, the wire redemption privilege) by
completing the appropriate sections of the account appli-
cation.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you
or wire them to your bank.
---------------------------------------------------------------------------
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may
transfer as little as $100 per month from your UAM account
to your financial institution.
To participate in this service, you must complete the ap-
propriate sections of the account application and mail it
to the UAM Funds.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
5
<PAGE>
TRANSACTION POLICIES
- -------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives and accepts your or-
der. The portfolio calculates its NAV as of the close of trading on the
New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) each day
the NYSE is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the NYSE that
day. Otherwise, you will receive the NAV that is calculated at the close
of trading on the following business day. The UAM Funds are open for busi-
ness on the same days as the NYSE, which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
portfolio does not calculate its NAV. Consequently, the value of the port-
folio may change on days when you are unable to purchase or redeem shares
of the portfolio.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to
the UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the UAM Funds by the time they price their
shares on the following business day. If your financial intermediary fails
to do so, it may be responsible for any resulting fees or losses.
Calculating NAV
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use market prices to
6
<PAGE>
value their investments. Investments that do not have readily available
market prices are valued at fair value, according to guidelines estab-
lished by the UAM Funds. The UAM Funds may also value securities at fair
value when events occur that make established valuation methods (such as
stock exchange closing prices) unreliable.
In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares with securities instead of cash. In addition, the UAM Funds may pay
all or part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after
they receive a redemption request in proper order. If you redeem shares
that were purchased by check, you will not receive your redemption pro-
ceeds until the check has cleared, which may take up to 15 days from pur-
chase date. You may avoid these delays by paying for shares with a certi-
fied check, bank check or money order.
Signature Guarantee
You must have your signature guaranteed when (1) you want the proceeds
from your redemption sent to a person or address different from that reg-
istered on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institu-
tions, securities dealers, national securities exchanges, registered secu-
rities associations, clearing agencies and other guarantor institutions. A
notary public cannot guarantee a signature.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone that it reasonably believes to be genuine.
7
<PAGE>
Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the NYSE is restricted.
. The SEC allows the UAM Funds to delay redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
8
<PAGE>
Account Policies
SMALL ACCOUNTS
- -------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum be-
cause of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Normally, the portfolio distributes its net investment income quarterly.
In addition, the portfolio distributes its net capital gains once a year.
The UAM Funds will automatically reinvest dividends and distributions in
additional shares of the portfolio, unless you elect on your account ap-
plication to receive them in cash.
FEDERAL TAXES
- -------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for spe-
cific guidance regarding the tax effect of your investment in the UAM
Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to sharehold-
ers as ordinary income or capital gains (which may be taxable at different
rates depending on the length of time the portfolio held the relevant as-
sets). You will be subject to income tax on these distributions regardless
of whether they are paid in cash or reinvested in additional shares. Once
a year the UAM Funds will send you a statement showing the types and total
amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
9
<PAGE>
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between your tax basis in the shares (the cost of
your shares) and the amount you receive for them. To aid in computing your
tax basis, you should keep your account statements for the periods during
which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
To the extent the portfolio invests in foreign securities, it may be sub-
ject to foreign withholding taxes with respect to dividends or interest
the portfolio received from sources in foreign countries. The portfolio
may elect to treat some of those taxes as a distribution to shareholders,
which would allow shareholders to offset some of their U.S. federal income
tax.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
10
<PAGE>
Portfolio Details
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO
- -------------------------------------------------------------------------------
This section briefly describes the principal investment strategies and
risks the portfolio may employ in seeking its objective. For more informa-
tion concerning these investment strategies and their associated risks,
please read the "PORTFOLIO SUMMARY" and the SAI. You can find information
on the portfolio's recent strategies and holdings in its annual/semi-an-
nual report. As long as it is consistent with its objective and other pol-
icies described in the SAI, the portfolio may change these strategies
without shareholder approval.
Normally, the portfolio invests at least 65% of its total assets in equity
securities. These investments will consist primarily of common stocks of
companies with market capitalizations greater than $200 million at the
time of purchase. Eighty percent of the common stocks held by the portfo-
lio will be of companies with market capitalizations greater than $800
million. The portfolio may also invest up to 35% of its assets in
investment-grade debt securities. The adviser expects the portfolio to
hold less than 20% of its assets in cash or cash equivalents.
Investment Process
The adviser makes three key decisions when investing the assets of the
portfolio: (1) Determining how to allocate the portfolio's assets among
cash and stock, (2) selecting the best industries or groups of industries;
and (3) picking companies in those industries that offer the best value.
The adviser decides how to allocate the portfolio's assets by examining
key economic variables, such as the level and direction of interest rates,
forecasted growth in the gross domestic product (GDP), anticipated gains
in corporate profits, inflationary pressures and money supply growth.
The adviser next analyzes each sector in detail using selected industry
screens to identify industries or groups of industries exhibiting strong
or improving economic fundamentals.
Finally, the adviser looks for companies in those industries that offer
the best value by emphasizing industry leaders that are currently out-of-
favor and selling at attractive prices relative to other companies in
their industry and the S&P 500 Index. The adviser is particularly inter-
ested in the company's market value and forecasted earnings and dividends
growth over the next 1 to 5 years.
The adviser monitors the valuations of the securities held by the portfo-
lio and sells securities when:
11
<PAGE>
. They reach the target price set by the adviser.
. Their price declines by 20% relative the their industry and the S&P
500.
The adviser selects investments for the portfolio using a team approach.
At regular meetings, the adviser's team of investment professionals con-
siders whether to add potential investments to the portfolio. The adviser
does not buy or sell a stock unless a majority of the team members agree.
In case of a tie, the industry analyst's vote determines whether the ad-
viser will buy or sell the stock.
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securi-
ties markets generally, such as adverse changes in economic conditions,
the general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor perfor-
mance, such as during a "bear market." Equity securities may also lose
value because of factors affecting an entire industry or sector, such as
increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these investment practices and their risks, you should read the SAI.
Foreign Securities
The portfolio may invest up to 20% of its assets in foreign securities.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for the portfolio to sell its securities and could reduce
the value of your shares. Changes in tax and accounting standards and dif-
ficulties obtaining information about foreign companies can negatively af-
fect investment decisions.
12
<PAGE>
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro have the
same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of a portfo-
lio.
Derivatives
To remain fully invested and to reduce transaction costs, the portfolio
may use futures and options (types of derivatives). Derivatives are often
more volatile than other investments and may magnify the portfolio's gains
or losses. The portfolio may lose money if the adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of secu-
rities for temporary defensive purposes, to earn a return on uninvested
assets or to meet redemptions. The adviser may temporarily adopt a defen-
sive position to reduce changes in the value of the shares of the portfo-
lio that may result from adverse market, economic, political or other de-
velopments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise prof-
ited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
YEAR 2000
- -------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates. Conse-
quently, these programs may not be able to perform necessary functions and
could disrupt the operations of the UAM Funds or financial markets in gen-
eral. The year 2000 issue affects all companies and organizations, includ-
ing those that provide services to the UAM Funds and those in which the
UAM Funds invest.
13
<PAGE>
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address
any portfolio-related year 2000-related computer problems. They are ac-
tively working on necessary changes to their own computer systems to pre-
pare for the year 2000 and expect that their systems will be adapted be-
fore that date. They are also requesting information on each service prov-
ider's state of readiness and contingency plan. However, at this time the
degree to which the year 2000 issue will affect the UAM Funds' investments
or operations cannot be predicted. Any negative consequences could ad-
versely affect your investment in the UAM Funds.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
Tom Johnson Investment Management, a Massachusetts corporation located at
Two Leadership Square, 211 North Robinson, Suite 450, Oklahoma City, Okla-
homa 73102, is the investment adviser to the portfolio. The adviser man-
ages and supervises the investment of the portfolio's assets on a discre-
tionary basis. The adviser, an affiliate of United Asset Management Corpo-
ration, has provided investment management services to corporations,
unions, pension and profit sharing plans, trusts, estates and other insti-
tutions as well as individuals since 1983.
The adviser has voluntarily agreed to limit the expenses of the portfolio
to 1.25% of its average net assets. To maintain this expense limit, the
adviser may waive a portion of its management fee and/or reimburse certain
expenses of the portfolio. While the adviser intends to continue its ex-
pense limitation until January 1, 2001, it may change or cancel it at any
time. During the fiscal year ended April 30, 1999, the adviser waived its
entire management fee.
Portfolio Managers
A team of investment professionals is primarily responsible for the day-
to-day management of the portfolio.
14
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
- -------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the UAM Funds or their service provid-
ers for providing a variety of services. This section briefly describes
how financial representatives may get paid.
Distribution Plans
The UAM Funds have adopted a Distribution Plan and a Shareholder Services
Plan under Rule 12b-1 of the Investment Company Act of 1940 that permit
them to pay broker-dealers, financial institutions and other third parties
for marketing, distribution and shareholder services. The UAM Funds' 12b-1
plans allow them to pay up to 1.00% of its average daily net assets annu-
ally for these services. However, they are currently authorized to pay
only 0.25% per year. Because Institutional Service Class Shares pay these
fees out of their assets on an ongoing basis, over time, your shares may
cost more than if you had paid another type of sales charge. Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by rules of the National Association of
Securities Dealers, Inc.
Shareholder Servicing
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are attribut-
able to the financial representative. These services may include record
keeping, transaction processing for shareholders' accounts and certain
shareholder services not currently offered to shareholders that deal di-
rectly with the UAM Funds. In addition, your financial representatives may
charge you other account fees for buying or redeeming shares of the UAM
Funds or for servicing your account. Your financial representative should
provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial represent-
atives. Periodically, the board of the UAM Funds reviews these arrange-
ments to ensure that the fees paid are appropriate to the services per-
formed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
15
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
financial performance of the portfolio for the fiscal periods indicated.
Certain information contained in the table reflects the financial results
for a single portfolio share. The total returns in the table represent
the rate that an investor would have earned on an investment in the
portfolio assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the portfolio, which is available upon
request by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1999 1998 1997 1996*
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 17.30 $ 13.05 $11.05 $10.00
------- ------- ------ ------
Income From Investment Operations
Net Investment Income................. 0.10 0.10 0.12 0.06
Net Realized and Unrealized Gain
on Investments....................... 4.29 4.55 2.08 1.05
------- ------- ------ ------
Total from Investment Operations...... 4.39 4.65 2.20 1.11
------- ------- ------ ------
Distributions
Net Investment Income................. (0.10) (0.11) (0.11) (0.06)
Net Realized Gain..................... (1.91) (0.29) (0.09) --
------- ------- ------ ------
Total Distributions................... (2.01) (0.40) (0.20) (0.06)
------- ------- ------ ------
Net Asset Value, End of Period......... $ 19.68 $ 17.30 $13.05 $11.05
======= ======= ====== ======
Total Return+.......................... 27.34% 36.05% 20.14% 11.13%***
======= ======= ====== ======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands).. $21,376 $11,348 $2,888 $1,023
Ratio of Expenses to Average Net
Assets................................ 1.25% 1.25% 1.26% 1.38%**
Ratio of Net Investment Income to
Average Net Assets.................... 0.50% 0.74% 1.07% 1.06%**
Portfolio Turnover Rate................ 54% 52% 27% 17%
Ratio of Voluntarily Waived Fees and
Expenses Assumed by the Adviser to
Average Net Assets.................... 0.95% 1.52% 5.38% 12.48%**
Ratio of Expenses to Average Net Assets
Including Expense Offsets............. 1.25% 1.25% 1.25% 1.25%**
</TABLE>
* For period from September 28, 1995 (commencement of operations) to
April 30, 1996.
** Annualized
*** Not annualized
+ Total return would have been lower had certain fees not been waived
and expenses assumed by the adviser during the periods indicated.
16
<PAGE>
Portfolio Codes
The reference information below will be helpful to you when you contact
the UAM Funds to purchase or exchange shares, check daily NAVs or get ad-
ditional information.
<TABLE>
<CAPTION>
Trading Symbol CUSIP Number Portfolio Number
-----------------------------------------------------------------------------------------
<S> <C> <C>
TJCEX 902556877 935
</TABLE>
<PAGE>
TJ Core Equity Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual and Semi-Annual Reports
The annual and semi-annual reports of the portfolio provide additional in-
formation about its investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the portfolio during its last fiscal
year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other infor-
mation about the UAM Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
For a fee, you can get the reports of the portfolio and SAI by writing to
the SEC's Public Reference Section, Washington, D.C. 20459-6009, or by
calling the SEC at 1-800-SEC-0330. You can get copies of this information
for free on the SEC's Internet site at http://www.sec.gov.
The funds' Investment Company Act of 1940 file number is 811-8544.
[UAM LOGO APPEARS HERE]
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
BHM&S Total Return Bond
Portfolio
Institutional Class Shares
Institutional Service Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August 9,
1999, as supplemented from time to time. You may obtain the fund's prospectuses
by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
BHM&S Total Return Bond Portfolio............................................. I-2
What Investment Strategies May The Portfolio Use?............................ I-2
What Are The Investment Policies Of The Portfolio?........................... I-2
Who Is The Investment Adviser Of The Portfolio?.............................. I-3
How Much Does The Portfolio Pay For Administrative Services?................. I-3
Who Are The Principal Holders Of The Securities Of The Portfolio?............ I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-4
What Were The Expenses Of The Portfolio?..................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments.......................................... II-2
Debt Securities.............................................................. II-2
Derivatives.................................................................. II-8
Equity Securities............................................................ II-16
Foreign Securities........................................................... II-18
Investment Companies......................................................... II-22
Repurchase Agreements........................................................ II-22
Restricted Securities........................................................ II-22
Securities Lending........................................................... II-23
Short Sales.................................................................. II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............ II-24
Management Of The Fund........................................................ II-25
Investment Advisory and Other Services........................................ II-26
Investment Adviser........................................................... II-26
Distributor.................................................................. II-27
Service And Distribution Plans............................................... II-28
Administrative Services...................................................... II-30
Custodian.................................................................... II-31
Independent Public Accountant................................................ II-31
Brokerage Allocation and Other Practices...................................... II-32
Selection of Brokers......................................................... II-32
Simultaneous Transactions.................................................... II-32
Brokerage Commissions........................................................ II-32
Capital Stock and Other Securities............................................ II-33
The Fund..................................................................... II-33
Description Of Shares And Voting Rights...................................... II-33
Dividends and Capital Gains Distributions.................................... II-34
Purchase, Redemption and Pricing of Shares.................................... II-35
Net Asset Value Per Share.................................................... II-35
Purchase of Shares........................................................... II-35
Redemption of Shares......................................................... II-36
Exchange Privilege........................................................... II-38
Transfer Of Shares........................................................... II-38
Performance Calculations...................................................... II-38
Total Return................................................................. II-39
Yield........................................................................ II-39
Comparisons.................................................................. II-40
Financial Statements.......................................................... II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc................................................ IV-2
Preferred Stock Ratings...................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally.............................. IV-2
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............ IV-3
Standard & Poor's Ratings Services............................................ IV-4
Preferred Stock Ratings...................................................... IV-4
Long-Term Issue Credit Ratings............................................... IV-4
Short-Term Issue Credit Ratings.............................................. IV-5
Duff & Phelps Credit Rating Co................................................ IV-6
Long-Term Debt and Preferred Stock........................................... IV-6
Short-Term Debt.............................................................. IV-6
Fitch IBCA Ratings............................................................ IV-7
International Long-Term Credit Ratings....................................... IV-7
V: Appendix B--Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
BHM&S Total Return Bond Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these investments/strategies
and their risks in Part II under "Description of Permitted Investments." 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 Policies of the Portfolio?"
. Debt securities rated investment-grade or higher (at least 90% of its
total assets).
. Futures (To hedge and/or manage the duration of the portfolio).
. Options (To hedge and/or manage the duration of the portfolio).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
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:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in the securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the 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 one issuer.
. 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.
. 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.
I-2
<PAGE>
. 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.
. Make loans except (i) by purchasing debt securities in accordance with its
investment objectives, (ii) entering into repurchase agreements or (iii) 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.
. Underwrite the securities of other issuers.
. 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.
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 futures and/or options on futures unless not more than 5% of its
assets are required as deposit to secure obligations under such futures
and/or options on futures contracts. The portfolio may exclude from this
calculation, options that are in-the-money at the time of purchase.
. Invest more than 20% of its assets in futures and/or options on futures.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Purchase on margin or sell short except as specified herein.
. Invest more than an aggregate of 15% of its net assets in securities that are
subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
. Purchase additional securities when its borrowings exceed 5% of its total
assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater than
33 1/3% of its total assets at fair market value.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
Barrow, Hanley Mewhinney & Strauss, Inc.is the investment adviser of the
portfolio. For its services, the portfolio pays its adviser a fee equal to 0.35%
of the average daily net assets of the portfolio. For more information
concerning the adviser, see "Investment Advisory and Other Services" in Part II
of this SAI.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
I-3
<PAGE>
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio. The portfolio also pays a
fee to UAMFSI for sub-administration and other services provided by CGFSC.
The fee, which UAMFSI pays to CGFSC, is calculated at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM Funds,
Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
As of July 20, 1999, 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 Class of Portfolio Percentage of Shares Owned
==================================================================================================================
<S> <C> <C>
Sarah Campbell Blaffer Foundation Institutional 72.85%
Texas Commerce Bank
A/C 55-01-001-1147303
PO Box 2558 10 TCT 315
Houston, TX 77252-2558
- ------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co Tr Institutional 27.13%
U/A 02/01/1998 FBO Cherokee Nation 401K Plan
A/C 43046-2
C/o Mutual Funds/UAM
PO Box 8971
Wilmington, DE 19899-8971
- ------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co Institutional Service 7.53%
FBO Mustang Employees 401K PSP
A/C 43007-1
PO Box 8971
Wilmington, DE 19899-8971
- ------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co Tr Institutional Service 62.99%%
U/A 02/01/1998 FBO Allied Waste
401K Plan A/C 446072
C/o Mutual Funds UAM
1100 North Market Street
Wilmington, DE 19890-0001
- ------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co TTEE Institutional Service 15.48%
FBO North Texas Carpenters
A/C 43080-1 DTD 02/1/98
C/o Mutual Funds UAM
PO Box 8971
Wilmington, DE 19899-8971
</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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- -------------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
I-4
<PAGE>
Average Annual Total Returns For Periods Ended April 30, 1999
<TABLE>
<CAPTION> Shorter of 10 Years or
1 Year 5 Years Since Inception Inception Date
========================================================================================================
<S> <C> <C> <C> <C>
Institutional Class 4.61% N/A 6.12% 11/1/95
- --------------------------------------------------------------------------------------------------------
Service Class 4.45% N/A 5.87% 11/1/95
</TABLE>
<TABLE>
<CAPTION>
30-Day Yields On April 30, 1999
30-Day Yield
================================================================
<S> <C>
Institutional Class 5.69%
- ----------------------------------------------------------------
Service Class 5.44%
</TABLE>
<TABLE>
<CAPTION>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Investment Sub- Distribution
For the FYE Advisory Fees Advisory Fees Administrator Administrator Brokerage Fees (Service
April 30, Paid Waived Fee Fee Commissions Class Only)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1999 $80,234 $12,526 $33,602 $87,433 $0 $40,540
--------------------------------------------------------------------------------------------------------------------------------
1998 $0 $107,452 $12,244 $98,003 $0 $30,070
--------------------------------------------------------------------------------------------------------------------------------
1997 $0 $40,683 $838 $82,083 $0 $7,616
</TABLE>
I-5
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is owned
by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970 to
increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC guarantees
the timely payment of interest and ultimate collection of principal, but PCs are
not backed by the full faith and credit of the U.S. government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional mortgage loans. In addition to guaranteeing the
mortgage-related security, such issuers may service and/or have originated the
underlying mortgage loans. Pools created by these issuers generally offer a
higher rate of interest than pools created by GNMA, FNMA & FHLMC because they
are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche of
CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation; and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of commercial
paper ratings.
II-5
<PAGE>
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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
II-6
<PAGE>
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. 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 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
II-7
<PAGE>
securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase of
the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The premium
received on the sale of the put option, less any transaction costs, would reduce
the net cost to the portfolio.
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.
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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.
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.
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
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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:
. 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;
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. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually react
more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company that
fares poorly can lose money.
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;
II-17
<PAGE>
. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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; 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.
II-18
<PAGE>
Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
II-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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
II-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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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
will adopt the Euro in all aspects of the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting. Some of the uncertainties surrounding the conversion to the Euro
include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
II-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 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.
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 it enters into a repurchase agreement, a portfolio 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 "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
- --------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933.
Under the supervision of the Fund's board, the adviser determines the
liquidity of such investments by considering all relevant factors. Provided
that a dealer or institutional trading market in such securities exists,
these restricted securities are not treated as illiquid securities for
purposes of 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.
II-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
fails financially 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.
SHORT SALES
- --------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not
own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit
if the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to
pay in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
II-23
<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire
at no extra cost. A portfolio will incur transaction costs to open,
maintain and close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been
sold short by the portfolio would exceed the two percent (2%) of the
value of the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class
of the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, a portfolio contracts to purchase securities for a fixed price
at a future date beyond customary settlement time. "Delayed delivery"
refers to securities transactions on the secondary market where settlement
occurs in the future. In each of these transactions, the parties fix the
payment obligation and the interest rate that they will receive on the
securities at the time the parties enter the commitment; however, they do
not pay money or 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.
II-24
<PAGE>
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 per quarter 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 48 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>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board President of Squam Investment Management $8,094 $39,900
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 $8,094 $40,575
10 Garden Street Member January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe
8/14/51 College from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Member Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law
Hamilton Ontario, firm Dechert Price & Rhoads and a Director of
Canada L8N-4J6 Hofler Corp.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board President and Chief Executive Officer of $8,094 $40,702
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 Member; Chairman, Chief Executive Officer and a Director 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
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. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
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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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has
its principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
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. 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.
The Fund Administration Agreement continues in effect from year to year if
the board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73
Tremont Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and
DST Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas
City, Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of
UAMSSC is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York,
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for the Fund.
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<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or
dealers that will execute the purchases and sales of investment securities
for the portfolio. The Advisory Agreement also directs the adviser to use
its best efforts to obtain the best execution with respect to all
transactions for the portfolio. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Advisory Agreement. In so doing, 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, 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 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.
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Capital Stock and Other Securities
THE FUND
- --------------------------------------------------------------------------------
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 Fund changed its
name to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes
of shares of beneficial interest without shareholder approval. The Board
has authorized three classes of shares: Institutional Class, Institutional
Service Class, and Advisor Class. Not all of the portfolios issue all of
the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the
election of board members can elect 100% of the board 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 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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. The three classes represent interests in
the same assets of the portfolio and, except as discussed below, are
identical in all respects.
. Institutional Service 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.
. Advisor 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.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
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. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net
investment income and net realized capital gains so as to avoid income
taxes on its dividends and distributions and the imposition of the federal
excise tax on undistributed income and capital gains. However, a portfolio
cannot predict the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a
separate "regulated investment company") for federal tax purposes. The
capital gains/losses of one portfolio will not be offset against the
capital gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in
the prospectus of the portfolio, although from an investment standpoint, it
is a return of capital. If you buy shares of the portfolio on or just
before the "record date" (the date that establishes which shareholders will
receive an upcoming distribution) for a distribution, you will receive some
of the money you invested as a taxable distribution.
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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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
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<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension
and profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. Redemptions in excess of the above
limits may be paid in whole or in part, in investment securities or in
cash, as the 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.
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<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed.
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only
if they also provide
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certain standardized performance information that they have computed
according to the requirements of the SEC. Current yield and average annual
compounded total return information are calculated using the method of
computing performance mandated 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 Advisor or 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 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).
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:
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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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by
various financial publications. Advertisements may also compare performance
(as calculated above) to performance as reported by other investments,
indices and averages. Please see Appendix B for publications, indices and
averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
portfolio, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the portfolio to calculate its performance. In addition,
there can be no assurance that the portfolio will continue this performance
as compared to such other averages.
Financial Statements
The following documents are included in 1999 Annual Report of each
portfolio, other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented.
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information
on how the fund calculates this number under "Purchase, Redemption and Pricing
of Shares."
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.
III-2
<PAGE>
IV: Appendix A ---
Description of Securities
and Rating
IV-1
<PAGE>
Moody's Investors Service, Inc.
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment within the universe of preferred stock.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is
a reasonable assurance the earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over
any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long periods of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so rated can thus be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating classification: the modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
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. 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.
</TABLE>
IV-2
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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:
<TABLE>
<S> <C>
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:
</TABLE>
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
<TABLE>
<S> <C>
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.
</TABLE>
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas
it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for
issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and CCC the
highest. While such issues will likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in arrears on dividends or sinking fund payments,
but that is currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in default on debt instruments.
N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality, ratings from AA to CCC may be modified by
minus (-) the addition of a plus or minus sign to show relative standing within the major rating categories.
</TABLE>
LONG-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
<TABLE>
<S> <C>
AAA An obligation rated AAA have the highest rating assigned by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's capacity
to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher- rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligator to meet its financial
commitment on the obligation.
</TABLE>
IV-4
<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.
<TABLE>
<S> <C>
BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated CCC is currently vulnerable to non-payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
</TABLE>
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
<TABLE>
<S> <C>
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligation in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is satisfactory.
A-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.
</TABLE>
IV-5
<PAGE>
<TABLE>
<C> <S>
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.
</TABLE>
Duff & Phelps Credit Rating Co.
<TABLE>
<CAPTION>
LONG-TERM DEBT AND PREFERRED STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors are more variable in periods of greater
economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions. Overall quality may move up or down
frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will not be net when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. Issuer
failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
<TABLE>
SHORT-TERM DEBT
- ----------------------------------------------------------------------------------------------------------------------------------
High Grade
<C> <S>
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.
</TABLE>
IV-6
<PAGE>
<TABLE>
Good Grade
<S> <C>
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.
</TABLE>
Fitch IBCA Ratings
<TABLE>
INTERNATIONAL LONG-TERM CREDIT RATINGS
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Grade
<S> <C>
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of credit risk. They are assigned only
in case of exceptionally strong capacity for timely payment for financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of credit risk. They indicate very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher ratings.
B Good credit quality. `BBB' ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met; however, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.
</TABLE>
IV-7
<PAGE>
<TABLE>
<C> <S>
CCC,CC,C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. A `CC' rating indicates that default
of some kind appears probable. `C' ratings signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are extremely speculative. `DDD' designates
the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates,
for example, `DD' indicates expected recovery of 50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however,
near-term adverse changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
</TABLE>
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.
IV-8
<PAGE>
V: Appendix B -- Comparisons
V-1
<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 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.
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 -- an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index -- an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index -- an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index -- an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index -- an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index -- an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index -- an unmanaged index composed of the 30 largest
funds by asset size in this investment objective.
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).
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..
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.
Russell 1000 Index -- an unmanaged index composed of the 1000 largest stocks
in the Russell 3000 Index.
Russell 2000 Growth Index -- contains those Russell 2000 securities with
higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index -- contains those Russell 2000 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index -- contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index -- an unmanaged index composed of the 2,5000 smallest
stocks in the Russell 3000.
Russell 2500 Value Index -- contains those Russell 2500 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index -- composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index -- an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index -- an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index -- is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Cambiar Opportunity Portfolio
Institutional Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August 9,
1999, as supplemented from time to time. You may obtain the fund's prospectuses
by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
Cambiar Opportunity Portfolio.................................................... I-2
What Investment Strategies May The Portfolio Use?............................ I-2
What Are The Investment Policies Of The Portfolio?........................... I-2
Who Is The Investment Adviser Of The Portfolio?.............................. I-3
How Much Does The Portfolio Pay For Administrative Services?................. I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?............ I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-4
What Were The Expenses Of The Portfolio?..................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments............................................. II-2
Debt Securities.............................................................. II-2
Derivatives.................................................................. II-8
Equity Securities............................................................ II-16
Foreign Securities........................................................... II-18
Investment Companies......................................................... II-22
Repurchase Agreements........................................................ II-22
Restricted Securities........................................................ II-22
Securities Lending........................................................... II-23
Short Sales.................................................................. II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............ II-24
Management Of The Fund........................................................... II-25
Investment Advisory and Other Services........................................... II-26
Investment Adviser........................................................... II-26
Distributor.................................................................. II-27
Service And Distribution Plans............................................... II-28
Administrative Services...................................................... II-30
Custodian.................................................................... II-31
Independent Public Accountant................................................ II-31
Brokerage Allocation and Other Practices......................................... II-32
Selection of Brokers......................................................... II-32
Simultaneous Transactions.................................................... II-32
Brokerage Commissions........................................................ II-32
Capital Stock and Other Securities............................................... II-33
The Fund..................................................................... II-33
Description Of Shares And Voting Rights...................................... II-33
Dividends and Capital Gains Distributions.................................... II-34
Purchase, Redemption and Pricing of Shares....................................... II-35
Net Asset Value Per Share.................................................... II-35
Purchase of Shares........................................................... II-35
Redemption of Shares......................................................... II-36
Exchange Privilege........................................................... II-38
Transfer Of Shares........................................................... II-38
Performance Calculations......................................................... II-38
Total Return................................................................. II-39
Yield........................................................................ II-39
Comparisons.................................................................. II-40
Financial Statements............................................................. II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc................................................... IV-2
Preferred Stock Ratings...................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally.............................. IV-2
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............ IV-3
Standard & Poor's Ratings Services............................................... IV-4
Preferred Stock Ratings...................................................... IV-4
Long-Term Issue Credit Ratings............................................... IV-4
Short-Term Issue Credit Ratings.............................................. IV-5
Duff & Phelps Credit Rating Co................................................... IV-6
Long-Term Debt and Preferred Stock........................................... IV-6
Short-Term Debt.............................................................. IV-6
Fitch IBCA Ratings............................................................... IV-7
International Long-Term Credit Ratings....................................... IV-7
V: Appendix B--Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
Cambiar Opportunity
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below
in seeking its objective. This SAI describes each of these
investments/strategies and their risks in Part II under "Description of
Permitted Investments." 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 Policies of the Portfolio?"
Equity securities (at least 65% in companies with market capitalizations
over $500 million at the time of purchase).
. American Depositary Receipts (up to 25%)
. Futures (to remain fully invested and reduce transaction costs).
. Options (to remain fully invested and reduce transaction costs).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of the
portfolio's 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:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the 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 one issuer.
. 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.
I-2
<PAGE>
. 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.
. 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.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives, (ii) entering into repurchase agreements or
(iii) 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.
. Underwrite the securities of other issuers.
. 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.
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 futures and/or options on futures unless not more than 5% of
its assets are required as deposit to secure obligations under such
futures and/or options on futures contracts. The portfolio may exclude
from this calculation, options that are in-the-money at the time of
purchase.
. Invest more than 20% of its assets in futures and/or options on futures.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Purchase on margin or sell short except as specified herein.
. Invest more than an aggregate of 15% of its net assets in securities
that are subject to legal or contractual restrictions on resale
(restricted securities) or securities for which there are no readily
available markets (illiquid securities).
. Purchase additional securities when its borrowings exceed 5% of its
total assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater
than 33-1/3% of its total assets at fair market value.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Cambiar Investors, Inc. is the investment adviser of the portfolio. For its
services, the portfolio pays its adviser a fee equal to 1.00% 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 more information concerning the
adviser, see "Investment Advisory and Other Services" in Part II of this
SAI.
I-3
<PAGE>
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is
calculated at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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
---------------------------------------------------------------------------
<S> <C>
Charles Schwab & Co., Inc. 20.25%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
---------------------------------------------------------------------------
Norwest Bank Colorado NA Cust 24.41%
FBO Mike Barish
1740 Broadway #8751
Denver, CO 80274-0001
---------------------------------------------------------------------------
Norwest Bank Colorado NA Cust 22.69%
U/A 03/02/1994 FBO WACO Employee
Profit Sharing Plan MT
1740 Broadway #8751
Denver, CO 80274-0001
---------------------------------------------------------------------------
Leo L. Block 9.15%
1814 La Sombra Dr
San Antonio, TX 78209-3350
</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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- --------------------------------------------------------------------------------
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. For more information concerning the
performance of the portfolio, including the way it calculates its
performance figures, see "Performance Calculations" in Part II of this SAI.
I-4
<PAGE>
Average Annual Total Return
<TABLE>
<CAPTION>
For the Periods Shorter of 10 Years
Ended April 30, One Year Five Years or Since Inception Inception Date
============================================================================================
<S> <C> <C> <C> <C>
1999 N/A N/A 23.44% 6/30/98
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Investment Sub-
For the FYE Advisory Fees Advisory Fees Administrator Administrator Brokerage
April 30, Paid Waived Fee Fee Commissions
============================================================================================
<S> <C> <C> <C> <C> <C>
1999 $0 $12,984 $12,949 $36,132 $6,585
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
I-5
<PAGE>
II: The UAM Funds in Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
II-5
<PAGE>
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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
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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. 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 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
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securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
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.
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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.
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.
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
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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:
. 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;
II-15
<PAGE>
. 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.
EQUITY SECURITIES
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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.
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<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 resects, 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 exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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;
II-17
<PAGE>
. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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
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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; 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.
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<PAGE>
Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
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<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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
II-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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
II-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 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.
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 it enters into a repurchase agreement, a portfolio 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 "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
- --------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
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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 fails
financially 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.
SHORT SALES
- --------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
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<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or 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.
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<PAGE>
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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Position from Fund as Funds Complex
Name, Address, DOB with Fund Principal Occupations During the Past 5 years of 4/30/99 as of 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company, $8,094 $39,900
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- ----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since $8,094 $40,575
10 Garden Street January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- ----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Member Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board Member President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec 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 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position from Fund as Funds Complex
Name, Address, DOB with Fund Principal Occupations During the Past 5 years of 4/30/99 as of 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- ----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- ----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
II-28
<PAGE>
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
II-29
<PAGE>
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
II-30
<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if the
board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York, 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
- --------------------------------------------------------------------------------
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 Fund changed its name
to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board 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
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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service 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.
. Advisor 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. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
II-33
<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
II-36
<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other necessary
legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the 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.
II-37
<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide
II-38
<PAGE>
certain standardized performance information that they have computed according
to the requirements of the SEC. Current yield and average annual compounded
total return information are calculated using the method of computing
performance mandated 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 Advisor or 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 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:
<TABLE>
<CAPTION>
P (1 + T)n = ERV
<S> <C> <C>
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).
</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:
II-39
<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by
various financial publications. Advertisements may also compare performance
(as calculated above) to performance as reported by other investments,
indices and averages. Please see Appendix B for publications, indices and
averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
portfolio, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the portfolio to calculate its performance. In addition,
there can be no assurance that the portfolio will continue this performance
as compared to such other averages.
Financial Statements
The following documents are included in 1999 Annual Report of each
portfolio, other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information on
how the fund calculates this number under "Purchase, Redemption and Pricing of
Shares."
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.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
III-2
<PAGE>
IV: Appendix A --
Description of Securities
and Ratings
IV-1
<PAGE>
Moody's Investors Service, Inc.
<TABLE>
PREFERRED STOCK RATINGS
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment within the universe of preferred stock.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is
a reasonable assurance the earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over
any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long periods of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so rated can thus be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating classification: the modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
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. 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.
</TABLE>
IV-2
<PAGE>
<TABLE>
<C> <S>
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.
</TABLE>
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.
<TABLE>
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:
<C> <S>
Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term
debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior
short-term obligation. The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating categories.
</TABLE>
IV-3
<PAGE>
Standard & Poor's Ratings Services
<TABLE>
PREFERRED STOCK RATINGS
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates
an extremely strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to
the issuer's capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and
CCC the highest. While such issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in arrears on dividends or sinking fund
payments, but that is currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in default on debt instruments.
N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality, ratings from AA to CCC may be modified by
minus (-) the addition of a plus or minus sign to show relative standing within the major rating categories.
LONG-TERM ISSUE CREDIT RATINGS
- -----------------------------------------------------------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with
the terms of the obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's
capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher- rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligator to meet its financial
commitment on the obligation.
</TABLE>
IV-4
<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.
<TABLE>
<C> <S>
BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated CCC is currently vulnerable to non-payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
</TABLE>
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
<TABLE>
<C> <S>
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligation in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is satisfactory.
A-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.
</TABLE>
IV-5
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
C A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has not expired, unless Standard
& Poors' believes that such payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors are more variable in periods of greater
economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions. Overall quality may move up or down
frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will not be net when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. Issuer
failed to meet scheduled principal and/or interest payments.
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.
</TABLE>
IV-6
<PAGE>
<TABLE>
Good Grade
<S> <C>
D-2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are
small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in debt
service. Operating factors and market access may be subject to a high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or interest payments.
Fitch IBCA Ratings
INTERNATIONAL LONG-TERM CREDIT RATINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of credit risk. They are assigned only
in case of exceptionally strong capacity for timely payment for financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of credit risk. They indicate very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher ratings.
B Good credit quality. `BBB' ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met; however, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.
</TABLE>
IV-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CCC,CC,C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. A `CC' rating indicates that default
of some kind appears probable. `C' ratings signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are extremely speculative. `DDD' designates
the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates,
for example, `DD' indicates expected recovery of 50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however,
near-term adverse changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
</TABLE>
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.
IV-8
<PAGE>
V: Appendix B - Comparisons
V-1
<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 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.
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 -- an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index -- an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index -- an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index -- an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index -- an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index -- an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index -- an unmanaged index composed of the 30 largest
funds by asset size in this investment objective.
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).
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.
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.
Russell 1000 Index -- an unmanaged index composed of the 1000 largest stocks
in the Russell 3000 Index.
Russell 2000 Growth Index -- contains those Russell 2000 securities with
higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index -- contains those Russell 2000 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index -- contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index -- an unmanaged index composed of the 2,5000 smallest
stocks in the Russell 3000.
Russell 2500 Value Index -- contains those Russell 2500 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index -- composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index -- an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index -- an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index -- is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Clipper Focus Portfolio
Institutional Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August
9, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
Clipper Focus Portfolio........................................................ I-2
What Investment Strategies May The Portfolio Use?............................ I-2
What Are The Investment Policies Of The Portfolio?........................... I-2
Who Is The Investment Adviser Of The Portfolio?.............................. I-3
How Much Does The Portfolio Pay For Administrative Services?................. I-3
Who Are The Principal Holders Of The Securities Of The Portfolio?............ I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-4
What Were The Expenses Of The Portfolio?..................................... I-4
II: The UAM Funds in Detail II-1
Description of Permitted Investments...........................................II-2
Debt Securities..............................................................II-2
Derivatives..................................................................II-8
Equity Securities............................................................II-16
Foreign Securities...........................................................II-18
Investment Companies.........................................................II-22
Repurchase Agreements........................................................II-22
Restricted Securities........................................................II-22
Securities Lending...........................................................II-23
Short Sales..................................................................II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............II-24
Management Of The Fund.........................................................II-25
Investment Advisory and Other Services.........................................II-26
Investment Adviser...........................................................II-26
Distributor..................................................................II-27
Service And Distribution Plans...............................................II-28
Administrative Services......................................................II-30
Custodian....................................................................II-31
Independent Public Accountant................................................II-31
Brokerage Allocation and Other Practices.......................................II-32
Selection of Brokers.........................................................II-32
Simultaneous Transactions....................................................II-32
Brokerage Commissions........................................................II-32
Capital Stock and Other Securities.............................................II-33
The Fund.....................................................................II-33
Description Of Shares And Voting Rights......................................II-33
Dividends and Capital Gains Distributions....................................II-34
Purchase, Redemption and Pricing of Shares.................................... II-35
Net Asset Value Per Share....................................................II-35
Purchase of Shares...........................................................II-35
Redemption of Shares.........................................................II-36
Exchange Privilege...........................................................II-38
Transfer Of Shares...........................................................II-38
Performance Calculations...................................................... II-38
Total Return.................................................................II-39
Yield........................................................................II-39
Comparisons..................................................................II-40
Financial Statements...........................................................II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc................................................. IV-2
Preferred Stock Ratings...................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally.............................. IV-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............IV-3
Standard & Poor's Ratings Services.............................................IV-4
Preferred Stock Ratings......................................................IV-4
Long-Term Issue Credit Ratings...............................................IV-4
Short-Term Issue Credit Ratings..............................................IV-5
Duff & Phelps Credit Rating Co.................................................IV-6
Long-Term Debt and Preferred Stock...........................................IV-6
Short-Term Debt..............................................................IV-6
Fitch IBCA Ratings.............................................................IV-7
International Long-Term Credit Ratings.......................................IV-7
V: Appendix B - Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
Clipper Focus Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these investments/
strategies and their risks in Part II under "Description of Permitted
Investments." 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 ability of the
portfolio to use these investments in "What Are the Investment Policies of the
Portfolio?"
. Equity securities.
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
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:
. Invest in physical commodities or contracts on physical commodities.
. 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.
. 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 Commission thereunder.
. Underwrite the securities of other issuers.
. 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.
. 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.
I-2
<PAGE>
Non-Fundamental Policies
The following limitations are non-fundamental, which means the portfolio may
change them without shareholder approval.
The portfolio will not:
. Purchase on margin or sell short.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. With respect to 50% of its total assets, purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, (i) more than 5% of
the value of its total assets would be invested in the securities of any
single issuer, or (ii) it would hold more than 10% of the outstanding
voting securities of such issuer, or (iii) with respect to the remaining
50% of its total assets, more than 25% of the value of its total assets
would be invested in the securities of any single issuer.
. Purchase additional securities when its borrowings exceed 5% of its total
assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater than
33 1/3% of its total assets at fair market value.
. The portfolio is a non-diversified" mutual fund and therefore is not
required to meet any diversification requirements under the 1940 Act. The
portfolio nevertheless intends to comply with the diversification standards
applicable to regulated investment companies under the Internal Revenue
Code of 1986, as amended.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Pacific Financial Research, Inc.is the investment adviser of the portfolio.
For its services, the portfolio pays its adviser a fee equal to:
. 1.00% on the first $500 million in average daily net assets, plus
. 0.95% of the next $500 million in average daily net assets, plus
. 0.90% on average daily net assets in excess of $1 billion.
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 more information
concerning the adviser, see "Investment Advisory and Other Services" in Part
II of this SAI.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
I-3
<PAGE>
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is calculated
at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM Funds,
Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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
------------------------------------------------------------------------------
<S> <C>
Charles Schwab & Co., Inc. 64.28%
Reinvest Account
Attn Mutual Funds
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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- --------------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
Average Annual Total Return
<TABLE>
<CAPTION>
For the Periods Shorter of 10 Years or
Ended April 30, 1 Year 5 Years Since Inception Inception Date
================================================================================
<S> <C> <C> <C> <C>
1999 N/A N/A 22.33% 9/10/98
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the FYE Investment Investment
Ended Advisory Fees Advisory Fees Sub-Administrator Brokerage
April 30, Paid Waived Administrator Fee Fee Commissions
=============================================================================================
<S> <C> <C> <C> <C> <C>
1999 $53,694 $113,048 $30,487 $42,024 $77,072
- ---------------------------------------------------------------------------------------------
</TABLE>
I-4
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970 to
increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to guaranteeing
the mortgage-related security, such issuers may service and/or have originated
the underlying mortgage loans. Pools created by these issuers generally offer
a higher rate of interest than pools created by GNMA, FNMA & FHLMC because
they are not guaranteed by a government agency.
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
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may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
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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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
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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. 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 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
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securities offer higher yields than treasury 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.
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. Appendix A contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner,
to reduce transaction costs or to remain fully invested. A portfolio may
also try to minimize its loss by investing 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
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 in only on exchanges regulated by
the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a
hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the
original purchase price, the party closing the contract would realize a
gain; if it is more, it would realize a loss. The opposite is also true for
a sale, that is, if the offsetting sale price is more than the original
sale price, the party closing the contract would realize a gain; if it is
less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if market price declines,
the portfolio would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to the portfolio.
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.
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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.
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.
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
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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:
. 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;
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. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits
of owning a company, the portfolio must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to actual or perceived changes in the company's
financial condition or prospects than its debt obligations. Stockholders of
a company that fares poorly can lose money.
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;
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. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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
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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; 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.
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Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
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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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
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. 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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
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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 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.
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
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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 it enters into a repurchase agreement, a portfolio 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 "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
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A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
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SECURITIES LENDING
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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 fails
financially 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.
SHORT SALES
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Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
II-23
<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or 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.
II-24
<PAGE>
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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Position from Fund as Funds Complex
Name, Address, DOB with Fund Principal Occupations During the Past 5 years of 4/30/99 as of 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company, $8,094 $39,900
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- ----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since $8,094 $40,575
10 Garden Street January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- ----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Member Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board Member President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec 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 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position from Fund as Funds Complex
Name, Address, DOB with Fund Principal Occupations During the Past 5 years of 4/30/99 as of 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- ----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995,
- ----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- ----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
II-28
<PAGE>
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
II-29
<PAGE>
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
II-30
<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if the
board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York, 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
- --------------------------------------------------------------------------------
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 Fund changed its name
to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board 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
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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service 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.
. Advisor 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. Advisor Shares also
charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
II-33
<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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 its 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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
II-36
<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the 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.
II-37
<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide
II-38
<PAGE>
certain standardized performance information that they have computed according
to the requirements of the SEC. Current yield and average annual compounded
total return information are calculated using the method of computing
performance mandated 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 Advisor or 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 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:
<TABLE>
<CAPTION>
P (1 + T)/n/ = ERV
<C> <C><S>
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).
</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:
II-39
<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages that
may be used.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in the portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
Financial Statements
The following documents are included in 1999 Annual Report of each portfolio,
other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information
on how the fund calculates this number under "Purchase, Redemption and Pricing
of Shares."
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.
III-2
<PAGE>
IV: Appendix A --
Description of Securities
and Ratings
IV-1
<PAGE>
Moody's Investors Service, Inc.
PREFERRED STOCK RATINGS
- -------------------------------------------------------------------------------
<TABLE>
<C> <S>
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stock.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long periods of time may be
small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
</TABLE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY
- -------------------------------------------------------------------------------
<TABLE>
<C> <S>
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. 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.
</TABLE>
IV-2
<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.
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:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
AAA This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely
strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-
quality, fixed-income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as
for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest
degree of speculation and CCC the highest. While such issues will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is
currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality,
minus (-) 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.
LONG-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligator
to meet its financial commitment on the obligation.
IV-4
<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 The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligation in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-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.
IV-5
<PAGE>
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- --------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient
for prudent investment. Considerable BBB- variability in risk
during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors
fluctuate according to industry conditions. Overall quality may
move up or down frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will
not be net when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments. Issuer failed to meet
scheduled principal and/or interest payments.
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.
IV-6
<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 for financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
B Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity
for continued payment is contingent upon a sustained, favorable
business and economic environment.
IV-7
<PAGE>
<TABLE>
<C> <S>
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating
indicates that default of some kind appears probable. `C' ratings
signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For
U.S. corporates, for example, `DD' indicates expected recovery of
50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
</TABLE>
International Short-Term Credit Ratings
<TABLE>
<S> <C>
F1 Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
</TABLE>
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.
IV-8
<PAGE>
V: Appendix B -- Comparisons
V-1
<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 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.
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 -- an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index -- an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index -- an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 our 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index - an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index -- an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index -- an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index -- an unmanaged index composed of the 30 largest
funds by asset size in this investment objective.
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).
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.
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.
Russell 1000 Index - an unmanaged index composed of the 1000 largest stocks in
the Russell 3000 Index.
Russell 2000 Growth Index -- contains those Russell 2000 securities with
higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index -- contains those Russell 2000 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index -- contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index -- an unmanaged index composed of the 2,5000 smallest
stocks in the Russell 3000.
Russell 2500 Value Index -- contains those Russell 2500 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index -- composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index -- an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index -- an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index -- is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Hanson Equity Portfolio
Institutional Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August
9, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
Hanson Equity Portfolio......................................................... I-2
What Investment Strategies May The Portfolio Use?............................ I-2
What Are The Investment Policies Of The Portfolio?........................... I-2
Who Is The Investment Adviser Of The Portfolio?.............................. I-4
How Much Does The Portfolio Pay For Administrative Services?................. I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?............ I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-4
What Were The Expenses Of The Portfolio?..................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments............................................ II-2
Debt Securities.............................................................. II-2
Derivatives.................................................................. II-8
Equity Securities............................................................ II-16
Foreign Securities........................................................... II-18
Investment Companies......................................................... II-22
Repurchase Agreements........................................................ II-22
Restricted Securities........................................................ II-22
Securities Lending........................................................... II-23
Short Sales.................................................................. II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............ II-24
Management Of The Fund.......................................................... II-25
Investment Advisory and Other Services.......................................... II-26
Investment Adviser........................................................... II-26
Distributor.................................................................. II-27
Service And Distribution Plans............................................... II-28
Administrative Services...................................................... II-30
Custodian.................................................................... II-31
Independent Public Accountant................................................ II-31
Brokerage Allocation and Other Practices........................................ II-32
Selection of Brokers......................................................... II-32
Simultaneous Transactions.................................................... II-32
Brokerage Commissions........................................................ II-32
Capital Stock and Other Securities.............................................. II-33
The Fund..................................................................... II-33
Description Of Shares And Voting Rights...................................... II-33
Dividends and Capital Gains Distributions.................................... II-34
Purchase, Redemption and Pricing of Shares...................................... II-35
Net Asset Value Per Share.................................................... II-35
Purchase of Shares........................................................... II-35
Redemption of Shares......................................................... II-36
Exchange Privilege........................................................... II-38
Transfer Of Shares........................................................... II-38
Performance Calculations........................................................ II-38
Total Return................................................................. II-39
Yield........................................................................ II-39
Comparisons.................................................................. II-40
Financial Statements............................................................ II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc.................................................. IV-2
Preferred Stock Ratings...................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally.............................. IV-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............ IV-3
Standard & Poor's Ratings Services.............................................. IV-4
Preferred Stock Ratings...................................................... IV-4
Long-Term Issue Credit Ratings............................................... IV-4
Short-Term Issue Credit Ratings.............................................. IV-5
Duff & Phelps Credit Rating Co.................................................. IV-6
Long-Term Debt and Preferred Stock........................................... IV-6
Short-Term Debt.............................................................. IV-6
Fitch IBCA Ratings.............................................................. IV-7
International Long-Term Credit Ratings....................................... IV-7
V: Appendix B Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
Hanson Equity Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below
in seeking its objective. This SAI describes each of these investments/
strategies and their risks in Part II under "Description of Permitted
Investments." 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 Policies of the Portfolio?"
. Equity securities (at least 80% in companies with market capitalizations
over $1 billion at the time of purchase).
. American depositary receipts (up to 20% of its total assets).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of the
portfolio's 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:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the 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 one issuer.
. 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.
. 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.
I-2
<PAGE>
. 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.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives, (ii) entering into repurchase agreements or
(iii) 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.
. Underwrite the securities of other issuers.
. 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.
Non-Fundamental Policies
The following limitations are non-fundamental, which means the portfolio
may change them without shareholder approval.
The portfolio will not:
. Purchase on margin or sell short except that the portfolio may purchase
futures as described in the prospectus and this SAI.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Invest more than an aggregate of 15% of its net assets in securities
that are subject to legal or contractual restrictions on resale
(restricted securities) or securities for which there are no readily
available markets (illiquid securities).
Borrowing
The portfolio may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. The portfolio may also borrow an additional 5% of its total assets
from banks or others for temporary or emergency purposes, such as the
redemption of portfolio shares. The portfolio may purchase additional
securities so long as borrowings do not exceed 5% of its total assets. The
portfolio may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. The portfolio may
purchase securities on margin and engage in short sales to the extent
permitted by applicable law.
Asset Coverage
The portfolio will cover its derivatives according to guidelines
established by the SEC so as to avoid creating a "senior security" (as
defined in the 1940 act) in connection with use of such instruments.
Accordingly, the portfolio will either own the securities underlying the
derivative or will segregate with its custodian cash or liquid securities
in an amount at all times equal to the portfolio's commitment with respect
to these instruments or contracts. Assets that are segregated for purposes
of proving cover need not be physically segregated in a separate account
provided that the custodian notes on its books that such securities are
segregated.
I-3
<PAGE>
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Hanson Investment Management Company is the investment adviser of the
portfolio. For its services, the portfolio pays its adviser a fee equal to
0.70% its average daily net assets. 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 more information concerning the adviser, see
"Investment Advisory and Other Services" in Part II of this SAI.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is
calculated at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, the following persons or organizations held of record
or beneficially 5% or more of the shares of a portfolio:
Name and Address of Shareholder Percentage of Shares Owned
===========================================================================
Charles Schwab & Co., Inc. 99.71%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- --------------------------------------------------------------------------------
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. For more information concerning the
performance of the portfolio, including the way it calculates its
performance figures, see "Performance Calculations" in Part II of this SAI.
I-4
<PAGE>
Average Annual Total Return
<TABLE>
<CAPTION>
For the Periods Shorter of 10 Years or
Ended April 30, 1 Year 5 Years Since Inception Inception Date
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 16.52% N/A 19.62% 10/3/97
</TABLE>
<TABLE>
<CAPTION>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- ------------------------------------------------------------------------------------------------------------------
For the FYE Investment Investment Sub-Administrator Brokerage
April 30, Advisory Fees Paid Advisory Fees Waived Administrator Fee Fee Commissions
==============================================================================================================
<S> <C> <C> <C> <C> <C>
1999 $171,247 $0 $23,531 $51,233 $18,977
--------------------------------------------------------------------------------------------------------------
1998 $ 83,786 $0 $22,082 $0 $33,367
--------------------------------------------------------------------------------------------------------------
</TABLE>
I-5
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970 to
increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to guaranteeing
the mortgage-related security, such issuers may service and/or have originated
the underlying mortgage loans. Pools created by these issuers generally offer
a higher rate of interest than pools created by GNMA, FNMA & FHLMC because
they are not guaranteed by a government agency.
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
II-5
<PAGE>
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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
II-6
<PAGE>
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. 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 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
II-7
<PAGE>
securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also try
to minimize its loss by investing 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.
II-8
<PAGE>
Types of Derivatives
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
II-9
<PAGE>
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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
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.
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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.
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.
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
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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:
. 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;
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. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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;
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. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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
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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; 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.
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Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
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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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
II-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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
II-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 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.
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 it enters into a repurchase agreement, a portfolio 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 "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
- --------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
II-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 fails
financially 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.
SHORT SALES
- --------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
II-23
<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or 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.
II-24
<PAGE>
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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Position from Fund as Funds Complex
Name, Address, DOB with Fund Principal Occupations During the Past 5 years of 4/30/99 as of 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company, $8,094 $39,900
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- ----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since $8,094 $40,575
10 Garden Street January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- ----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Member Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board Member President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec 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 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position from Fund as Funds Complex
Name, Address, DOB with Fund Principal Occupations During the Past 5 years of 4/30/99 as of 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- ----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- ----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan
(the "Plans") for their Institutional Service Class Shares pursuant to Rule
12b-1 under the 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 Institutional Service Class
Shares to UAMFDI, to the Service Agent directly or through UAMFDI. Each item
for which a payment may be made under the Service Plan constitutes personal
service and/or shareholder account maintenance and may constitute an expense
of distributing Fund Service Class Shares as the SEC construes such term
under Rule 12b-1. Services for which Institutional Service Class Shares may
compensate Service Agents include:
. Acting as the sole shareholder of record and nominee for beneficial
owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend
and other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
II-28
<PAGE>
* Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
* Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
* Displaying and making available sales literature and prospectuses.
* Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the
class' average daily net assets for the year, and may increase such amount to
the plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for
aid in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of
voting on these Plans.
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.
II-29
<PAGE>
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.
ADMINISTRATIVE SERVICES
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has
its principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
* Taxes, interest, brokerage fees and commissions;
* Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
* SEC fees and state Blue-Sky fees;
* EDGAR filing fees;
* Processing services and related fees;
* Advisory and administration fees;
* Charges and expenses of pricing and data services, independent public
accountants and custodians;
* Insurance premiums including fidelity bond premiums;
* Outside legal expenses;
II-30
<PAGE>
* 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.
The Fund Administration Agreement continues in effect from year to year if
the board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73
Tremont Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and
DST Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas
City, Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of
UAMSSC is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York,
11245, provides for the custody of the Fund's assets pursuant to the terms of
a custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
The Advisory Agreement authorizes the adviser to select the brokers or
dealers that will execute the purchases and sales of investment securities
for the portfolio. The Advisory Agreement also directs the adviser to use its
best efforts to obtain the best execution with respect to all transactions
for the portfolio. The adviser may select brokers based on research,
statistical and pricing services they provide to the adviser. Information and
research provided by a broker will be in addition to, and not instead of, the
services the adviser is required to perform under the Advisory Agreement. In
so doing, 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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
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 Fund changed its
name to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
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
Board has the power to designate one or more series (portfolios) or classes
of shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional
Service Class, and Advisor Class. Not all of the portfolios issue all of the
classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can
elect 100% of the board 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 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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. The three classes represent interests in
the same assets of the portfolio and, except as discussed below, are
identical in all respects.
* Institutional Service 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.
* Advisor 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. Advisor
Shares also charge a sales load on purchases.
* Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
* Net income
II-33
<PAGE>
* Dividends
* NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
II-36
<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension
and profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. Redemptions in excess of the above
limits may be paid in whole or in part, in investment securities or in
cash, as the 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.
II-37
<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only
if they also provide
II-38
<PAGE>
certain standardized performance information that they have computed
according to the requirements of the SEC. Current yield and average annual
compounded total return information are calculated using the method of
computing performance mandated 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 Advisor or 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 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).
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:
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<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by
various financial publications. Advertisements may also compare performance
(as calculated above) to performance as reported by other investments,
indices and averages. Please see Appendix B for publications, indices and
averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
portfolio, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the portfolio to calculate its performance. In addition,
there can be no assurance that the portfolio will continue this performance
as compared to such other averages.
Financial Statements
The following documents are included in 1999 Annual Report of each
portfolio, other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented.
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information on
how the fund calculates this number under "Purchase, Redemption and Pricing of
Shares."
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.
III-2
<PAGE>
IV: Appendix A --
Description of Securities
and Ratings
IV-1
<PAGE>
Moody's Investors Service, Inc.
PREFERRED STOCK RATINGS
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment within the universe of preferred stock.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is
a reasonable assurance the earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over
any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long periods of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so rated can thus be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating classification: the modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
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. 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.
</TABLE>
IV-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any long period of time may be
small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1
indicates that the obligation ranks in the higher end of its generic rating category; modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of that generic rating category.
SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT & DEPOSITS GLOBALLY
- -----------------------------------------------------------------------------------------------------------------------------------
Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These
obligations have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of
rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal cash generation.
. Well-established access to a range of financial markets and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term
debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior
short-term obligation. The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating categories.
</TABLE>
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates
an extremely strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to
the issuer's capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and
CCC the highest. While such issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in arrears on dividends or sinking fund
payments, but that is currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in default on debt instruments.
N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality, ratings from AA to CCC may be modified by
minus (-) the addition of a plus or minus sign to show relative standing within the major rating categories.
LONG-TERM ISSUE CREDIT RATINGS
- -----------------------------------------------------------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with
the terms of the obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's
capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher- rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligator to meet its financial
commitment on the obligation.
</TABLE>
IV-4
<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.
<TABLE>
<C> <S>
BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated CCC is currently vulnerable to non-payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
r This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal
or volatility of expected returns which are not addressed in the credit rating. Examples include: obligation linked or indexed to
equities, currencies, or commodities; obligations exposed to severe prepayment risk-such as interest-only or principal-only
mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for
example, that means obligations with an original maturity of no more than 365 days - including commercial paper. Short-term
ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The
result is a dual rating in which the short-term rating addresses the put feature, in addition to the usual long-term rating.
Medium-term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligation in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is satisfactory.
A-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.
</TABLE>
IV-5
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
C A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has not expired, unless Standard
& Poors' believes that such payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors are more variable in periods of greater
economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions. Overall quality may move up or down
frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will not be net when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. Issuer
failed to meet scheduled principal and/or interest payments.
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.
</TABLE>
IV-6
<PAGE>
<TABLE>
Good Grade
<C> <S>
D-2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are
small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in debt
service. Operating factors and market access may be subject to a high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or interest payments.
Fitch IBCA Ratings
INTERNATIONAL LONG-TERM CREDIT RATINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of credit risk. They are assigned only
in case of exceptionally strong capacity for timely payment for financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of credit risk. They indicate very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher ratings.
B Good credit quality. `BBB' ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met; however, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.
</TABLE>
IV-7
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
CCC,CC,C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. A `CC' rating indicates that default
of some kind appears probable. `C' ratings signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are extremely speculative. `DDD' designates
the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates,
for example, `DD' indicates expected recovery of 50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however,
near-term adverse changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
</TABLE>
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.
IV-8
<PAGE>
V: Appendix B -- Comparisons
V-1
<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 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.
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 -- an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index -- an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index -- an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index - an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size in this investment objective.
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).
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.
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.
Russell 1000 Index - an unmanaged index composed of the 1000 largest stocks in
the Russell 3000 Index.
Russell 2000 Growth Index - contains those Russell 2000 securities with higher
price-to-book ratios and higher forecasted growth values.
Russell 2000 Index - an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index - contains those Russell 2000 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index - contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index - an unmanaged index composed of the 2,5000 smallest stocks
in the Russell 3000.
Russell 2500 Value Index - contains those Russell 2500 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index - composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index - is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index - an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index - consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index - an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index - is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates -
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Jacobs International Octagon
Portfolio
Institutional Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August
9, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
Jacobs International Octagon Portfolio............................................. I-2
What Investment Strategies May The Portfolio Use?................................ I-2
What Are The Investment Policies Of The Portfolio?............................... I-2
Who Is The Investment Adviser Of The Portfolio?.................................. I-3
How Much Does The Portfolio Pay For Administrative Services?..................... I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?................ I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?...... I-4
What Were The Expenses Of The Portfolio?......................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments............................................. II-2
Debt Securities.................................................................. II-2
Derivatives...................................................................... II-8
Equity Securities................................................................ II-16
Foreign Securities............................................................... II-18
Investment Companies............................................................. II-22
Repurchase Agreements............................................................ II-22
Restricted Securities............................................................ II-22
Securities Lending............................................................... II-23
Short Sales...................................................................... II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions................ II-24
Management Of The Fund............................................................. II-25
Investment Advisory and Other Services............................................. II-26
Investment Adviser............................................................... II-26
Distributor...................................................................... II-27
Service And Distribution Plans................................................... II-28
Administrative Services.......................................................... II-30
Custodian........................................................................ II-31
Independent Public Accountant.................................................... II-31
Brokerage Allocation and Other Practices........................................... II-32
Selection of Brokers............................................................. II-32
Simultaneous Transactions........................................................ II-32
Brokerage Commissions............................................................ II-32
Capital Stock and Other Securities................................................. II-33
The Fund......................................................................... II-33
Description Of Shares And Voting Rights.......................................... II-33
Dividends and Capital Gains Distributions........................................ II-34
Purchase, Redemption and Pricing of Shares......................................... II-35
Net Asset Value Per Share........................................................ II-35
Purchase of Shares............................................................... II-35
Redemption of Shares............................................................. II-36
Exchange Privilege............................................................... II-38
Transfer Of Shares............................................................... II-38
Performance Calculations........................................................... II-38
Total Return..................................................................... II-39
Yield............................................................................ II-39
Comparisons...................................................................... II-40
Financial Statements............................................................... II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc..................................................... IV-2
Preferred Stock Ratings.......................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally.................................. IV-2
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally................ IV-3
Standard & Poor's Ratings Services................................................. IV-4
Preferred Stock Ratings.......................................................... IV-4
Long-Term Issue Credit Ratings................................................... IV-4
Short-Term Issue Credit Ratings.................................................. IV-5
Duff & Phelps Credit Rating Co..................................................... IV-6
Long-Term Debt and Preferred Stock............................................... IV-6
Short-Term Debt.................................................................. IV-6
Fitch IBCA Ratings................................................................. IV-7
International Long-Term Credit Ratings........................................... IV-7
V: Appendix B Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
Jacobs International Octagon Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these
investments/strategies and their risks in Part II under "Description of
Permitted Investments." 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 Policies of the Portfolio?"
. Equity securities (at least 85% of its total assets).
. Equity securities of companies with market capitalizations of less than
$1.5 billion at the time of purchase (between 20% and 40% of its total
assets).
. Foreign Securities (at least 85% of its total assets).
. Securities of issuers located in emerging markets (10% to 40% of its total
assets).
. Foreign currency exchange contracts (for hedging purposes only).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
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:
. 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.
. 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.
I-2
<PAGE>
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 331/3% of the
portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell 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.
. Make loans except (i) by purchasing debt securities in accordance with its
investment objectives and (ii) by lending its portfolio securities in
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.
. 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:
. Invest in futures and/or options on futures unless not more than 5% of its
assets are required as deposit to secure obligations under such futures
and/or options on futures contracts. The portfolio may exclude from this
calculation, options that are in-the-money at the time of purchase.
. Invest more than 20% of its assets in futures and/or options on futures.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Purchase on margin or sell short except as specified herein.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
. Purchase additional securities when its borrowings exceed 5% of its total
assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater than
33 1/3% of its total assets at fair market value.
. 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.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Jacobs Asset Management is the investment adviser of the portfolio. For its
services, the portfolio pays its adviser a fee equal to 1.00% of its average
daily net assets. 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
more information concerning the adviser, see "Investment Advisory and Other
Services" in Part II of this SAI.
I-3
<PAGE>
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is
calculated at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Charles Schwab & Co., Inc. 7.08%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -------------------------------------------------------------------------------------------------------------------------
CHEMBACO 11.95%
FBO H H & Grace A Dow Foundation
C/o Chem Bank & Trust
333 E Bank St
Midland, MI 48640
- -------------------------------------------------------------------------------------------------------------------------
Michigan State University Foundation 26.73%
4700 S Hagadorn Rd Ste 220
East Lansing, MI 48823-5354
- -------------------------------------------------------------------------------------------------------------------------
Miami University Foundation 7.77%
202 Roudbrush Hall
Oxford, OH 45056
</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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- ---------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
<PAGE>
Average Annual Total Return
<TABLE>
<CAPTION>
For the Periods Ended Shorter of 10 Years or
April 30, 1 Year 5 Years Since Inception Inception Date
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 -11.51% N/A 3.06% 1/2/97
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the FYE Investment Advisory Investment Advisory Sub-Administrator Brokerage
April 30, Fees Paid Fees Waived Administrator Fee Fee Commisions
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $991,649 $0 $81,645 $109,646 $601,391
- ------------------------------------------------------------------------------------------------------------------------------
1998 $730,085 $0 $29,248 $78,772 $344,507
- ------------------------------------------------------------------------------------------------------------------------------
1997 $35,743 $29,838 $2,339 $11,212 $74,683
</TABLE>
I-5
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
II-5
<PAGE>
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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
II-6
<PAGE>
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. 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 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
II-7
<PAGE>
securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
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.
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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.
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.
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
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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:
. 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;
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. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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;
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. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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; 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.
II-18
<PAGE>
Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
II-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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
II-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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
II-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 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.
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 it enters into a repurchase agreement, a portfolio 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 "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
- --------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
II-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 fails
financially 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.
SHORT SALES
- --------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
II-23
<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or 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.
II-24
<PAGE>
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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Name, Address, DOB Position Principal Occupations During the Past 5 from Fund as Funds Complex
with Fund years of 4/30/99 as of 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company, $8,094 $39,900
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since $8,094 $40,575
10 Garden Street January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Member Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- -----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board Member President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec 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 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Name, Address, DOB Position Principal Occupations During the Past 5 from Fund as Funds Complex
with Fund years of 4/30/99 as of 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995,
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
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<PAGE>
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
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<PAGE>
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
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<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if the
board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York, 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
- --------------------------------------------------------------------------------
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 Fund changed its name
to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board 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
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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service 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.
. Advisor 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. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
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<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
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<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the 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.
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<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide
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<PAGE>
certain standardized performance information that they have computed according
to the requirements of the SEC. Current yield and average annual compounded
total return information are calculated using the method of computing
performance mandated 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 Advisor or 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 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:
<TABLE>
<CAPTION>
P(1 + T)/n/ = ERV
<S> <C>
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).
</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:
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<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages that
may be used.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in the portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
Financial Statements
The following documents are included in 1999 Annual Report of each portfolio,
other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information
on how the fund calculates this number under "Purchase, Redemption and Pricing
of Shares."
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.
III-2
<PAGE>
IV: Appendix A --
Description of Securities
and Ratings
IV-1
<PAGE>
Moody's Investors Service, Inc.
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment within the universe of preferred stock.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is
a reasonable assurance the earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over
any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long periods of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so rated can thus be regarded as
having extremely poor prospects of ever attaining any real investment standing.
</TABLE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY
- -----------------------------------------------
<TABLE>
<S> <C>
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. 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.
</TABLE>
IV-2
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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:
<TABLE>
<S> <C>
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:
</TABLE>
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
<TABLE>
<S> <C>
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.
</TABLE>
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates
an extremely strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to
the issuer's capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and
CCC the highest. While such issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in arrears on dividends or sinking fund
payments, but that is currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in default on debt instruments.
N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality, ratings from AA to CCC may be modified by
minus (-) the addition of a plus or minus sign to show relative standing within the major rating categories.
</TABLE>
LONG-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
<TABLE>
<S> <C>
AAA An obligation rated AAA have the highest rating assigned by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's
capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher- rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligator to meet its financial
commitment on the obligation.
</TABLE>
IV-4
<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.
<TABLE>
<S> <C>
BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated CCC is currently vulnerable to non-payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
</TABLE>
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
<TABLE>
<S> <C>
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligation in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is satisfactory.
A-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.
</TABLE>
IV-5
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors are more variable in periods of greater
economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions. Overall quality may move up or down
frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will not be net when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. Issuer
failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
High Grade
<TABLE>
<S> <C>
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.
</TABLE>
IV-6
<PAGE>
Good Grade
<TABLE>
<S> <C>
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.
</TABLE>
Fitch IBCA Ratings
INTERNATIONAL LONG-TERM CREDIT RATINGS
- --------------------------------------------------------------------------------
Investment Grade
<TABLE>
<S> <C>
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of credit risk. They are assigned only
in case of exceptionally strong capacity for timely payment for financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation of credit risk. They indicate very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher ratings.
B Good credit quality. 'BBB' ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
</TABLE>
Speculative Grade
<TABLE>
<S> <C>
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.
</TABLE>
IV-7
<PAGE>
<TABLE>
<S> <C>
CCC,CC,C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. A `CC' rating indicates that default
of some kind appears probable. `C' ratings signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are extremely speculative. `DDD' designates
the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates,
for example, `DD' indicates expected recovery of 50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
</TABLE>
International Short-Term Credit Ratings
<TABLE>
<S> <C>
F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however,
near-term adverse changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
</TABLE>
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.
IV-8
<PAGE>
V: Appendix B - Comparisons
V-1
<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 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.
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 -- an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index -- an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index -- an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index -- an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index -- an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index -- an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index -- an unmanaged index composed of the 30 largest
funds by asset size in this investment objective.
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).
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..
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.
Russell 1000 Index -- an unmanaged index composed of the 1000 largest stocks
in the Russell 3000 Index.
Russell 2000 Growth Index -- contains those Russell 2000 securities with
higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index -- contains those Russell 2000 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index -- contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index -- an unmanaged index composed of the 2,5000 smallest
stocks in the Russell 3000.
Russell 2500 Value Index -- contains those Russell 2500 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index -- composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index -- an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index -- an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index -- is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
U.S. Three-Month Treasury Bill Average -- the average return for all treasury
bills for the previous three month period.
Value Line -- 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 he 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.
V-5
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
MJI International Equity Portfolio
Institutional Class Shares
Institutional Service Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August
9, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
MJI International Equity Portfolio............................................. I-2
What Investment Strategies May The Portfolio Use?............................. I-2
What Are The Investment Policies Of The Portfolio?............................ I-2
Who Is The Investment Adviser Of The Portfolio?............................... I-3
How Much Does The Portfolio Pay For Administrative Services?.................. I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?............. I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?... I-5
What Were The Expenses Of The Portfolio?...................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments........................................... II-2
Debt Securities............................................................... II-2
Derivatives................................................................... II-8
Equity Securities............................................................. II-16
Foreign Securities............................................................ II-18
Investment Companies.......................................................... II-22
Repurchase Agreements......................................................... II-22
Restricted Securities......................................................... II-22
Securities Lending............................................................ II-23
Short Sales................................................................... II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............. II-24
Management Of The Fund......................................................... II-25
Investment Advisory and Other Services......................................... II-26
Investment Adviser............................................................ II-26
Distributor................................................................... II-27
Service And Distribution Plans................................................ II-28
Administrative Services....................................................... II-30
Custodian..................................................................... II-31
Independent Public Accountant................................................. II-31
Brokerage Allocation and Other Practices....................................... II-32
Selection of Brokers.......................................................... II-32
Simultaneous Transactions..................................................... II-32
Brokerage Commissions......................................................... II-32
Capital Stock and Other Securities............................................. II-33
The Fund...................................................................... II-33
Description Of Shares And Voting Rights....................................... II-33
Dividends and Capital Gains Distributions..................................... II-34
Purchase, Redemption and Pricing of Shares..................................... II-35
Net Asset Value Per Share..................................................... II-35
Purchase of Shares............................................................ II-35
Redemption of Shares.......................................................... II-36
Exchange Privilege............................................................ II-38
Transfer Of Shares............................................................ II-38
Performance Calculations....................................................... II-38
Total Return.................................................................. II-39
Yield......................................................................... II-39
Comparisons................................................................... II-40
Financial Statements........................................................... II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc................................................. IV-2
Preferred Stock Ratings....................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally............................... IV-2
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............. IV-3
Standard & Poor's Ratings Services............................................. IV-4
Preferred Stock Ratings....................................................... IV-4
Long-Term Issue Credit Ratings................................................ IV-4
Short-Term Issue Credit Ratings............................................... IV-5
Duff & Phelps Credit Rating Co................................................. IV-6
Long-Term Debt and Preferred Stock............................................ IV-6
Short-Term Debt............................................................... IV-6
Fitch IBCA Ratings............................................................. IV-7
International Long-Term Credit Ratings........................................ IV-7
V: Appendix B - Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
MJI International Equity Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these
investments/strategies and their risks in Part II under "Description of
Permitted Investments." 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 Policies of the Portfolio?"
. Foreign securities (at least 65% of its total assets).
. Equity Securities (at least 65% of its total assets).
. Futures (for hedging purposes only).
. Forward currency exchange contracts (for hedging purposes only).
. Options (to enhance income or hedge risk).
. Swaps, caps, collars and floors (hedging purposes only).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
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:
. 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.
. 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.
I-2
<PAGE>
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 331/3% of the
portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. 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.
. 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.
. Underwrite the securities of other issuers.
. 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 option,
futures or repurchase transactions.
Non-Fundamental Policies
The following limitations are non-fundamental, which means the portfolio may
change them without shareholder approval.
The portfolio will not:
. Purchase on margin or sell short.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Murray Johnstone International Limited is the investment adviser of the
portfolio. For its services, the portfolio pays its adviser a fee equal to
0.75% of its average age daily net assets. 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 more information concerning the adviser, see
"Investment Advisory and Other Services" in Part II of this SAI.
What is the Investment Philosophy and Style of the Adviser?
A value orientation for country, currency and stock selection is key to the
adviser's investment philosophy. The adviser's management structure centers
around regional research teams which are specialized by geography. The
individuals within each team are responsible for conducting research within
each region as well as identifying particular stocks for possible inclusion
within portfolios. On-site, fundamental research is a primary component of the
evaluation process.
I-3
<PAGE>
Who Are Some Representative Institutional Clients Of The Adviser?
As of the date of this SAI, the adviser's representative institutional clients
included: Ace Hardware, American Cancer Society, Royal Caribbean Cruises,
Siemens, Levitz, Franciscan Sisters, Rhode Island School of Design, Government
of Guam, City of Albany and Arkansas Police & Fire Retirement Systems.
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. The fund doesnot know whether these
clients approve or disapprove of the adviser or the advisory services
provided.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- -------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.06% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is calculated
at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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 Class of Portfolio Percentage of Shares Owned
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Freya Fanning & Compny Institutional 48.65%
400 Essex St Box 5600
Beverly Farms, MA 01915-1957
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional 11.30%
FBO Interstate Brands
Moderate Growth
A/C 340419142
PO Box 419175
Kansas City, MO 64141-6175
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional 21.40%
FBO Interstate Brands
Aggressive Growth
A/C 340419159
PO Box 419175
Kansas City, MO 64141-6175
- -----------------------------------------------------------------------------------------------------------------------
Sisters of Mercy Corp Institutional Service 70.95%
2300 Adeline Dr
Burlingame, CA 94010-5599
- -----------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional Service 13.44%
FBO Lillick & Charles MJI
A/C 340942010
C/o Trust Department
PO Box 419175
Kansas City, MO 64141-6175
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Shareholder Class of Portfolio Percentage of Shares Owned
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wilmington Trust Co Tr Institutional Service 5.39%
FBO Catholic Healthcare W Med FNDTN
Money Purch Pension Pl 10-01-97
C/o Mutual Funds A/C 427853
PO Box 8971
Wilmington, DE 19899-8971
- -----------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co Tr Institutional Service 6.40%
FBO Catholic Healthcare W Med FNDTN
Deferred Compensation A/C 43092-1
C/o Mutual Funds/UAM
PO Box 8971
Wilmington, DE 19899-8971
</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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- --------------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
Average Annual Total Return For Periods Ended April 30, 1999
<TABLE>
<CAPTION>
Shorter of 10 Years or
1 Year 5 Years Since Inception Inception Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Class 7.17% N/A 7.45% 9/16/94
- ---------------------------------------------------------------------------------------------------------------
Institutional Service Class 6.90% N/A 11.86% 12/31/96
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Investment Sub- Distribution
For the FYE Advisory Advisory Administrator Administrator Brokerage Fees (Service
April 30, Fees Paid Fees Waived Fee Fee Commissions Class Only)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $ 220,570 $ 40,503 $ 45,751 $ 95,969 $ 120,104 $ 35,431
- ---------------------------------------------------------------------------------------------------------------
1998 $ 284,464 $ 0 $ 22,754 $ 105,743 $ 173,063 $ 15,037
- ---------------------------------------------------------------------------------------------------------------
1997 $ 41,961 $ 99,017 $ 11,239 $ 96,855 $ 102,419 $ 1,542
</TABLE>
I-5
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
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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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
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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. 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 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
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securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
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.
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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.
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.
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
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<PAGE>
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:
. 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;
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<PAGE>
. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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;
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<PAGE>
. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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
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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; 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.
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Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
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<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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
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<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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
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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 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.
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
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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 it enters into a repurchase agreement, a portfolio 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 "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
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A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
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SECURITIES LENDING
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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 fails
financially 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.
SHORT SALES
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Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
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Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
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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.
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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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company, $ 8,094 $ 39,900
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since $ 8,094 $ 40,575
10 Garden Street January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Member Executive Vice President and Chief Administrative $ 8,094 $ 40,936
100 King Street West Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board Member President and Chief Executive Officer of $ 8,094 $ 40,702
16 West Madison Street Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec 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 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995,
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
II-28
<PAGE>
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
II-29
<PAGE>
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
II-30
<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if the
board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York, 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
- --------------------------------------------------------------------------------
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 Fund changed its name
to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board 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
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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service 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.
. Advisor 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. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
II-33
<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
II-36
<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the 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.
II-37
<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide
II-38
<PAGE>
certain standardized performance information that they have computed according
to the requirements of the SEC. Current yield and average annual compounded
total return information are calculated using the method of computing
performance mandated 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 Advisor or 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 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)/11/ = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).
YIELD
- --------------------------------------------------------------------------------
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:
II-39
<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages that
may be used.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in the portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
Financial Statements
The following documents are included in 1999 Annual Report of each portfolio,
other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information
on how the fund calculates this number under "Purchase, Redemption and Pricing
of Shares."
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.
III-2
<PAGE>
IV: Appendix A--
Description of Securities
and Ratings
IV-1
<PAGE>
Moody's Investors Service, Inc.
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment within the universe of preferred stock.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is
a reasonable assurance the earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over
any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long periods of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so rated can thus be regarded as
having extremely poor prospects of ever attaining any real investment standing.
</TABLE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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. 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.
</TABLE>
IV-2
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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:
<TABLE>
<S> <C>
Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
</TABLE>
<TABLE>
<S> <C>
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.
</TABLE>
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates
an extremely strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
BB, B, Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to
CCC the issuer's capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and
CCC the highest. While such issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in arrears on dividends or sinking fund
payments, but that is currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in default on debt instruments.
N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality, ratings from AA to CCC may be modified by
minus (-) the addition of a plus or minus sign to show relative standing within the major rating categories.
</TABLE>
LONG-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
<TABLE>
<S> <C>
AAA An obligation rated AAA have the highest rating assigned by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's
capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher- rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligator to meet its financial
commitment on the obligation.
</TABLE>
IV-4
<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.
<TABLE>
<S> <C>
BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated CCC is currently vulnerable to non-payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
</TABLE>
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
<TABLE>
<S> <C>
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligation in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is satisfactory.
A-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.
</TABLE>
IV-5
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors are more variable in periods of greater
economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient for prudent investment. Considerable
BBB- variability in risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions. Overall quality may move up or down
frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will not be net when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. Issuer
failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
High Grade
<TABLE>
<S> <C>
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.
</TABLE>
IV-6
<PAGE>
Good Grade
<TABLE>
<S> <C>
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.
</TABLE>
Fitch IBCA Ratings
INTERNATIONAL LONG-TERM CREDIT RATINGS
- --------------------------------------------------------------------------------
Investment Grade
<TABLE>
<S> <C>
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of credit risk. They are assigned only
in case of exceptionally strong capacity for timely payment for financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of credit risk. They indicate very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher ratings.
B Good credit quality. `BBB' ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met; however, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.
</TABLE>
IV-7
<PAGE>
<TABLE>
<S> <C>
CCC,CC,C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. A `CC' rating indicates that default
of some kind appears probable. `C' ratings signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are extremely speculative. `DDD' designates
the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates,
for example, `DD' indicates expected recovery of 50% - 90% of such outstandings, and `D' the lowest recovery
potential, i.e. below 50%.
</TABLE>
International Short-Term Credit Ratings
<TABLE>
<S> <C>
F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however,
near-term adverse changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
</TABLE>
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.
IV-8
<PAGE>
V: Appendix B -- Comparisons
V-1
<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 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.
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 - an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index - an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index - an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size in this investment objective.
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).
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..
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.
Russell 1000 Index - an unmanaged index composed of the 1000 largest stocks in
the Russell 3000 Index.
Russell 2000 Growth Index - contains those Russell 2000 securities with higher
price-to-book ratios and higher forecasted growth values.
Russell 2000 Index - an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index - contains those Russell 2000 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index - contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index - an unmanaged index composed of the 2,5000 smallest stocks
in the Russell 3000.
Russell 2500 Value Index - contains those Russell 2500 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index - composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index - is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index - an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index - consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index - an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index - is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates -
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line - 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 he 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.
V-5
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Pell Rudman Mid-Cap Growth
Portfolio
Institutional Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August
9, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
Pell Rudman Mid-Cap Growth Portfolio........................................... I-2
What Investment Strategies May The Portfolio Use?........................... I-2
What Are The Investment Policies Of The Portfolio?.......................... I-2
Who Is The Investment Adviser Of The Portfolio?............................. I-4
How Much Does The Portfolio Pay For Administrative Services?................ I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?........... I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?. I-5
What Were The Expenses Of The Portfolio?.................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments........................................... II-2
Debt Securities.............................................................. II-2
Derivatives.................................................................. II-8
Equity Securities............................................................ II-16
Foreign Securities........................................................... II-18
Investment Companies......................................................... II-22
Repurchase Agreements........................................................ II-22
Restricted Securities........................................................ II-22
Securities Lending........................................................... II-23
Short Sales.................................................................. II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............ II-24
Management Of The Fund......................................................... II-25
Investment Advisory and Other Services......................................... II-26
Investment Adviser........................................................... II-26
Distributor.................................................................. II-27
Service And Distribution Plans............................................... II-28
Administrative Services...................................................... II-30
Custodian.................................................................... II-31
Independent Public Accountant................................................ II-31
Brokerage Allocation and Other Practices....................................... II-32
Selection of Brokers......................................................... II-32
Simultaneous Transactions.................................................... II-32
Brokerage Commissions........................................................ II-32
Capital Stock and Other Securities............................................. II-33
The Fund..................................................................... II-33
Description Of Shares And Voting Rights...................................... II-33
Dividends and Capital Gains Distributions.................................... II-34
Purchase, Redemption and Pricing of Shares..................................... II-35
Net Asset Value Per Share.................................................... II-35
Purchase of Shares........................................................... II-35
Redemption of Shares......................................................... II-36
Exchange Privilege........................................................... II-38
Transfer Of Shares............................................................ II-38
Performance Calculations........................................................ II-38
Total Return.................................................................. II-39
Yield......................................................................... II-39
Comparisons................................................................... II-40
Financial Statements............................................................ II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc.................................................. IV-2
Preferred Stock Ratings....................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally............................... IV-2
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............. IV-3
Standard & Poor's Ratings Services.............................................. IV-4
Preferred Stock Ratings....................................................... IV-4
Long-Term Issue Credit Ratings................................................ IV-4
Short-Term Issue Credit Ratings............................................... IV-5
Duff & Phelps Credit Rating Co.................................................. IV-6
Long-Term Debt and Preferred Stock............................................ IV-6
Short-Term Debt............................................................... IV-6
Fitch IBCA Ratings.............................................................. IV-7
International Long-Term Credit Ratings........................................ IV-7
V: Appendix B Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
Pell Rudman Mid-Cap Growth Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these investments/strategies
and their risks in Part II under "Description of Permitted Investments." 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 Policies of the Portfolio?"
. Equity securities (at least 65% in companies with market capitalizations
between $200 million and $10 billion at the time of purchase).
. Foreign securities.
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
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:
. 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.
. 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.
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 331/3% of the
portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
I-2
<PAGE>
. 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.
. 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.
. Make loans except (i) by purchasing bonds, debentures or other 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) 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.
Non-Fundamental Policies
The following limitations are non-fundamental, which means the portfolio may
change them without shareholder approval.
The portfolio will not:
. Purchase on margin or sell short except that the portfolio may purchase
futures as described in the prospectus and this SAI.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities)or securities for which there are no readily available markets
(illiquid securities).
Borrowing
The portfolio may borrow from banks and enter into reverse repurchase
agreements in an amount up to 331/3% of its total assets, taken at market
value. The portfolio may also borrow an additional 5% of its total assets from
banks or others for temporary or emergency purposes, such as the redemption of
portfolio shares. The portfolio may purchase additional securities so long as
borrowings do not exceed 5% of its total assets. The portfolio may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. The portfolio may purchase securities on margin and
engage in short sales to the extent permitted by applicable law.
Asset Coverage
The portfolio will cover its derivatives according to guidelines established
by the SEC so as to avoid creating a "senior security" (as defined in the 1940
act) in connection with use of such instruments. Accordingly, the portfolio
will either own the securities underlying the derivative or will segregate
with its custodian cash or liquid securities in an amount at all times equal
to the portfolio's commitment with respect to these instruments or contracts.
Assets that are segregated for purposes of proving cover need not be
physically segregated in a separate account provided that the custodian notes
on its books that such securities are segregated.
I-3
<PAGE>
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
Pell Rudman Trust Company, N.A. is the investment adviser of the portfolio.
For its services, the portfolio pays its adviser a fee equal to 1.00% of its
average age daily net assets. 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 more information concerning the adviser, see "Investment Advisory
and Other Services" in Part II of this SAI.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is calculated
at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Charles Schwab & Co., Inc. 37.13%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------------------------------------------------------------
Pell Rudman Trust Company N.A. 21.45
100 Federal Street FL 37
Boston, MA 02110-1802
- -----------------------------------------------------------------------------------------------------------------------------------
Southtrust Bank NA TTEE 16.23%
FBO Goodwin Investments LP
Attn Susan Moon
PO Box 830804
Birmingham, AL 35283-0804
- -----------------------------------------------------------------------------------------------------------------------------------
United Asset Management 19.03%
1 International Place
Boston, MA 02110-2602
</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.
I-4
<PAGE>
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- -------------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
Average Annual Total Return
<TABLE>
<CAPTION>
For the Periods Shorter of 10 Years or
Ended April 30, 1 Year 5 Years Since Inception Inception Date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N/A N/A 27.50% 9/10/98
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Investment Investment
FYE Advisory Fees Advisory Fees Sub- Brokerage
April 30, Paid Waived Administrator Fee Administrator Fee Commissions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $0 $16,812 $13,726 $36,071 $8,855
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
I-6
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
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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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
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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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
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may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
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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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
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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. 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 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
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securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
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.
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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.
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.
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
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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 mrgin requirements at a time when
it is disdavantageous 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;
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. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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;
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. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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
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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; 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.
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Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
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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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
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. 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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
II-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 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.
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 it enters into a repurchase agreement, a portfolio 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 "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
- -------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
II-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 fails
financially 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.
SHORT SALES
- -------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
II-23
<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- -------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or 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.
II-24
<PAGE>
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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board President of Squam Investment Management $8,094 $39,900
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 $8,094 $40,575
10 Garden Street Member January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe
8/14/51 College from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Member Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board President and Chief Executive Officer of $8,094 $40,702
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, Inc. since 0 0
211 Congress Street Member March 1999; Vice President UAM Trust
Boston, MA 02110 Company since January 1996; Principal of UAM
2/24/53 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 of each
3/21/35 and of the Investment Companies of the Eaton Vance
Chairman Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter M. Whitman, Jr.* Board President and Chief Investment Officer of Dewey 0 0
One Financial Center Member Square Investors Corporation since 1988;
Boston, MA 02111 Director and Chief Executive Officer of H.T.
7/1/43 Investors, Inc., formerly a subsidiary of Dewey
Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management
Boston, MA 02110 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 from
Boston, MA 02110 1991 to 1995; held various other offices with
7/4/51 Fidelity Investments from November 1990 to
March 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI 0 0
211 Congress Street and UAMFDI; Associate Attorney of Ropes &
Boston, MA 02110 Gray (a law firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from
Boston, MA 02110 1995 to 1996; Senior Manager of Deloitte &
9/18/63 Touche LLP from 1985 to 1995,
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at
Boston, MA 02108 Ernst & Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds 0 0
73 Tremont Street Secretary Services Company since 1996. Senior Public
Boston, MA 02108 Accountant with Price Waterhouse LLP from
4/12/69 1991 to 1994.
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
------------------------------------------------------------------------------
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- -------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
II-28
<PAGE>
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
II-29
<PAGE>
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.
ADMINISTRATIVE SERVICES
- -------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
II-30
<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if the
board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- -------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York, 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- -------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- -------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
- -------------------------------------------------------------------------------
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 Fund changed its name
to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- -------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board 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
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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service 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.
. Advisor 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. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
II-33
<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- -------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
II-36
<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the 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.
II-37
<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide
II-38
<PAGE>
certain standardized performance information that they have computed according
to the requirements of the SEC. Current yield and average annual compounded
total return information are calculated using the method of computing
performance mandated 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 Advisor or 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 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).
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:
II-39
<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages that
may be used.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in the portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
Financial Statements
The following documents are included in 1999 Annual Report of each portfolio,
other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information
on how the fund calculates this number under "Purchase, Redemption and Pricing
of Shares."
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.
III-2
<PAGE>
IV: Appendix A -
Description of Securities
and Ratings
IV-1
<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
stock.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the "aaa" and "aa" classification, earnings and asset
protection are, nevertheless, expected to be maintained at adequate
levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long periods of time may be
small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
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. 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.
IV-2
<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.
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:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- -------------------------------------------------------------------------------
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for
issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category
than for issues in the A category.
BB, B, Preferred stock rated BB, B, and CCC are regarded, on balance, as
CCC predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.
Plus (+) or To provide more detailed indications of preferred stock quality,
minus (-) 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.
LONG-TERM ISSUE CREDIT RATINGS
- -------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher- rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligator to meet
its financial commitment on the obligation.
IV-4
<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 The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- -------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligation in higher rating categories. However, the
obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-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.
IV-5
<PAGE>
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired,
unless Standard & Poors' believes that such payments will be made
during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- -------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic
conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient
BBB- for prudent investment. Considerable variability in risk during
economic cycles.
BB+/BB/ 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 net when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating
within this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments. Issuer failed to meet scheduled
principal and/or interest payments.
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.
IV-6
<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 for financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable
events.
AA Very high credit quality. 'AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions
than is the case for higher ratings.
B Good credit quality. 'BBB' ratings indicate that there is currently
a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. 'B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
IV-7
<PAGE>
CCC, High default risk. Default is a real possibility. Capacity for
CC,C 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, Default. Securities are not meeting current obligations and are
DD,D extremely speculative. 'DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, 'DD' indicates expected recovery of 50% -
90% of such outstandings, and 'D' the lowest recovery potential,
i.e. below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
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.
IV-8
<PAGE>
V: Appendix B - Comparisons
V-1
<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 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.
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 - an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index - an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index - an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index - an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size in this investment objective.
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).
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.
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.
Russell 1000 Index - an unmanaged index composed of the 1000 largest stocks in
the Russell 3000 Index.
Russell 2000 Growth Index - contains those Russell 2000 securities with higher
price-to-book ratios and higher forecasted growth values.
Russell 2000 Index - an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index - contains those Russell 2000 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index - contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index - an unmanaged index composed of the 2,5000 smallest stocks
in the Russell 3000.
Russell 2500 Value Index - contains those Russell 2500 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index - composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index - is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index - an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index - consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index - an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index - is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates -
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line - 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 he 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.
V-5
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
TJ Core Equity Portfolio
Institutional Service Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August 9,
1999, as supplemented from time to time. You may obtain the fund's prospectuses
by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
TJ Core Equity Portfolio....................................................... I-2
What Investment Strategies May The Portfolio Use?............................. I-2
What Are The Investment Policies Of The Portfolio?............................ I-2
Who Is The Investment Adviser Of The Portfolio?............................... I-3
How Much Does The Portfolio Pay For Administrative Services?.................. I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?............. I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?... I-5
What Were The Expenses Of The Portfolio?...................................... I-5
II: The UAM Funds in Detail II-1
Description of Permitted Investments........................................... II-2
Debt Securities............................................................... II-2
Derivatives................................................................... II-8
Equity Securities............................................................. II-16
Foreign Securities............................................................ II-18
Investment Companies.......................................................... II-22
Repurchase Agreements......................................................... II-22
Restricted Securities......................................................... II-22
Securities Lending............................................................ II-23
Short Sales................................................................... II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............. II-24
Management Of The Fund......................................................... II-25
Investment Advisory and Other Services......................................... II-26
Investment Adviser............................................................ II-26
Distributor................................................................... II-27
Service And Distribution Plans................................................ II-28
Administrative Services....................................................... II-30
Custodian..................................................................... II-31
Independent Public Accountant................................................. II-31
Brokerage Allocation and Other Practices....................................... II-32
Selection of Brokers.......................................................... II-32
Simultaneous Transactions..................................................... II-32
Brokerage Commissions......................................................... II-32
Capital Stock and Other Securities............................................. II-33
The Fund...................................................................... II-33
Description Of Shares And Voting Rights....................................... II-33
Dividends and Capital Gains Distributions..................................... II-34
Purchase, Redemption and Pricing of Shares..................................... II-35
Net Asset Value Per Share..................................................... II-35
Purchase of Shares............................................................ II-35
Redemption of Shares.......................................................... II-36
Exchange Privilege............................................................ II-38
Transfer Of Shares............................................................ II-38
Performance Calculations....................................................... II-38
Total Return.................................................................. II-39
Yield......................................................................... II-39
Comparisons................................................................... II-40
Financial Statements........................................................... II-40
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc................................................. IV-2
Preferred Stock Ratings....................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally............................... IV-2
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............. IV-3
Standard & Poor's Ratings Services............................................. IV-4
Preferred Stock Ratings....................................................... IV-4
Long-Term Issue Credit Ratings................................................ IV-4
Short-Term Issue Credit Ratings............................................... IV-5
Duff & Phelps Credit Rating Co................................................. IV-6
Long-Term Debt and Preferred Stock............................................ IV-6
Short-Term Debt............................................................... IV-6
Fitch IBCA Ratings............................................................. IV-7
International Long-Term Credit Ratings........................................ IV-7
V: Appendix B - Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
TJ Core Equity Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these investments/strategies
and their risks in Part II under "Description of Permitted Investments." 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 ability of the portfolio to use these
investments in "What Are the Investment Policies of the Portfolio?"
. Equity securities (at least 65% of its total assets).
. Debt Securities -- Investment-grade (up to 35%).
. Foreign securities (up to 20%).
. Futures (to reduce transaction costs or remain fully invested).
. Foreign currency exchange contracts (for hedging purposes only).
. Options (to reduce transaction costs or remain fully invested).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- ------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
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:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in the securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the 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 one issuer.
. 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.
I-2
<PAGE>
. 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.
. 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.
. Make loans except (i) by purchasing debt securities in accordance with its
investment objectives, (ii) entering into repurchase agreements or (iii) 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.
. Underwrite the securities of other issuers.
. 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
option, futures or repurchase transactions.
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 futures and/or options on futures unless not more than 5% of its
assets are required as deposit to secure obligations under such futures
and/or options on futures contracts. The portfolio may exclude from this
calculation, options that are in-the-money at the time of purchase.
. Invest more than 20% of its assets in futures and/or options on futures.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Purchase on margin or sell short except as specified herein.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
. Purchase additional securities when its borrowings exceed 5% of its total
assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater than
33 1/3% of its total assets at fair market value.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Tom Johnson Investment Management is the investment adviser of the portfolio.
For its services, the portfolio pays its adviser a fee equal to 1.00% 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 more information concerning the adviser, see
"Investment Advisory and Other Services" in Part II of this SAI.
I-3
<PAGE>
What is the Investment Philosophy and Style of the Adviser?
The adviser's investment philosophy is a conservative one which stresses
adequate diversification, risk reduction, and consistency of returns. The firm
maintains strong disciplines and emphasizes long-term results. The adviser's
initial goal is preservation of capital; thus, high quality issues are
emphasized. Secondary goals include income and capital appreciation. Thorough
fundamental economic, industry, and company analyses provide the framework
within which all investment alternatives are evaluated.
Who Are Some Representative Institutional Clients Of The Adviser?
As of the date of this SAI, the adviser's representative institutional clients
included: LL Bean, Oklahoma Teachers' Retirement System, Presbyterian Health
Foundation, Service Corporation International and University of Texas Ex-
Students' Association.
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. The fund does not know whether these
clients approve or disapprove of the adviser or the advisory services
provided.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is calculated
at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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
==================================================================================================================
<S> <C>
Charles Schwab & Co., Inc. 25.99%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------------------------------------------------
UMBSC & Co 14.63%
FBO Lillick & Charles TJ Core
A/C 340942010
C/o Trust Department
PO Box 419175
Kansas City, MO 64141-6175
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Shareholder Percentage of Shares Owned
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Wilmington Trust Co Tr 33.19%
FBO Allied Waste 401K Pl
A/C 446074 DTD 2/1/98
C/o Mutual Funds UAM
1100 North Market Street
Wilmington, DE 198980-0001
</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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- --------------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
Average Annual Total Return
<TABLE>
<CAPTION>
For the Periods Shorter of 10 Years or
Ended April 30, 1 Year 5 Years Since Inception Inception Date
========================================================================================================
<S> <C> <C> <C> <C>
1999 27.34% N/A 26.30% 9/28/95
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Investment Sub-
For the FYE Advisory Fees Advisory Fees Administrator Administrator Brokerage Distribution
April 30, Paid Waived Fee Fee Commissions Fees
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1999 $0 $99,818 $20,503 $68,705 $23,689 $32,733
----------------------------------------------------------------------------------------------------------------
1998 $0 $63,097 $ 3,366 $72,990 $18,284 $18,198
----------------------------------------------------------------------------------------------------------------
1997 $0 $14,372 $ 763 $59,928 $ 3,696 $ 4,790
</TABLE>
I-5
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
Description of Permitted Investments
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
II-3
<PAGE>
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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
II-5
<PAGE>
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 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 United States 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.
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 the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
II-6
<PAGE>
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. 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 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
II-7
<PAGE>
securities offer higher yields than treasury 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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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.
II-8
<PAGE>
Types of Derivatives
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 in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect 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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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.
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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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.
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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.
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:
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. 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.
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.
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The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if market price declines, the portfolio
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the portfolio.
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.
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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.
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.
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
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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:
. 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;
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. 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.
EQUITY SECURITIES
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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.
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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 resects, 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 exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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;
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. 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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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; 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.
II-18
<PAGE>
Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds subject to the
provisions of the 1940 Act. If a portfolio invests in such investment funds,
its shareholders will bear not only their proportionate share of the expenses
of the portfolio (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. 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 a portfolio's investments.
. 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 ability of a portfolio to invest 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.
II-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 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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
II-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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
. 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 will adopt the
Euro in all aspects of the investment process, including trading, foreign
exchange, payments, settlements, cash accounts, custody and accounting. Some
of the uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
II-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 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.
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 it enters into a repurchase agreement, a portfolio 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 "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
- --------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Fund's board, the adviser determines the liquidity of
such investments by considering all relevant factors. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of 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.
II-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 fails
financially 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.
SHORT SALES
- --------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not own.
To sell a security short an investor must borrow the security from someone
else to deliver to the buyer. The investor then replaces the security it
borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit if
the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
II-23
<PAGE>
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire at
no extra cost. A portfolio will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio net
assets.
. The market value of the securities of any single issuer that have been sold
short by the portfolio would exceed the two percent (2%) of the value of
the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated assets are marked to market
daily in an attempt to ensure that the amount deposited in the segregated
account plus the amount deposited with the broker is at least equal to the
market value of the securities at the time they were sold short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or 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.
II-24
<PAGE>
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 per quarter 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 48
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>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
===================================================================================================================================
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board President of Squam Investment Management Company, $8,094 $39,900
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 $8,094 $40,575
10 Garden Street Member January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- -----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Member Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- -----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Member Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 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 0 0
One International Place Member, of United Asset Management Corporation; Director,
Boston, MA 02110 President Partner or Trustee of each of the Investment
and Companies of the Eaton Vance Group of Mutual Funds.
Chairman
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
===================================================================================================================================
<S> <C> <C> <C> <C>
Peter M. Whitman, Jr.* Board President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- -----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995,
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
Investment Advisory and Other Services
INVESTMENT ADVISER
Control Of Adviser
Each 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.
II-26
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of each of the
portfolio's 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 the assets of the portfolios;
. Continuously reviews, supervises and administers the investment program of
the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services, the adviser shall not be subject to any liability whatsoever to
the Fund, for any error of judgment, mistake of law or any other act or
omission in the course of, or connected with, rendering services under the
Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment Advisory
Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
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.
II-27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for their Institutional Service Class Shares pursuant to Rule 12b-1
under the 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 Institutional Service Class Shares to UAMFDI, to
the Service Agent directly or through UAMFDI. Each item for which a payment
may be made under the Service Plan constitutes personal service and/or
shareholder account maintenance and may constitute an expense of distributing
Fund Service Class Shares as the SEC construes such term under Rule 12b-1.
Services for which Institutional Service Class Shares may compensate Service
Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits 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.
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<PAGE>
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Fund's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.40% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
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.
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<PAGE>
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.
ADMINISTRATIVE SERVICES
- -------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFD I 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;
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<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if the
board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and DST
Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas City,
Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of UAMSSC
is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
CUSTODIAN
- -------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York, 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- -------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Fund.
II-31
<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- -------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or dealers
that will execute the purchases and sales of investment securities for the
portfolio. The Advisory Agreement also directs the adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolio. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Advisory Agreement. In so doing,
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, 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 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.
II-32
<PAGE>
Capital Stock and Other Securities
THE FUND
- -------------------------------------------------------------------------------
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 Fund changed its name
to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- -------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board 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
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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service 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.
. Advisor 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. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
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<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- -------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, a portfolio cannot predict
the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. The capital
gains/losses of one portfolio will not be offset against the capital
gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in the
prospectus of the portfolio, although from an investment standpoint, it is a
return of capital. If you buy shares of the portfolio on or just before the
"record date" (the date that establishes which shareholders will receive an
upcoming distribution) for a distribution, you will receive some of the money
you invested as a taxable distribution.
II-34
<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
II-35
<PAGE>
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 "VALUATION OF SHARES" 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
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<PAGE>
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other
necessary legal documents.
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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the 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.
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<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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide
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<PAGE>
certain standardized performance information that they have computed according
to the requirements of the SEC. Current yield and average annual compounded
total return information are calculated using the method of computing
performance mandated 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 Advisor or 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 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:
<TABLE>
<S> <C> <C>
P (1 + T)/11/ = 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).
</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:
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<PAGE>
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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages that
may be used.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in the portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
Financial Statements
The following documents are included in 1999 Annual Report of each portfolio,
other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-40
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find information
on how the fund calculates this number under "Purchase, Redemption and Pricing
of Shares."
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.
III-2
<PAGE>
IV: Appendix A -
Description of Securities
and Ratings
IV-1
<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
stock.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long periods of time may be
small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
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. 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.
IV-2
<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.
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:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and
may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- -------------------------------------------------------------------------------
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity
to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to make payments for a preferred stock in this category than for
issues in the A category.
BB, B, Preferred stock rated BB, B, and CCC are regarded, on balance, as
CCC predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Plus To provide more detailed indications of preferred stock quality,
(+) or ratings from AA to CCC may be modified by the addition of a plus or
minus minus sign to show relative standing within the major rating
(-) categories.
LONG-TERM ISSUE CREDIT RATINGS
- -------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher- rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligator to meet
its financial commitment on the obligation.
IV-4
<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 The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an
obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- -------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligation in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-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.
IV-5
<PAGE>
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poors' believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- -------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors are
more variable in periods of greater economic stress.
BBB+/ Below-average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+/BB/ Below investment grade but deemed likely to meet obligations when
BB- due. Present or prospective financialprotection factors fluctuate
according to industry conditions. Overall quality may move up or down
frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation will not be
net when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments. Issuer failed to meet scheduled principal
and/or interest payments.
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.
IV-6
<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 for financial commitments. This capacity
is highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
B Good credit quality. 'BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated
in this category are not investment grade.
B Highly speculative. 'B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
IV-7
<PAGE>
CCC,CC, High default risk. Default is a real possibility. Capacity for
C 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, Default. Securities are not meeting current obligations and are
D extremely speculative. 'DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, 'DD' indicates expected recovery of 50% - 90%
of such outstandings, and 'D' the lowest recovery potential, i.e.
below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D Default. Denotes actual or imminent payment default.
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.
IV-8
<PAGE>
V: Appendix B Comparisons
V-1
<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 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.
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 -- an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index -- an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index -- an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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.
V-2
<PAGE>
Lehman 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 Intermediate Government/Corporate Index -- an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index -- an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index -- an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index -- an unmanaged index composed of the 30 largest
funds by asset size in this investment objective.
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).
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.
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.
Russell 1000 Index -- an unmanaged index composed of the 1000 largest stocks
in the Russell 3000 Index.
Russell 2000 Growth Index -- contains those Russell 2000 securities with
higher price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index -- contains those Russell 2000 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index -- contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index -- an unmanaged index composed of the 2,5000 smallest
stocks in the Russell 3000.
Russell 2500 Value Index -- contains those Russell 2500 securities with a
less-than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index -- composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index -- an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index -- an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index -- is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
U.S. Three-Month Treasury Bill Average -- the average return for all treasury
bills for the previous three month period.
Value Line -- 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 he 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.
V-5
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Chicago Asset Management Portfolios
Chicago Asset Management Intermediate Bond Portfolio
Chicago Asset Management Value/Contrarian Portfolio
Institutional Class Shares
Statement of Additional Information
August 9, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the fund dated August
9, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summaries I-1
Chicago Asset Management Intermediate Bond Portfolio.......................... I-2
What Investment Strategies May The Portfolio Use?............................ I-2
What Are The Investment Policies Of The Portfolio?........................... I-2
Who Is The Investment Adviser Of The Portfolio?.............................. I-3
What is the Investment Philosophy and Style of the Adviser?.................. I-4
How Much Does The Portfolio Pay For Administrative Services?................. I-4
Who Are The Principal Holders Of The Securities Of The Portfolio?............ I-4
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-4
What Were The Expenses Of The Portfolio?..................................... I-5
Chicago Asset Management Value/Contrarian Portfolio........................... I-6
What Investment Strategies May The Portfolio Use?............................ I-6
What Are The Investment Policies Of The Portfolio?........................... I-6
Who Is The Investment Adviser Of The Portfolio?.............................. I-7
How much does the Portfolio Pay for Administrative Services?................. I-8
Who are the Principal Holders of the Securities of the Portfolio?............ I-8
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-9
What Were The Expenses Of The Portfolio?..................................... I-9
II: The UAM Funds in Detail II-1
Description of Permitted Investments.......................................... II-2
Debt Securities.............................................................. II-2
Derivatives.................................................................. II-8
Equity Securities............................................................ II-16
Foreign Securities........................................................... II-18
Investment Companies......................................................... II-21
Repurchase Agreements........................................................ II-22
Restricted Securities........................................................ II-22
Securities Lending........................................................... II-22
Short Sales.................................................................. II-23
When-Issued, Forward Commitment and Delayed Delivery Transactions............ II-23
Management Of The Fund........................................................ II-24
Investment Advisory and Other Services........................................ II-26
Investment Adviser........................................................... II-26
Distributor.................................................................. II-27
Service And Distribution Plans............................................... II-27
Administrative Services...................................................... II-29
Custodian.................................................................... II-31
Independent Public Accountant................................................ II-31
Brokerage Allocation and Other Practices...................................... II-31
Selection of Brokers......................................................... II-31
Simultaneous Transactions.................................................... II-31
Brokerage Commissions........................................................ II-31
Capital Stock and Other Securities............................................ II-32
The Fund..................................................................... II-32
Description Of Shares And Voting Rights...................................... II-32
Dividends and Capital Gains Distributions.................................... II-33
Purchase, Redemption and Pricing of Shares.................................... II-34
Net Asset Value Per Share.................................................... II-34
Purchase of Shares........................................................... II-34
Redemption of Shares......................................................... II-35
Exchange Privilege........................................................... II-37
Transfer Of Shares........................................................... II-37
Performance Calculations...................................................... II-37
Total Return................................................................. II-38
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Yield........................................................................ II-38
Comparisons.................................................................. II-39
Financial Statements.......................................................... II-39
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc................................................ IV-2
Preferred Stock Ratings...................................................... IV-2
Debt Ratings - Taxable Debt & Deposits Globally.............................. IV-2
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............ IV-3
Standard & Poor's Ratings Services............................................ IV-4
Preferred Stock Ratings...................................................... IV-4
Long-Term Issue Credit Ratings............................................... IV-4
Short-Term Issue Credit Ratings.............................................. IV-5
Duff & Phelps Credit Rating Co................................................ IV-6
Long-Term Debt and Preferred Stock........................................... IV-6
Short-Term Debt.............................................................. IV-6
Fitch IBCA Ratings............................................................ IV-7
International Long-Term Credit Ratings....................................... IV-7
V: Appendix B - Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio
Summaries
I-1
<PAGE>
CHICAGO ASSET MANAGEMENT INTERMEDIATE BOND PORTFOLIO
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below
in seeking its objective. This SAI describes each of these
investments/strategies and their risks in Part II under "Description of
Permitted Investments." 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 Policies of the Portfolio?"
. Investment-Grade debt securities (at least 65% of its assets in
intermediate-term investment-grade debt securities).
. Below investment-grade debt securities (up to 10% of its total
assets).
. Foreign securities (up to 10% of its total assets).
. Futures (for hedging purposes only).
. Options (to enhance income or hedge risk).
. Forward currency exchange contracts (for hedging purposes only).
. Swaps (for hedging purposes only).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of the
portfolio's 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:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the 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.
I-2
<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.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 331/3% of
the portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. 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.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and policies, (ii) entering into repurchase
agreements or (iii) 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.
. Underwrite the securities of other issuers.
. 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 options, futures or repurchase transactions.
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 futures and/or options on futures unless not more than 5% of
its assets are required as deposit to secure obligations under such
futures and/or options on futures contracts. The portfolio may exclude
from this calculation, options that are in-the-money at the time of
purchase.
. Invest more than 20% of its assets in futures and/or options on
futures.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Purchase on margin or sell short except as specified herein.
. Invest more than an aggregate of 15% of its net assets in securities
that are subject to legal or contractual restrictions on resale
(restricted securities) or securities for which there are no readily
available markets (illiquid securities).
. Purchase additional securities when its borrowings exceed 5% of its
total assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater
than 331/3% of its total assets at fair market value.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Chicago Asset Management Company is the investment adviser of the
portfolio. For its services, the portfolio pays its adviser a fee equal to
0.48% 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
I-3
<PAGE>
more information concerning the adviser, see "Investment Advisory and Other
Services" in Part II of this SAI.
WHAT IS THE INVESTMENT PHILOSOPHY AND STYLE OF THE ADVISER?
- --------------------------------------------------------------------------------
The adviser's approach is predicated on a controlled risk strategy that
attempts to avoid dependence on interest rate anticipation while
emphasizing value added through sector rotation and yield curve analysis.
The firm seeks to add value by improving the odds in a risk/reward
equation. The adviser focuses on the more traditional aspects of active
portfolio management by scrutinizing sectors, coupons, call features, and
the shape of the yield curve. The adviser attempts to constructs the
portfolio for income and safety.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is
calculated at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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
- --------------------------------------------------------------------------------
<S> <C>
John D. Curran Francis McCartin TR 91.06%
FBO Pipe Fitters Pension Fund
Local 597 U/A 01/05/55 Acct 31
C/o Chicago Asset Management Co
70 W. Madison St, Fl 56
Chicago, IL 60602-4261
</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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- --------------------------------------------------------------------------------
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. For more information concerning the
performance of the portfolio,
I-4
<PAGE>
including the way it calculates its performance figures, see "Performance
Calculations" in Part II of this SAI.
Performance Information For Periods Ended April 30, 1999
<TABLE>
<CAPTION>
Average Annual Total Return
-----------------------------------------------------------
Shorter of 10
Years or Since
1 Year 5 Years Inception 30-Day Yield Inception Date
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.72% N/A 7.35% 4.83% 1/24/95
</TABLE>
<TABLE>
<CAPTION>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
- ---------------------------------------------------------------------------------------------------------------
Investment Investment Sub-
For FYE Advisory Fees Advisory Fees Administrator Administrator Brokerage
April 30, Paid Waived Fee Fee Commissions
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $0 $65,702 $19,805 $72,416 $0
----------------------------------------------------------------------------------------------------------
1998 $0 $52,374 $ 4,364 $78,912 $0
----------------------------------------------------------------------------------------------------------
1997 $0 $41,438 $ 3,427 $76,798 $0
</TABLE>
I-5
<PAGE>
CHICAGO ASSET MANAGEMENT VALUE/CONTRARIAN PORTFOLIO
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- --------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below
in seeking its objective. This SAI describes each of these
investments/strategies and their risks in Part II under "Description of
Permitted Investments." 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 Policies of the Portfolio?"
. Equity securities (at least 65% of its total assets).
. Below investment-grade debt securities (up to 5% of its total assets).
. Foreign securities (up to 10% of its total assets in foreign securities
and up to 25% of its total assets in American Depositary Receipts).
. Futures (for hedging purposes only).
. Forward currency exchange contracts (for hedging purposes only).
. Options (for hedging purposes only).
. Swaps (for hedging purposes only).
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of the
portfolio's 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 .940
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 the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the U.S. government or any if its agencies or
instrumentalities).
. With respect to 75% of its assets, purchase more than .0% of any class
of the outstanding voting securities of any issuer.
I-6
<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.
. 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.
. 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.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and policies, (ii) entering into repurchase
agreements or (iii) 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.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the .940 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 options, futures or repurchase transactions.
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 futures and/or options on futures unless not more than 5% of
its assets are required as deposit to secure obligations under such
futures and/or options on futures contracts. The portfolio may exclude
from this calculation, options that are in-the-money at the time of
purchase.
. Invest more than 20% of its assets in futures and/or options on futures.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Purchase on margin or sell short except as specified herein.
. Invest more than an aggregate of 15% of its net assets in securities
that are subject to legal or contractual restrictions on resale
(restricted securities) or securities for which there are no readily
available markets (illiquid securities).
. Purchase additional securities when its borrowings exceed 5% of its
total assets.
. Pledge, mortgage or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Chicago Asset Management Company is the investment adviser of the
portfolio. For its services, the portfolio pays its adviser a fee equal to
0.625% 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 more
I-7
<PAGE>
information concerning the adviser, see "Investment Advisory and Other
Services" in Part II of this SAI.
What is the Investment Philosophy and Style of the Adviser?
The adviser views itself as an equity manager who, by combining value judgment
and contrarian opinion, strives to outperform the market and other money
managers not by market timing, but by focusing on the selection of individual
securities. Categorized as a large cap, bottom-up, value/contrarian strategy,
the adviser's philosophy and strategy are qualitative and have remained the
same since the inception of the firm.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $14,500 for the first operational class; plus
. $3,000 for each additional class; plus
. 0.06% of the aggregate net assets of the portfolio.
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by CGFSC. The fee, which UAMFSI pays to CGFSC, is
calculated at the annual rate of:
. Not more than $52,500 for the first operational class; plus
. $7,500 for each additional operational class; plus
. 0.039% of their pro rata share of the combined assets of the Fund, UAM
Funds, Inc. and UAM Funds Trust II.
WHO ARE THE PRINCIPAL HOLDERS OF THE SECURITIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
As of July 20, 1999, 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>
United Asset Management Corp 5.73%
Profit Sharing & 401K Plan Tr
Acct 036912707902556307
PO Bix 1443
Chicago, IL 60690-1443
----------------------------------------------------------------------
UMBSC & Co 28.28%
FBO Interstate Brands
Moderate Growth A/C 340419134
PO Box 419175
Kansas City, MO 64141-6175
----------------------------------------------------------------------
UMBSC & Co 45.52%
FBO Interstate Brands
Conservative Growth A/C 340936053
PO Box 419175
Kansas City, MO 64141-6175
----------------------------------------------------------------------
UMBSC & Co 12.73%
FBO Interstate Brands
Aggressive Growth A/C 340419159
PO Box 419175
Kansas City, MO 64141-6175
</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
I-8
<PAGE>
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.
WHAT WAS THE PORTFOLIO'S PERFORMANCE AS OF ITS MOST RECENT FISCAL YEAR END?
- ---------------------------------------------------------------------------
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. For more information concerning the performance
of the portfolio, including the way it calculates its performance figures, see
"Performance Calculations" in Part II of this SAI.
Average Annual Total Return
<TABLE>
<CAPTION>
For the Shorter of 10
Periods Ended Years or Since
April 30, 1 Year 5 Years Inception Inception Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 21.68% N/A 21.90% 12/16/94
</TABLE>
WHAT WERE THE EXPENSES OF THE PORTFOLIO?
<TABLE>
<CAPTION>
For the Investment Investment
FYE Advisory Fees Advisory Fees Administrator Sub-Administrator Brokerage
April 30, Paid Waived Fee Fee Commissions
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $0 $137,651 $28,471 $70,455 $23,446
- ------------------------------------------------------------------------------------------------------
1998 $0 $120,386 $11,576 $73,676 $33,412
-----------------------------------------------------------------------------------------------------
1997 $0 $ 13,652 $ 1,287 $74,076 $20,946
</TABLE>
I-9
<PAGE>
II: The UAM Funds in Detail
II-1
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
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. Debt securities may include, among other
things, all types of bills, notes, bonds, mortgage-backed securities or asset-
backed securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States 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 and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed 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 United States
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 United States Treasury;
. by the discretionary authority of the United States 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 maturity 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
II-2
<PAGE>
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
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. 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 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.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
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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);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
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
mortgage, 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.
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
semiannually. While whole mortgage loans may collateralize CMOs, portfolios of
mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
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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
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper 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 Appendix A for a description of
commercial paper ratings.
Yankee Bonds
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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 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 United States 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.
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 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 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
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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 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 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.
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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.
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. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time 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. A portfolio may use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. A portfolio may also
try to minimize its loss by investing 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
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
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foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. Unlike futures contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded in only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
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 also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. 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.
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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 offsetting purchase price is less than the original purchase
price, the party closing the contract would realize a gain; if it is more, it
would realize a loss. The opposite is also true for a sale, that is, if the
offsetting sale price is more than the original sale price, the party closing
the contract would realize a gain; if it is less, it would realize a loss.
The portfolio will incur commission expenses in both 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
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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;
. 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.
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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 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.
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,
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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 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
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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.
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.
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
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. 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.
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
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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
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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 resects, 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.
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Rights and Warrants
A right is a privilege granted to exiting 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 measured in
years and entitle 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 a portfolio to participate in the benefits of
owning a company, the portfolio must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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
A small or medium-sized company is a company whose market capitalization falls
with the range specified in the prospectus of the portfolio. 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.
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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; 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.
Emerging Markets
An "emerging country" is generally 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. The portfolio may invest in these investment funds
subject to the provisions of the 1940 Act. If a portfolio invests in such
investment funds, its shareholders will bear not only their proportionate
share of the expenses of the portfolio (including operating expenses and
the fees of the adviser), but also will bear indirectly bear similar
expenses of the underlying investment funds. In addition, these investment
funds may trade at a premium over their net asset value.
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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 a portfolio's
investments.
. 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 ability of a portfolio to
invest 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 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;
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. 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 portfolio's net asset value is denominated in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a the value of a foreign currency
against the United States dollar will result in a corresponding change in
value of the securities held by a portfolio. 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 the portfolio may recover a portion of
these taxes, the portion it cannot recover will reduce the income the
portfolio receives from its investments. The portfolio does not expect such
foreign withholding taxes to have a significant impact on performance.
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; and
. Offer less protection of property rights than more developed countries.
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. 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 will adopt the Euro in all aspects of the investment
process, including trading, foreign exchange, payments, settlements, cash
accounts, custody and accounting. Some of the uncertainties surrounding the
conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
INVESTMENT COMPANIES
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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 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.
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.
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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 it enters into a repurchase agreement, a portfolio 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 "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
- -------------------------------------------------------------------------------
A portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933.
Under the supervision of the Fund's board, the adviser determines the
liquidity of such investments by considering all relevant factors. Provided
that a dealer or institutional trading market in such securities exists,
these restricted securities are not treated as illiquid securities for
purposes of 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
fails financially 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.
II-22
<PAGE>
SHORT SALES
- -------------------------------------------------------------------------------
Description of Short Sales
Selling a security short is when an investor sells a security it does not
own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A portfolio can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the
portfolio replaces the borrowed security. Likewise, a portfolio can profit
if the price of the security declines between those dates.
To borrow the security, a portfolio also may be required to pay a premium,
which would increase the cost of the security sold. A portfolio will incur
transaction costs in effecting short sales. A portfolio's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the portfolio may be required to
pay in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
Short Sales Against the Box
In addition, a portfolio may engage in short sales "against the box". In a
short sale against the box, the portfolio agrees to sell at a future date a
security that it either contemporaneously owns or has the right to acquire
at no extra cost. A portfolio will incur transaction costs to open,
maintain and close short sales against the box.
Restrictions on Short Sales
A portfolio will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the portfolio
net assets.
. The market value of the securities of any single issuer that have been
sold short by the portfolio would exceed the two percent (2%) of the
value of the portfolio's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever a portfolio sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the portfolio is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- -------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, a portfolio contracts to purchase securities for a fixed price
at a future date beyond customary settlement time. "Delayed delivery"
refers to securities transactions on the secondary market where settlement
occurs in the future. In each of these
II-23
<PAGE>
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.
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 per quarter 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 48
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.
II-24
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total
Compensation Compensation
Position from Fund From UAM Funds
Name, Address, with Principal Occupations During the as of Complex as
DOB Fund Past 5 years 4/30/99 of 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company, $8,094 $39,900
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since $8,094 $40,575
10 Garden Street January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Member Executive Vice President and Chief Administrative $8,094 $40,936
100 King Street West Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board Member President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec 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 0 0
One International Place President and of United Asset Management Corporation; Director,
Boston, MA 02110 Chairman Partner or Trustee of each of the Investment
3/21/35 Companies of the Eaton Vance Group of Mutual Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey 0 0
One Financial Center Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice President Executive Vice President and Chief Financial 0 0
One International Place Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; 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
7/4/51 Investments from November 1990 to March 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
- ------------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995,
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
- ------------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
II-25
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
Each 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 each of the
portfolio's 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 the assets of the
portfolios;
. Continuously reviews, supervises and administers the investment
program of the portfolios; and
. Determines what portion of 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 Advisory Agreement, (2) reckless disregard by the adviser of its
obligations and duties under the Advisory Agreement, or (3) a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services, the adviser shall not be subject to any
liability whatsoever to the Fund, for any error of judgment, mistake of law
or any other act or omission in the course of, or connected with, rendering
services under the Advisory Agreement.
Continuing an Advisory Agreement
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 Members who are not parties to the Investment
Advisory Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders
of the portfolio.
II-26
<PAGE>
Terminating an 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; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Advisory Agreements at any time, without
the payment of any penalty, upon 90 days' written notice to the Fund.
An Advisory Agreement will automatically and immediately terminate if
it is assigned.
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 their 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 Institutional Service
Class Shares to UAMFDI, to the Service Agent directly or through UAMFDI.
Each item for which a payment may be made under the Service Plan
constitutes personal service and/or shareholder account maintenance and may
constitute an expense of distributing Fund Service Class Shares as the SEC
construes such term under Rule 12b-1. Services for which Institutional
Service Class Shares may compensate Service Agents include:
. Acting as the sole shareholder of record and nominee for beneficial
owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders
about their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting
dividend and other account options and opening any necessary custody
accounts.
. Providing account maintenance and accounting support for all
transactions.
II-27
<PAGE>
. 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 Service Class Shares may make payments directly to other
unaffiliated parties, who either aid in the distribution of their shares or
provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average
daily net assets for the year. The Fund's governing board has limited the
amount the Institutional Service Class may pay under the Plans to 0.40% of
the class' average daily net assets for the year, and may increase such
amount to the plan maximum at any time.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for
aid in providing administrative services to shareholders.
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plans
(Plan Members), by votes cast in person at meetings called for the purpose
of voting on these Plans.
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
II-28
<PAGE>
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend
disbursing and transfer agent services for the Fund. UAMFSI, an affiliate
of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser;
II-29
<PAGE>
. 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.
The Fund Administration Agreement continues in effect from year to year if
the board specifically approves such continuance every year. The fund 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.
Sub-Administrator
UAMFSI has subcontracted some of the its administrative and fund accounting
services to CGFSC, an affiliate of The Chase Manhattan Bank, under a Mutual
Funds Service Agreement dated October 26, 1998. CGFSC is located at 73
Tremont Street, Boston, Massachusetts 02108.
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and
DST Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas
City, Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Fund under an
agreement between UAMSSC and UAMFSI. The principal place of business of
UAMSSC is 825 Duportail Road, Wayne, Pennsylvania 19087.
Administrative Fees
Each portfolio pays UAMFSI and CGFSC for the administrative services they
provide. For more information concerning these fees, see "How Much does the
Portfolio Pay for Administrative Services?" in Part I of this SAI.
II-30
<PAGE>
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MatroTech Center, Brooklyn, New York,
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreement authorizes the adviser to select the brokers or
dealers that will execute the purchases and sales of investment securities
for the portfolio. The Advisory Agreement also directs the adviser to use
its best efforts to obtain the best execution with respect to all
transactions for the portfolio. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Advisory Agreement. In so doing, 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, a portfolio will
not pay brokerage commissions for such purchases. When
II-31
<PAGE>
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.
CAPITAL STOCK AND OTHER SECURITIES
THE FUND
- --------------------------------------------------------------------------------
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 Fund changed its
name to "UAM Funds Trust." 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.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
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
Board has the power to designate one or more series (portfolios) or classes
of shares of beneficial interest without shareholder approval. The Board
has authorized three classes of shares: Institutional Class, Institutional
Service Class, and Advisor Class. Not all of the portfolios issue all of
the classes.
Description of Shares
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 the Fund have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the
election of board members can elect 100% of the board 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 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. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. The three classes represent interests in
the same assets of the portfolio and, except as discussed below, are
identical in all respects.
. Institutional Service 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.
II-32
<PAGE>
. Advisor 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.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
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.
Taxes on Distributions
Each portfolio intends to distribute substantially all of its net
investment income and net realized capital gains so as to avoid income
taxes on its dividends and distributions and the imposition of the federal
excise tax on undistributed income and capital gains. However, a portfolio
cannot predict the time or amount of any such dividends or distributions.
Each portfolio will be treated as a separate entity (and hence as a
separate "regulated investment company") for federal tax purposes. The
capital gains/losses of one portfolio will not be offset against the
capital gains/losses of another portfolio.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in
the prospectus of the portfolio, although from an investment standpoint, it
is a return of capital. If you buy shares of the portfolio on or just
before the "record date" (the date that establishes which shareholders will
receive an upcoming distribution) for a distribution, you will receive some
of the money you invested as a taxable distribution.
II-33
<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.
II-34
<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 "VALUATION OF SHARES" 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
. Estates, trusts, guardianships, custodianships, corporations, pension
and profit sharing plans and other organizations must submit any other
necessary legal documents.
II-35
<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 its 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.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. Redemptions in excess of the above
limits may be paid in whole or in part, in investment securities or in
cash, as the 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
II-36
<PAGE>
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.
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. 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.
. 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
A 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 SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only
if they also provide certain standardized performance information that they
have computed according to the requirements of the SEC. Current yield and
average annual compounded total return information are calculated using the
method of computing performance mandated 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
II-37
<PAGE>
will be in the same amount, except that service fees, distribution charges
and any incremental transfer agency costs relating to Advisor or 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 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).
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.
II-38
<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 of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by
various financial publications. Advertisements may also compare performance
(as calculated above) to performance as reported by other investments,
indices and averages. Please see Appendix B for publications, indices and
averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
portfolio, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the portfolio to calculate its performance. In addition,
there can be no assurance that the portfolio will continue this performance
as compared to such other averages.
FINANCIAL STATEMENTS
The following documents are included in 1999 Annual Report of each
portfolio, other than the FPA Crescent Portfolio:
. Financial statements for the fiscal year ended April 30, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
The following documents are included in 1999 Annual Report of FPA Crescent
Portfolio:
. Financial statements for the fiscal year ended March 31, 1999.
. Financial highlights for the 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.
II-39
<PAGE>
III: Glossary
III-1
<PAGE>
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.
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.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
CGFSC is Chase Global Funds Service Company, 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 Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio. You can find
information on how the fund calculates this number under "Purchase,
Redemption and Pricing of Shares."
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.
III-2
<PAGE>
IV: Appendix A -
Description of
Securities and
Ratings
IV-1
<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 stock.
aa An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-
medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-
grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of
time.
ba An issue which is rated "ba" is considered to have
speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in
this class.
b An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long periods of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport
to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
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. 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.
IV-2
<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.
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:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the
level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
IV-3
<PAGE>
STANDARD & POOR'S RATINGS SERVICES
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
AAA This is the highest rating that may be assigned by Standard
& Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated AA also qualifies as a high-
quality, fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the A
category.
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB
indicates the lowest degree of speculation and CCC the
highest. While such issues will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that
is in arrears on dividends or sinking fund payments, but
that is currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the
issuer in default on debt instruments.
N.R. This indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or
that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock
minus (-) quality, 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.
LONG-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very
strong.
A An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher- rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligator to meet its financial commitment on the
obligation.
IV-4
<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 The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has
been taken, but payments on this obligation are being
continued.
D An obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition
or the taking of a similar action if payments on an
obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating. Medium-
term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than obligation in
higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is
satisfactory.
A-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.
IV-5
<PAGE>
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet
its financial commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period
has not expired, unless Standard & Poors' believes that such
payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition
or the taking of a similar action if payments on an
obligation are jeopardized.
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT AND PREFERRED STOCK
- --------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury
debt.
AA+/AA High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic
stress.
BBB+/BBB Below-average protection factors but still considered
BBB- sufficient for prudent investment. Considerable variability
in risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection
factors fluctuate according to industry conditions. Overall
quality may move up or down frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation
will not be net when due. Financial protection factors will
fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are
narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments. Issuer failed to meet
scheduled principal and/or interest payments.
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.
IV-6
<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 for
financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong
capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher
ratings.
B Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity.
This is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a
possibility of credit risk developing, particularly as the
result of adverse economic change over time; however,
business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this
category are not investment grade.
B Highly speculative. `B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A
`CC' rating indicates that default of some kind appears
probable. `C' ratings signal imminent default.
IV-7
<PAGE>
DDD,DD,D Default. Securities are not meeting current obligations and
are extremely speculative. `DDD' designates the highest
potential for recovery of amounts outstanding on any
securities involved. For U.S. corporates, for example, `DD'
indicates expected recovery of 50% - 90% of such
outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added
"+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety
is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-
investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
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.
IV-8
<PAGE>
V: Appendix B -
Comparisons
V-1
<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 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.
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 - an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index - an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman 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 $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index - an unmanaged indices of all publicly issues,
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 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 corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate 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 r 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 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.
V-2
<PAGE>
Lehman Intermediate Government/Corporate Index - an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short 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 5 years or less.
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
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.
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
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.
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size in this investment objective.
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).
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.
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.
Russell 1000 Index - an unmanaged index composed of the 1000 largest stocks in
the Russell 3000 Index.
Russell 2000 Growth Index - contains those Russell 2000 securities with higher
price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
Russell 2000 Value Index - contains those Russell 2000 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
V-3
<PAGE>
Russell 2500 Growth Index - contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index - an unmanaged index composed of the 2,5000 smallest stocks
in the Russell 3000.
Russell 2500 Value Index - contains those Russell 2500 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index - composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index - an 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 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.
Standard & Poor's 600 Small Cap 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.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index - an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index - is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's 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.
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.
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line -- composed of over 1,600 stocks in the Value Line Investment
Survey.
V-4
<PAGE>
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 he 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.
V-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 35 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated June 18, 1999, relating to the financial
statements and financial highlights appearing in the April 30, 1999 Annual
Reports to the Shareholders of BHM&S Total Return Bond Portfolio, Cambiar
Opportunity Portfolio, Chicago Asset Management Intermediate Bond Portfolio,
Chicago Asset Management Value/Contrarian Portfolio, Clipper Focus Portfolio,
Hanson Equity Portfolio, Jacobs International Octagon Portfolio, MJI
International Equity Portfolio, Pell Rudman Mid-Cap Growth Portfolio, and TJ
Core Equity Portfolio, which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" in such Prospectuses and to the references to us
under the headings "Financial Statements" and "Independent Public Accountant" in
such Statements of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 2, 1999