<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. 34 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 35 /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):
[_] Immediately upon filing pursuant to Paragraph (b)
[X] on July 30, 1999 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-effective amendment.
<PAGE>
PARTS A AND B
UAM FUNDS TRUST
The Institutional Class and Institutional Service Class prospectuses and the
statement of additional information for FPA Crescent Portfolio are included in
this Post-Effective Amendment No. 34.
The prospectuses and statements of additional information for the following
portfolios are hereby incorporated by reference into this Post-Effective
Amendment No. 34 from Post Effective Amendment No. 31 filed on May 19, 1999:
. 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 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.
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<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 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
Exhibit (Location)
<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)
- --------------------------------------------------------------------------------------------------------------------------
2. Distribution Agreement between Registrant and ACG Capital Corporation (Advisor Class Shares) PEA 19
- --------------------------------------------------------------------------------------------------------------------------
4. Amendment to Distribution Agreement between Registrant and ACG
Capital Corporation dated as of March 31, 1999 PEA 29
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
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 Filed herewith
- --------------------------------------------------------------------------------------------------------------------------
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
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
-4-
<PAGE>
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:
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>
<CAPTION>
Positions and Offices with PellRudman Positions and Offices with
Name and Principal Business Address Trust Company, N.A. Pell 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
100 Federal Street Pell, 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).
(d) Not applicable.
-5-
<PAGE>
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:
Name and Address of Service Provider Relationship with Registrant
- --------------------------------------------------------------------------------
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
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.
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the regisrant 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 27th day of July, 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 27th day of July, 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.
(Attorney-in-Fact)
-7-
<PAGE>
UAM FUNDS TRUST
EXHIBIT INDEX
Exhibit Description
- ---------- ---------------------------------------------------------------------
I Opinions and Consents of Counsel
J Consent of Independent Auditors
<PAGE>
UAM Funds
Funds for the Informed Investor(SM)
FPA Cresent Portfolio
Institutional Class Prospectus July 30, 1999
================================================================================
UAM
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
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 ..................................................... 18
Shareholder Servicing Arrangements ........................................ 19
Additional Classes of Shares .............................................. 19
Financial Highlights ........................................................ 20
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks to provide, through a combination of income and capi-
tal appreciation, a total return consistent with reasonable investment
risk. The portfolio cannot guarantee it will meet its investment objec-
tive. The portfolio may not change its investment objective without share-
holder 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 actively invests in both equity and debt securities of a
company because the adviser believes that this combination of securities
broadens the universe of opportunities for the portfolio, offers addi-
tional diversification and helps to lower volatility. Typically, the port-
folio invests 50% to 70% of its total assets in equity securities and the
balance in debt securities, cash and cash equivalents.
The adviser looks for large and small companies that have excellent future
prospects but are undervalued by the securities markets. The adviser be-
lieves that these opportunities often arise when companies are out-of-fa-
vor or undiscovered by most of Wall Street. Using fundamental security
analysis, the adviser may look for investments that trade at a substantial
discount to the adviser's determination of the company's value (absolute
value) rather than those that might appear inexpensive based on a discount
to their peer groups or the market average (relative value).
The adviser invests in debt securities to provide the portfolio with a re-
liable and recurring stream of income, while preserving its capital. The
adviser selects debt securities by using an approach that is similar to
the approach it uses to select equity securities and by trying to forecast
for current interest rate trends.
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.
FPA Crescent Portfolio
The portfolio's main risks are those associated with investing in equity
securities and debt 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.
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 broad-based securities market indices. Past performance
does not guarantee future results.
Calendar Year Returns
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Return Quarter Ended
---------------------------------------
<S> <C> <C>
Highest Quarter 9.14% 9/30/97
---------------------------------------
Lowest Quarter -12.02% 9/30/98
---------------------------------------
Year-To-Date 6.74% 6/30/99
</TABLE>
Average Annual Returns For Periods Ended 12/31/98
<TABLE>
<CAPTION>
1 Year 5 Years Since Inception*
-----------------------------------------------------------------------
<S> <C> <C> <C>
FPA Crescent Portfolio 2.79% 15.14% 15.34%
-----------------------------------------------------------------------
Russell 2500 Index 0.38% 14.13% 14.50%
-----------------------------------------------------------------------
Lehman Brothers Government/ Corporate
Bond Index 9.47% 7.30% 7.50%
-----------------------------------------------------------------------
Balanced Benchmark+ 4.02% 11.40% 11.70%
</TABLE>
* This class of the portfolio began operations 6/2/93. Index comparisons
begin on 5/31/93.
+ Balanced Benchmark is a combined index of which 60% reflects Russell
2500 Index and, 40% the Lehman Brothers Government/Corporate Bond Index.
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.
-----------------------
Management Fees 1.00%
-----------------------
Other Expenses 0.42%
-----------------------
Total Expenses 1.42%
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:
1 Year 3 Years 5 Years 10 Years
----------------------------------
$145 $449 $776 $1,702
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 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 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 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).
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 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 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.
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 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.
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 in June and
December. In addition, the portfolio usually distributes its net capital
gains in June, but may also have a supplemental distribution in December.
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 and
risks the portfolio may employ in seeking its objectives. For more infor-
mation 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.
The portfolio actively invests in both the equity and debt securities of a
company because the adviser believes that this combination of securities
broadens the universe of opportunities for the portfolio, offers addi-
tional diversification and helps to lower volatility. Typically, the port-
folio invests 50% to 70% of its total assets in equity securities and the
balance in debt securities, cash and cash equivalents. The portfolio gen-
erally invests in investment-grade debt securities, but may also invest up
to 30% of its total assets in debt securities rated below investment-grade
("high-yield" or "junk" bonds).
Equity Investment Process
The adviser looks for large and small companies that have excellent future
prospects but are undervalued by the securities markets. In the adviser's
view, the stock market prices securities efficiently in the long- term,
rewarding companies that successfully grow their earnings and penalizing
those that do not. Short-term decisions, however, are frequently hasty re-
actions to current economic or company information that could cause a par-
ticular security, industry group or the entire market to become under-
priced or over-priced, which creates an excellent opportunity to either
buy or sell. These opportunities often arise when companies are out-of-fa-
vor or undiscovered by most of Wall Street. This contrarian style often
leads the adviser to invest in "what other people do not wish to own."
The adviser searches for companies that also offer:
. Earnings growth.
. The opportunity for price/earnings multiple expansion.
. The best combination of such quality criteria as strong market share,
good management, high barriers to entry and high return on capital.
12
<PAGE>
In addition, the adviser looks for investments that trade at a substantial
discount to the adviser's determination of a company's value (absolute
value) rather than those that might appear inexpensive based on a discount
to their peer groups or the market average (relative value). The adviser
attempts to determine a company's absolute value using fundamental secu-
rity analysis, which it believes provides a thorough view of its financial
and business characteristics. As a part of its process, the adviser:
. Reviews stock price or industry group under-performance, insider pur-
chases, management changes and corporate spin-offs.
. Communicates directly with company management, suppliers, and custom-
ers.
. Defines the company's future potential, financial strength and compet-
itive position.
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.
Debt Investment Process
The adviser invests in debt securities to provide the portfolio with a re-
liable and recurring stream of income, while preserving its capital.
The adviser invests in debt securities using an approach that is similar
to the approach it uses to select equity securities and by trying to fore-
cast current interest rate trends. Usually, the adviser employs a defen-
sive interest rate strategy, which means it tries to keep the average ma-
turity of the portfolio to 10 years or less by investing at different
points along the yield curve. The adviser also continually considers yield
spreads and other underlying factors such as credit quality, investor per-
ception and liquidity to determine which sectors offer the best investment
value.
13
<PAGE>
The adviser looks for high-yield debt securities that offer substantially
higher yields than government securities and provide the potential for
capital appreciation. The adviser selects high-yield securities by analyz-
ing an assortment of factors, including interest expense coverage, busi-
ness value/debt coverage and current business trends.
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.
14
<PAGE>
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated security. Ad-
verse economic conditions or changing circumstances, however, may weaken
the capacity of the issuer to pay interest and repay principal. If a secu-
rity is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securi-
ties that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly spec-
ulative 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. Mar-
ket developments and the financial and business condition of the corpora-
tion issuing these securities influences their price and liquidity more
than changes in interest rates, when compared to investment-grade debt se-
curities. Insufficient liquidity in the junk bond market may make it more
difficult to dispose of junk bonds and may cause a portfolio to experience
sudden and substantial price declines. A lack of reliable, objective data
or market quotations may make it more difficult to value junk bonds accu-
rately.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investments, the portfolio may use the in-
vestment 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.
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.
15
<PAGE>
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro will have
the same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of the portfo-
lio.
Derivatives
The portfolio may use forward currency exchange contracts, futures con-
tracts and options (types of derivatives) to remain fully invested, to re-
duce 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 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 Sales
The portfolio may sell securities short from time to time. Selling a secu-
rity 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 it to the buyer. The investor then replaces the security it bor-
rowed by purchasing it at the market price at or before the time of re-
placement.
The 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, the portfolio can
profit if the price of the security declines between those dates.
To borrow the security, the portfolio also may be required to pay a premi-
um, which would increase the cost of the security sold. The portfolio will
incur transaction costs in effecting short sales. The 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.
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.
16
<PAGE>
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 po-
sition to reduce changes in the value of the shares of the portfolio that
may result 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.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
First Pacific Advisors, Inc., a Massachusetts corporation located at 11400
West Olympic Boulevard, Suite 1200, Los Angeles, California 90064, 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 been in
the investment advisory business since 1954. Currently, the adviser
17
<PAGE>
provides investment management services for seven investment companies,
including one closed-end investment company, and a variety of institu-
tional accounts.
During the fiscal year ended March 31, 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 waive its advisory fees to the extent
necessary to keep the expenses of the portfolio from exceeding 1.85% of
its average net assets. To maintain its 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 un-
til further notice.
Portfolio Manager
Mr. Steven Romick is primarily responsible for the day-to-day management
of the portfolio. Mr. Romick has thirteen years of experience in the in-
vestment management business. He is currently a Senior Vice President of
the adviser. From 1990-1996, Mr. Romick was Chairman of Crescent Manage-
ment, an investment advisory firm he founded. Crescent Management served
as the portfolio's adviser until the firm was merged with the current ad-
viser.
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.
18
<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.
ADDITIONAL CLASSES OF SHARES
- -------------------------------------------------------------------------------
The portfolio also offers Institutional Service Class shares, which pay
marketing or shareholder servicing fees.
19
<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 March 31, 1999++ 1998++ 1997 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 16.23 $ 13.46 $ 12.67 $ 11.23 $ 10.96
-------- -------- ------- ------- -------
Income from Investment
Operations
Net Investment Income...... 0.56 0.55 0.31 0.40 0.21
Net Realized and Unrealized
Gain (Loss) on
Investments............... (1.32) 2.88 2.16 2.29 0.77
-------- -------- ------- ------- -------
Total from Investment
Operations................ (0.76) 3.43 2.47 2.69 0.98
-------- -------- ------- ------- -------
Distributions
Net Investment Income...... (0.51) (0.40) (0.34) (0.37) (0.18)
Net Realized Gain.......... (0.29) (0.26) (1.34) (0.88) (0.53)
-------- -------- ------- ------- -------
Total Distributions........ (0.80) (0.66) (1.68) (1.25) (0.71)
-------- -------- ------- ------- -------
Net Asset Value, End of
Period..................... $ 14.67 $ 16.23 $ 13.46 $ 12.67 $ 11.23
======== ======== ======= ======= =======
Total Return................ (4.71)% 25.96% 20.61% 24.71% 9.35%
======== ======== ======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands)................ $173,613 $247,833 $65,619 $22,025 $15,990
Ratio of Expenses to Average
Net Assets................. 1.42% 1.45% 1.60% 1.59% 1.65%
Ratio of Net Investment
Income to Average Net
Assets..................... 3.67% 3.62% 2.77% 3.35% 2.16%
Portfolio Turnover Rate..... 36% 18% 45% 100% 101%
</TABLE>
++ Per share amounts are based on average outstanding shares.
20
<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>
FPACX 902556869 647
</TABLE>
<PAGE>
FPA Crescent 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 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)
FPA Crescent Portfolio
Institutional Service Class Prospectus July 30, 1999
================================================================================
UAM
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
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.................................................................. 17
Investment Management...................................................... 18
Shareholder Servicing Arrangements......................................... 18
Additional Classes of Shares............................................... 19
Financial Highlights ........................................................ 20
</TABLE>
<PAGE>
Portfolio Summary
WHAT IS THE OBJECTIVE OF THE PORTFOLIO?
- -------------------------------------------------------------------------------
The portfolio seeks to provide, through a combination of income and capi-
tal appreciation, a total return consistent with reasonable investment
risk. The portfolio cannot guarantee it will meet its investment objec-
tive. The portfolio may not change its investment objective without share-
holder 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 actively invests in both equity and debt securities of a
company because the adviser believes that this combination of securities
broadens the universe of opportunities for the portfolio, offers addi-
tional diversification and helps to lower volatility. Typically, the port-
folio invests 50% to 70% of its total assets in equity securities and the
balance in debt securities, cash and cash equivalents.
The adviser looks for large and small companies that have excellent future
prospects but are undervalued by the securities markets. The adviser be-
lieves that these opportunities often arise when companies are out-of-fa-
vor or undiscovered by most of Wall Street. Using fundamental security
analysis, the adviser may look for investments that trade at a substantial
discount to the adviser's determination of the company's value (absolute
value) rather than those that might appear inexpensive based on a discount
to their peer groups or the market average (relative value).
The adviser invests in debt securities to provide the portfolio with a re-
liable and recurring stream of income, while preserving its capital. The
adviser selects debt securities by using an approach that is similar to
the approach it uses to select equity securities and by trying to forecast
for current interest rate trends.
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.
FPA Crescent Portfolio
The portfolio's main risks are those associated with investing in equity
securities and debt 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.
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 broad-based securities market indices. Past performance
does not guarantee future results.
Calendar Year Returns
CHART APPEARS HERE
<TABLE>
<CAPTION>
Return Quarter Ended
---------------------------------------------------------------------------
<S> <C> <C>
Highest Quarter 9.03% 9/30/97
---------------------------------------------------------------------------
Lowest Quarter -12.08% 9/30/98
---------------------------------------------------------------------------
Year-To-Date 6.56% 6/30/99
Average Annual Returns For Periods Ended 12/31/98
<CAPTION>
1 Year Since Inception*
---------------------------------------------------------------------------
<S> <C> <C>
FPA Crescent Portfolio 2.47% 11.53%
---------------------------------------------------------------------------
Russell 2500 Index 0.38% 10.68%
---------------------------------------------------------------------------
Lehman Brothers Government/ Corporate Bond Index 9.47% 9.98%
---------------------------------------------------------------------------
Balanced Benchmark+ 4.02% 10.40%
</TABLE>
*This class of the portfolio began operations 1/24/97. Index comparisons
begin on 1/31/97.
+ Balanced Benchmark is a combined index of which 60% reflects Russell
2500 Index and, 40% the Lehman Brothers Government/Corporate Bond Index.
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 1.00%
----------------------------
Service (12b-1) Fees 0.25%
----------------------------
Other Expenses 0.39%
----------------------------
Total Expenses 1.64%
</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>
$167 $517 $892 $1,944
</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 To set up a plan, mail a
Investment account 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 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 You must first establish the telephone redemption privi-
Telephone 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 If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM Funds
Withdrawal account to your financial institution.
Plan
(Via ACH) 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 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
7
<PAGE>
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.
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 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.
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 in June and
December. In addition, the portfolio usually distributes its net capital
gains in June, but may also have a supplemental distribution in December.
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
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 and
risks the portfolio may employ in seeking its objectives. For more infor-
mation 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.
The portfolio actively invests in both the equity and debt securities of a
company because the adviser believes that this combination of securities
broadens the universe of opportunities for the portfolio, offers addi-
tional diversification and helps to lower volatility. Typically, the port-
folio invests 50% to 70% of its total assets in equity securities and the
balance in debt securities, cash and cash equivalents. The portfolio gen-
erally invests in investment-grade debt securities, but may also invest up
to 30% of its total assets in debt securities rated below investment-grade
("high-yield" or "junk" bonds).
Equity Investment Process
The adviser looks for large and small companies that have excellent future
prospects but are undervalued by the securities markets. In the adviser's
view, the stock market prices securities efficiently in the long-term, re-
warding companies that successfully grow their earnings and penalizing
those that do not. Short-term decisions, however, are frequently hasty re-
actions to current economic or company information that could cause a par-
ticular security, industry group or the entire market to become under-
priced or over-priced, which creates an excellent opportunity to either
buy or sell. These opportunities often arise when companies are out-of-fa-
vor or undiscovered by most of Wall Street. This contrarian style often
leads the adviser to invest in "what other people do not wish to own."
The adviser searches for companies that also offer:
. Earnings growth.
. The opportunity for price/earnings multiple expansion.
. The best combination of such quality criteria as strong market share,
good management, high barriers to entry and high return on capital.
12
<PAGE>
In addition, the adviser looks for investments that trade at a substantial
discount to the adviser's determination of the company's value (absolute
value) rather than those that might appear inexpensive based on a discount
to their peer groups or the market average (relative value). The adviser
attempts to determine a company's absolute value using fundamental secu-
rity analysis, which it believes provides a thorough view of its financial
and business characteristics. As a part of its process, the adviser:
. Reviews stock price or industry group under-performance, insider pur-
chases, management changes and corporate spin-offs.
. Communicates directly with company management, suppliers, and custom-
ers.
. Defines the company's future potential, financial strength and compet-
itive position.
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.
Debt Investment Process
The adviser invests in debt securities to provide the portfolio with a re-
liable and recurring stream of income, while preserving its capital.
The adviser invests in debt securities using an approach that is similar
to the approach it uses to select equity securities and by trying to fore-
cast current interest rate trends. Usually, the adviser employs a defen-
sive interest rate strategy, which means it tries to keep the average ma-
turity of the portfolio to 10 years or less by investing at different
points along the yield curve. The adviser also continually considers yield
spreads and other underlying factors such as credit quality, investor per-
ception and liquidity to determine which sectors offer the best investment
value.
13
<PAGE>
The adviser looks for high-yield debt securities that offer substantially
higher yields than government securities and provide the potential for
capital appreciation. The adviser selects high-yield securities by analyz-
ing an assortment of factors, including interest expense coverage, busi-
ness value/debt coverage and current business trends.
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.
14
<PAGE>
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated security. Ad-
verse economic conditions or changing circumstances, however, may weaken
the capacity of the issuer to pay interest and repay principal. If a secu-
rity is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securi-
ties that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly spec-
ulative 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. Mar-
ket developments and the financial and business condition of the corpora-
tion issuing these securities influences their price and liquidity more
than changes in interest rates, when compared to investment-grade debt se-
curities. Insufficient liquidity in the junk bond market may make it more
difficult to dispose of junk bonds and may cause a portfolio to experience
sudden and substantial price declines. A lack of reliable, objective data
or market quotations may make it more difficult to value junk bonds accu-
rately.
OTHER INVESTMENT PRACTICES AND STRATEGIES
- -------------------------------------------------------------------------------
In addition to its principal investments, the portfolio may use the in-
vestment 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.
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.
15
<PAGE>
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro will have
the same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in con-
verting to the Euro could negatively affect the investments of the portfo-
lio.
Derivatives
The portfolio may use forward currency exchange contracts, futures con-
tracts and options (types of derivatives) to remain fully invested, to re-
duce transaction costs or 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 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 Sales
The portfolio may sell securities short. 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 buy-
er. The investor then replaces the security it borrowed by purchasing it
at the market price at or before the time of replacement.
The 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, the portfolio can
profit if the price of the security declines between those dates.
To borrow the security, the portfolio also may be required to pay a premi-
um, which would increase the cost of the security sold. The portfolio will
incur transaction costs in effecting short sales. The 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.
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.
16
<PAGE>
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 posi-
tion to reduce changes in the value of the shares of the portfolio that
may result 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.
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
Investment Adviser
First Pacific Advisors, Inc., a Massachusetts corporation located at 11400
West Olympic Boulevard, Suite 1200, Los Angeles, California 90064, 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 been in
the investment advisory business since 1954. Currently, the adviser pro-
vides investment management services for seven investment compa-
17
<PAGE>
nies, including one closed-end investment company, and a variety of insti-
tutional accounts.
During the fiscal year ended March 31, 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 waive its advisory fees to the extent
necessary to keep the expenses of the portfolio from exceeding 2.10% of
its average net assets. To maintain its 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 un-
til further notice.
Portfolio Manager
Mr. Steven Romick is primarily responsible for the day-to-day management
of the portfolio. Mr. Romick has thirteen years of experience in the in-
vestment management business. He is currently a Senior Vice President of
the adviser. From 1990-1996, Mr. Romick was Chairman of Crescent Manage-
ment, an investment advisory firm he founded. Crescent Management served
as the portfolio's adviser until the firm was merged with the current ad-
viser.
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.
18
<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 Institutional Class shares, which do not pay
marketing or shareholder servicing fees.
19
<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 March 31, 1999++ 1998++ 1997+
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............ $16.15 $ 13.43 $13.12
------ ------- ------
Income from Investment Operations
Net Investment Income.......................... 0.54 0.53 0.03
Net Realized and Unrealized Gain (Loss) on
Investments................................... (1.33) 2.84 0.28
------ ------- ------
Total from Investment Operations............... (0.79) 3.37 0.31
------ ------- ------
Distributions:
Net Investment Income.......................... (0.47) (0.39) --
Net Realized Gain.............................. (0.29) (0.26) --
------ ------- ------
Total Distributions............................ (0.76) (0.65) --
------ ------- ------
Net Asset Value, End of Period.................. $14.60 $ 16.15 $13.43
====== ======= ======
Total Return.................................... (4.92)% 25.55% 2.36%**
====== ======= ======
Ratios and Supplemental Data
Net Assets, End of Period (Thousands)........... $3,407 $18,900 $ 32
Ratio of Expenses to Average Net Assets......... 1.64% 1.73% 1.85%*
Ratio of Net Investment Income to Average Net
Assets......................................... 3.53% 3.44% 2.56%*
Portfolio Turnover Rate......................... 36% 18% 45%*
</TABLE>
* Annualized
** Not Annualized
+ For the period January 24, 1997 (inception of Institutional Service
Class Shares) to March 31, 1997.
++ Per share amounts are based on average outstanding shares.
20
<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>
FPCBX 902556851 648
</TABLE>
<PAGE>
FPA Crescent 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 Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
FPA Crescent Portfolio
Institutional Class Shares
Institutional Service Class Shares
Statement of Additional Information
July 30, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the portfolio dated
July 30, 1999. You may obtain the portfolio's prospectuses by contacting the
UAM Funds at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
FPA Crescent 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-5
Who Are The Principal Holders Of The Securities Of The Portfolio?............ I-5
What Was The Portfolio's Performance As Of Its Most Recent Fiscal Year End?.. I-5
Expenses..................................................................... I-6
II: The UAM Funds in Detail II-1
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
Short-Term Prime Rating System - Taxable Debt & Deposits Globally............ IV-3
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
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>
ii
<PAGE>
I: Portfolio Summary
I-1
<PAGE>
FPA CRESCENT 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, see "What Are
the Investment Policies of the Portfolio?"
. Equity securities (50% to 70% of its total assets).
. Debt Securities (30% to 50%).
. Debt Securities-- Below-investment grade (up to 30% of its total assets).
. Foreign securities (up to 20% of its total assets).
. Futures.
. Forward currency exchange contracts (for hedging purposes only).
. Options.
. Short sales.
. 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:
. Make loans to others, except (i) through the purchase of debt securities in
accordance with its investment objective and policies, and (ii) to the extent
the entry into a repurchase agreement is deemed to be a loan.
. (i) borrow money, except as stated in the prospectuses and this SAI (any
such borrowing will be made only if immediately thereafter there is an asset
coverage of at least 300% of all borrowings);
I-2
<PAGE>
. (ii) mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
. Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities (does not
preclude the portfolio from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio
securities).
. Purchase or sell commodities or commodity contracts (other than futures
transactions for the purposes and under the conditions described in the
prospectuses and in this SAI).
. Invest more than 25% of the market value of its assets in the securities of
companies engaged in any one industry (does not apply to investment in the
securities of the U.S. government, its agencies or instrumentalities).
. 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.
. Purchase the securities of any issuer, if as a result more than 5% of the
total assets of the portfolio would be invested in the securities of that
issuer, other than obligations of the U.S. government, its agencies or
instrumentalities, provided that up to 25% of the value of the portfolio's
assets may be invested without regard to this limitation.
. Purchase or sell real estate; however, the portfolio may invest in debt
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein, including real estate
investment trusts.
. With respect to 75% of its assets, own more than 5% of the securities of
any single issuer (other than investments issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities).
. With respect to 75% of its assets, own more than 10% of the outstanding
voting securities of any one issuer.
The portfolio may not borrow except from banks for temporary or emergency
purposes and in connection with short sales of securities. In these
situations, the portfolio will limit borrowings to no more than 331/3% of the
portfolio's assets, and the portfolio may not purchase additional securities
when borrowings exceed 5% of its total assets.
These investment restrictions do not prohibit the portfolio from engaging in
short sales of securities as described in the prospectuses or in Part II of
this SAI under "Description of Permitted Investments."
Non-Fundamental Policies
The following limitations are non-fundamental, which means the portfolio may
change them without shareholder approval.
The portfolio will not:
. Hold more than 10% of any class of securities of an issuer (taking all
common stock issues of an issuer as a single class, all preferred stock
issues as a single class, and all debt issues as a single class).
. Hold more than 10% of the outstanding voting securities of an issuer.
. 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.
I-3
<PAGE>
. 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?
- -------------------------------------------------------------------------------
First Pacific Advisors, Inc. is the investment adviser of the portfolio. For
its services, the portfolio pays its adviser a fee equal to 1.00% 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.
What is the Investment Philosophy and Style of the Adviser?
Equity Securities
The adviser uses a contrarian investment style, which often leads to investing
in "what other people do not wish to own." The adviser searches for common
stocks, preferred stocks, warrants and convertible securities that reflect low
price/earnings ratios (P/Es) and trade at discounts to private market value.
The adviser deems the following to be important in its stock selection
process: high return on capital; solid balance sheet; meaningful cash flow;
active share repurchase program; insider buying; strong management, seeking to
add shareholder value; and projected earnings growth exceeding the stock
market average. In the adviser's view, the stock market prices securities
efficiently in the long term, rewarding companies which successfully grow
their own earnings and penalizing those which do not. The investment
philosophy is based on the conviction that the market valuation of securities
is often inefficient in the short-term. The adviser feels that hasty short-
term decisions could cause a particular security, industry group or the entire
market to become underpriced or overpriced in the short- term, thereby
creating an excellent opportunity to either buy or sell.
The adviser's intensive research process includes looking for ideas by
reviewing stock price or industry group under performance, insider purchasers,
management changes and corporate spin-offs. Fundamental analysis is the
foundation of the Adviser's investment approach.
Debt Securities
Through fixed income investments, the adviser seeks a reliable and recurring
stream of income for the portfolio, while preserving its capital. The adviser
attempts to identify the current interest rate trends and invests funds
accordingly. Usually, a defensive strategy is employed, with investments made
at different points along the yield curve in an attempt to keep the average
maturity of fixed income investments less than or equal to ten years.
The adviser considers yield spread relationships and their underlying factors
such as credit quality, investor perception and liquidity on a continuous
basis to determine which sector offers the best investment value. When
combined with equity securities, the ownership of fixed income securities not
only can broaden the universe of opportunities, but also can offer additional
diversification and can help lower portfolio volatility.
Who Are Some Representative Institutional Clients Of The Adviser?
As of the date of this SAI, the adviser's representative institutional clients
included: General Electric Investment Corporation; Federated Department
Stores, Inc.; Fox Inc.; Xerox Corporation; Southern Farm Bureau Life
Insurance Company; Commonwealth of Pennsylvania Public School Employees
Retirement System; and The Lannan Foundation.
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
I-4
<PAGE>
portfolio 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;
. $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;
. $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 the portfolio:
<TABLE>
<CAPTION>
Name and Address of Shareholder Class of Portfolio Percentage of Shares Owned
===================================================================================================================================
<S> <C> <C>
Charles Schwab & Co., Inc. Institutional 49.95%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------------------------------------------------------------
Chicago Trust Company Tr Institutional Service 87.07%
FBO Loews Cineplex
P/S & 401(k) Ret Plan
C/o Marshall & Ilsley Trust Company
1000 N Water Street
Milwaukee, WI 53202-6648
- -----------------------------------------------------------------------------------------------------------------
L. Thomas Melly Institutional Service 8.68%
Alice P&L Thomas Melly Foundation
85 Broad Street
New York, NY 10004-2434
</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-5
<PAGE>
AVERAGE Annual Total Return For Periods Ended 3/31/99
<TABLE>
<CAPTION>
Shorter of 10 Years or
1 Year 5 Years Since Inception Inception Date
==============================================================================================
<S> <C> <C> <C> <C>
Institutional Class -4.71% 14.57% 14.45% 6/2/93
- ----------------------------------------------------------------------------------------------
Service Class -4.92 N/A 9.62 1/24/97
</TABLE>
EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment
For the FYE Investment Advisory Fees Administrator Brokerage Distribution Fees
March 31, Advisory Fees Paid Waived Fee* Commissions (Service Class Only)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
1999 $2,511,930 $0 $466,286 $237,093 $35,404
- ---------------------------------------------------------------------------------------------------------------
1998 $1,489,678 $0 $241,380 $213,179 $28,629
- ---------------------------------------------------------------------------------------------------------------
1997 $302,772 $0 $64,806 $50,128 $6
</TABLE>
* During the fiscal year ended March 31, 1997, the Portfolio paid
administrative fees of $14,196 to its prior administrator, Investment
Company Administration Corporation, $20,251 to CGFSC, and $30,359 to
UAMFSI. During the fiscal year ended March 31, 1998, the Portfolio paid
total administrative fees of $151,953 to CGFSC, and $89,427 to UAMFSI.
During the fiscal year ended March 31, 1998, the Portfolio paid total
administrative fees of $221,469 to CGFSC and $244,817 to UAMFSI.
I-6
<PAGE>
II: The UAM Funds in
Detail
II-1
<PAGE>
DEBT SECURITIES
- --------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value. 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 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,
II-2
<PAGE>
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
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
II-3
<PAGE>
. 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.
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.
II-4
<PAGE>
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, a portfolio may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
Investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
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
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
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Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. The portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest
payments ("coupons") separated from the underlying principal ("corpus") by
their holder, typically a custodian bank or investment brokerage firm. Once
the holder of the security has stripped or separated corpus and coupons, it
may sell each component separately. The principal or corpus is then sold at a
deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. Typically, the coupons are sold separately or
grouped with other coupons with like maturity dates and sold bundled in such
form. The underlying treasury security is held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are owned ostensibly by the bearer or holder thereof), in
trust on behalf of the owners thereof. Purchasers of stripped obligations
acquire, in effect, discount obligations that are economically identical to
the zero coupon securities that the Treasury sells itself.
The 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 years --
the duration. Effective duration takes into account call features and sinking
fund prepayments that may shorten the life of a debt security.
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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.
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
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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.
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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.
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
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sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. The portfolio would normally purchase call options in
anticipation of an increase in the market value of securities it owns or wants
to buy. The portfolio would ordinarily realize a gain if, during the option
period, the value of the underlying instrument exceeded the exercise price
plus the premium paid and related transaction costs. Otherwise, the portfolio
would realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when
the portfolio writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. The portfolio may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting transaction
with the counter-party to the option.
The portfolio could try to hedge against an increase in the value of
securities it would like to acquire by writing a put option on those
securities. If security prices rise, the portfolio would expect the put
option to expire and the premium it received to offset the increase in the
security's value. If security prices remain the same over time, the
portfolio would hope to profit by closing out the put option at a lower price.
If security prices fall, the portfolio may lose an amount of money equal to
the difference between the value of the security and the premium it received.
Writing covered put options may deprive the portfolio of the opportunity to
profit from a decrease in the market price of the securities it would like to
acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The portfolio is permitted only to write covered options. The portfolio can
cover a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract;
or
. In the case of an index, the portfolio of securities that corresponds to
the index.
The portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
The portfolio may purchase put and call options on futures contracts instead
of selling or buying futures contracts. The portfolio may buy a put option on
a futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the portfolio would retain the option premium, which would offset, in part,
any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if 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.
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Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the
cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
amount on which the cash flows are calculated is called the notional amount.
Swaps are individually negotiated and structured to include exposure to a
variety of different types of investments or market factors, such as interest
rates, foreign currency rates, mortgage securities, corporate borrowing rates,
security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the portfolio and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the portfolio. If a swap agreement calls for payments by the portfolio,
the portfolio must be prepared to make such payments when due. In addition, if
the counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the
prior written consent of the other party. The portfolio may be able to
eliminate its exposure under a swap agreement either by assignment or by other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party. If the counter-party is unable to
meet its obligations under the contract, declares bankruptcy, defaults or
becomes insolvent, the portfolio may not be able to recover the money it
expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a portfolio's
gains or losses. In order to reduce the risk associated with leveraging, a
portfolio will cover its current obligations under swap agreements according
to guidelines established by the SEC. If the portfolio enters into a swap
agreement on a net basis, it will segregate assets with a daily value at least
equal to the excess, if any, of the portfolio's accrued obligations under the
swap agreement over the accrued amount the portfolio is entitled to receive
under the agreement. If the portfolio enters into a swap agreement on other
than a net basis, it will segregate assets with a value equal to the full
amount of the portfolio's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in return
for a specified interest rate. By entering into an equity index swap, for
example, the index receiver can gain exposure to stocks making up the index of
securities without actually purchasing those stocks. Equity index swaps
involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the return on the interest
rate that the portfolio will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of interest
rate cash flow on specified dates in the future. Some of the different types
of interest rate swaps are "fixed-for floating rate swaps," "termed basis
swaps" and "index amortizing swaps." Fixed-for floating rate swap involve the
exchange of fixed interest rate cash flows for floating rate cash flows.
Termed basis swaps entail cash flows to both parties based on floating
interest rates, where the interest rate indices are different. Index
amortizing swaps are typically fixed-for floating swaps where the notional
amount changes if certain conditions are met.
Like a traditional investment in a debt security, a portfolio could lose money
by investing in an interest rate swap if interest rates change adversely. For
example, if the portfolio enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the portfolio may have
to pay more money than it receives. Similarly, if the portfolio enters into a
swap where it agrees to exchange a fixed rate of interest for a floating rate
of interest, the portfolio may receive less money than it has agreed to pay.
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Currency Swaps -- A currency swap is an agreement between two parties in which
one party agrees to make interest rate payments in one currency and the other
promises to make interest rate payments in another currency. A portfolio may
enter into a currency swap when it has one currency and desires a different
currency. Typically the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
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.
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. current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. a difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the portfolio. A currency hedge, for example, should
protect a yen-denominated security from a decline in the yen, but will not
protect the portfolio against a price decline resulting from deterioration in
the issuer's creditworthiness. Because the value of the portfolio's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the portfolio's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the portfolio can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, a portfolio may close out a futures contract only on the exchange
the contract was initially traded. Although a portfolio intends to purchase
options and futures only where there appears to be an active market, there is
no guarantee that such a liquid market will exist. If there is no secondary
market for the contract, or the market is illiquid, the portfolio may not be
able to close out its position. In an illiquid market, the portfolio may:
. have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. have to purchase or sell the instrument underlying the contract;
. not be able to hedge its investments; and
. not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. an exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. the facilities of the exchange may not be adequate to handle current
trading volume;
. equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or
. investors may lose interest in a particular derivative or category of
derivatives.
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Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, the
portfolio may lose money by investing in derivatives. For example, if the
portfolio were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the portfolio could be required to sell the security upon exercise at
a price below the current market price. Similarly, if the portfolio were to
write a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including
. actual and anticipated changes in interest rates;
. fiscal and monetary policies; and
. national and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum
amount that the price of a derivative may vary from the settlement price of
that derivative at the end of trading on the previous day. Once the price of
a derivative reaches this value, a portfolio may not trade that derivative at
a price beyond that limit. The daily limit governs only price movements
during a given day and does not limit potential gains or losses. Derivative
prices have occasionally moved to the daily limit for several consecutive
trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the portfolio and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the portfolio may have
to sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The portfolio may lose its margin deposits
if a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
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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
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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;
. 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.
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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.
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
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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.
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
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<PAGE>
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
. 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.
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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?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
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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
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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 has
an investment advisory relationship with Investment Counselors of Maryland, an
investment adviser to one of the portfolios in the UAM Funds Complex. 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.
<TABLE>
<CAPTION>
Position
Name, Address, DOB with Fund Principal Occupations During the Past 5 years
- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
John T. Bennett, Jr. Board Member President of Squam Investment Management Company,
College Road -- RFD 3 Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
- ----------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Member Financial Officer of World Wildlife Fund since
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
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
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
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
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.
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
from Fund as Funds Complex
Name, Address, DOB of 4/30/99 as of 12/31/98
- ---------------------------------------------------------------------------------
<C> <C> <C>
John T. Bennett, Jr. $8,094 $39,900
College Road -- RFD 3
Meredith, NH 03253
1/26/29
- ---------------------------------------------------------------------------------
Nancy J. Dunn $8,094 $40,575
10 Garden Street
Cambridge, MA 02138
8/14/51
- ---------------------------------------------------------------------------------
William A. Humenuk $8,094 $40,936
100 King Street West
P.O. Box 2440, LCD-1
Hamilton Ontario,
Canada L8N-4J6
4/21/42
- ---------------------------------------------------------------------------------
Philip D. English $8,094 $40,702
16 West Madison Street
Baltimore, MD 21201
8/5/48
- ---------------------------------------------------------------------------------
James P. Pappas* 0 0
211 Congress Street
Boston, MA 02110
2/24/53
- ---------------------------------------------------------------------------------
Norton H. Reamer* 0 0
One International Place
Boston, MA 02110
3/21/35
- ---------------------------------------------------------------------------------
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, DOB with Fund Principal Occupations During the Past 5 years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter M. Whitman, Jr.* Board Member President and Chief Investment Officer of Dewey
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
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
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 in from November 1990to March 1995.
- ---------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and
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
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
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
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
from Fund as Funds Complex
Name, Address, DOB of 4/30/99 as of 12/31/98
- ---------------------------------------------------------------------------------
<C> <C> <C>
Peter M. Whitman, Jr.* 0 0
One Financial Center
Boston, MA 02111
7/1/43
- ---------------------------------------------------------------------------------
William H. Park 0 0
One International Place
Boston, MA 02110
9/19/47
- ---------------------------------------------------------------------------------
Gary L. French 0 0
211 Congress Street
Boston, MA 02110
7/4/51
- ---------------------------------------------------------------------------------
Michael E. DeFao 0 0
211 Congress Street
Boston, MA 02110
2/28/68
- ---------------------------------------------------------------------------------
Robert R. Flaherty 0 0
211 Congress Street
Boston, MA 02110
9/18/63
- ---------------------------------------------------------------------------------
Michael J. Leary 0 0
73 Tremont Street
Boston, MA 02108
11/23/65
- ---------------------------------------------------------------------------------
Michelle Azrialy 0 0
73 Tremont Street
Boston, MA 02108
4/12/69
</TABLE>
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.
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
sufficient for prudent investment. Considerable variability
in risk during economic cycles.
BBB- Below investment grade but deemed likely to meet
BB+/BB/BB- obligations when due. Present or prospective financial
protection factors fluctuate according to industry
conditions. Overall quality may move up or down frequently
within this category.
B+/B/B- Below investment grade and possessing risk that obligation
will not be 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,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.
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.
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.
V-3
<PAGE>
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.
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.
V-4
<PAGE>
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>
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
(215) 988-2700
(215) 988-2757 (Fax)
July 26, 1999
UAM Funds Trust
211 Congress Street
Fourth Floor
Boston, MA 02110
Re: UAM Funds Trust - Shares of Beneficial Interest
-----------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for UAM Funds Trust, a Delaware business trust,
("UAM") in connection with the registration by UAM of shares of beneficial
interest without par value. The Agreement and Declaration of Trust of UAM
authorizes the issuance of an unlimited number of shares of beneficial interest,
which are divided into multiple series and classes (each a "Class" and
collectively "Classes"). The shares of beneficial interest designated into each
such series are referred to herein as the "Shares." You have asked for our
opinion on certain matters relating to the Shares.
We have reviewed UAM's Agreement and Declaration of Trust and By-laws,
resolutions of UAM's Board of Trustees ("Board"), certificates of public
officials and of UAM's officers and such other legal and factual matters as we
have deemed appropriate. We have also reviewed UAM's Registration Statement on
Form N-1A under the Securities Act of 1933 (the "Registration Statement"), as
amended through Post-Effective Amendment No. 34 thereto.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
We have assumed the following for purposes of this opinion:
1. The shares of beneficial interest have been issued in accordance with
the Agreement and Declaration of Trust and By-laws of UAM and
resolutions of UAM's Board relating to the creation, authorization and
issuance of the Shares.
<PAGE>
2. Prior to the issuance of any future Shares, the Board (a) will duly
authorize the issuance of such future Shares, (b) will determine with
respect to each class of such future Shares the preferences,
limitations and relative rights applicable thereto and (c) if such
future Shares are classified into separate series, will duly take the
action necessary to create such series.
3. Determine the number of shares of such series and the relative
designations, preferences, limitations and relative rights thereof.
4. With respect to the future Shares, there will be compliance with the
terms, conditions and restrictions applicable to the issuance of such
shares that are set forth in (i) UAM's Agreement and Declaration of
Trust and By-laws, each as amended as of the date of such issuance, and
(ii) the applicable future series designations.
5. The Board will not change the preferences, limitations or relative
rights of any class or series of Shares after any shares of such class
or series have been issued.
Based upon the foregoing, we are of the opinion that the Shares will be,
when issued in accordance with, and sold for the consideration described in the
Registration Statement, validly issued, fully paid and non-assessable by UAM,
and that the holders of the Shares will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware (except
that we express no opinion as to such holders who are also trustees of UAM).
We consent to the filing of this opinion with Post-Effective Amendment
No. 34 to the Registration Statement to be filed by UAM with the Securities and
Exchange Commission.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
DRINKER BIDDLE & REATH LLP
AT/MM
-2-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 34 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 7, 1999, relating to the financial
statements and financial highlights appearing in the March 31, 1999 Annual
Report to the Shareholders of FPA Crescent 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 Statement of Additional
Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 26, 1999
