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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. 45 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 46 /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)
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Gary L. French, Treasurer
UAM Fund Services, Inc.
211 Congress Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
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COPY TO:
Audrey C. Talley, Esq.
Drinker Biddle & Reath LLP
One Logan Square
Philadelphia, PA 191037
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
[_] Immediately upon filing pursuant to Paragraph (b)
[_] on (date) pursuant to Paragraph (b)
[_] 60 days after filing pursuant to paragraph (a) (1)
[X] on December 29, 2000 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.
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PART A
UAM FUNDS TRUST
The Institutional Class prospectus for IRA Capital Preservation Portfolio is
included in this Post-Effective Amendment No. 45, filed on December 29, 2000.
The prospectuses for the following portfolios are contained in Post-Effective
Amendment No. 44 to the Registration Statement, filed on August 28, 2000.
. BHM&S Total Return Bond Portfolio Institutional Class Shares
. BHM&S Total Return Bond Portfolio Institutional Service Class Shares
. Cambiar Opportunity Portfolio Institutional Class Shares
. Chicago Asset Management Intermediate Bond Portfolio
. Chicago Asset Management Value/Contrarian Portfolio
. Clipper Focus Portfolio Institutional Class Shares
. MJI International Equity Portfolio Institutional Class Shares
. MJI International Equity Portfolio Institutional Service Class Shares
. Pell Rudman Mid-Cap Growth Portfolio Institutional Class Shares
. PIC Twenty Portfolio Institutional Class Chares
. Sirach Growth II Portfolio Institutional Class Shares
. TJ Core Equity Portfolio Institutional Service Class Shares
. TS&W International Octagon Portfolio Institutional Class Shares
Supplement, dated August 28, 2000, to the prospectuses listed above, is
contained in Post-Effective Amendment No. 44 to the Registration Statement,
filed on August 28, 2000.
The Institutional Class prospectus for FPA Crescent Portfolio dated July 31,
2000, along with a Supplement dated July 31, 2000, is contained in Post-
Effective Amendment No. 43, filed on July 27, 2000.
The Advisor Class and Institutional Class prospectuses for Heitman Real Estate
Portfolio are contained in Post-Effective Amendment No. 42, filed on April 28,
2000.
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UAM Funds
Funds for the Informed
Investor(sm)
IRA Capital Preservation Portfolio
Institutional Class Shares Prospectus March 1, 2001
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<TABLE>
<CAPTION>
<S> <C>
Table Of Contents
Fund Summary............................................................. 1
What is the Fund's Objective?........................................... 1
What are the Fund's Principal Investment Strategies?.................... 1
What are the Fund's Principal Risks?.................................... 1
How has the Fund Performed?............................................. 5
What are the Fund's Fees and Expenses?.................................. 6
Investing with the UAM Funds............................................. 7
Buying Shares........................................................... 7
Redeeming Shares........................................................ 8
Exchanging Shares....................................................... 10
Transaction Policies.................................................... 10
Account Policies........................................................ 12
Additional Information about the Fund.................................... 15
Other Investment Practices and Strategies............................... 15
Investment Management................................................... 16
Shareholder Servicing Arrangements...................................... 16
Financial Highlights..................................................... 19
</TABLE>
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Fund Summary
With certain exceptions, the fund offers its shares only to individual investors
who invest in the fund through an individual retirement account ("IRA"),
Education IRA, SEP-IRA, SIMPLE IRA, ROTH-IRA or KEOGH Plan.
WHAT IS THE FUND'S OBJECTIVE?
The fund seeks a level of current income higher than that of money market
funds, while attempting to preserve principal and maintain a stable net asset
value per share (NAV). The fund may change its investment objective without
shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The fund is designed to produce higher returns than a money market fund, while
seeking to maintain a NAV that is considerably more stable than a typical
high-quality fixed-income fund. Like other high-quality fixed-income funds,
the fund invests primarily in debt securities that a nationally recognized
statistical rating agency (rating agency), such as Moody's Investors Service
or Standard & Poor's Rating Group, has rated in its top rating category at the
time of purchase. The fund may also invest in:
o Liquid short-term investments, such as money market instruments, that a
rating agency has rated in one of its top two short-term rating
categories at the time of purchase; and
o Other investments, including commingled pools of debt securities having
similar characteristics to the fund/
The average duration of the portfolio will normally range from 1.5 to 4.0
years. The fund expects its dollar weighted average maturity will be six years
or less.
Unlike other funds, the fund seeks to stabilize its NAV by purchasing wrapper
agreements from financial institutions, such as insurance companies and banks
(wrap providers) that a rating agency has rated in one of its top two rating
categories at the time of purchase. The fund expects to purchase enough
wrapper agreements to cover all of its debt securities, but not its cash, cash
equivalents or other liquid short-term investments. A wrapper agreement is a
mechanism offered by banks and insurance companies (wrap providers) that
assists the fund in seeking to protect principal. Wrapper agreements obligate
wrap providers to make certain payments to the fund to offset changes in the
market value of some or all of the fund's assets. These payments are designed
to enable the fund to pay redeeming shareholders an amount equal to the
purchase price of the fund's assets plus accrued income. For example, if a
shareholder redemption requires the fund to sell a security for less than its
purchase price plus accrued income, the wrapper agreement would cause the wrap
provider to pay the fund the difference, and vice versa.
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The fund expects the combination of debt securities and wrapper agreements
will provide its shareholder with a stable NAV. However, by purchasing wrapper
agreements, the fund also trades some of the potential for capital
appreciation and the ability to maximize its yield for protection from a
decline in the value of its holdings caused by changes in interest rates.
Comparison to Money Market Funds and Other Fixed Income Funds
While not fixed at $1.00 per share like a money market fund, the wrapper
agreements are likely to cause the net asset value of the fund to be
considerably more stable than a typical high-quality fixed-income fund. A
money market fund will generally have a shorter average maturity than the fund
and its yield will tend to more closely track the direction of current market
rates than the yield of the fund. Over the long-term, however, the adviser
believes the fund's mix of investments and longer average duration will offset
those differences by producing higher returns than a money market fund. The
fund cannot, however, guarantee that the combination of securities and wrapper
agreements will provide a constant NAV or a current rate of return that is
higher than a money market mutual fund.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There is
also a possibility that the fund will not achieve its goal. This could happen
because its strategy failed to produce the intended results or because the
adviser did not implement its strategy properly. The fund's shares are not
bank deposits and are not guaranteed, endorsed or insured by any financial
institution, government authority or the FDIC. You may lose money by investing
in the fund.
The fund cannot guarantee that the combination of securities and wrapper
agreements will provide a constant NAV or a current rate of return that is
higher than a money market fund. Discussed below are some of the factors
associated with investments in wrapper agreements.
Wrapper Agreements
A wrapper agreement obligates the wrap provider to make certain payments to
the portfolio in exchange for an annual premium. Payments made by the wrap
provider are designed to enable the portfolio to make redemption payments
reflecting the purchase price plus accrued income (book value) of the
portfolio's assets covered by the wrapper agreement (covered assets), rather
than the market value of the covered assets. Income is accrued on the
portfolio's investments at a rate established by each wrap provider based on
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the yield of the covered assets, adjusted for amortization of gains and losses
over the duration of such covered assets (crediting rate). Under a typical
wrapper agreement, if a shareholder redemption requires the portfolio to sell
a covered asset for less than its purchase price plus accrued income, the wrap
provider will pay the portfolio the difference. If a shareholder redemption
requires the portfolio to sell a security for more than its purchase price
plus accrued income, the portfolio will pay the wrap provider the difference.
The portfolio expects that the value of the wrapper agreements will move in
the opposite direction from the market value of the covered assets. When the
value of the covered assets is less than their purchase price plus accrued
income, the portfolio will treat the difference as an asset. Similarly, when
the value of the covered assets is more than their purchase price plus accrued
income, the excess will be a liability of the portfolio. Normally, the
portfolio expects the sum of the total value of its wrapper agreements plus
the total market value of all of its covered assets to equal the purchase
price plus accrued income of its covered assets resulting in a stable NAV.
The terms of the wrapper agreements vary concerning when payments must
actually be made between the portfolio and the wrap provider. In some cases,
payments may be due upon disposition of the covered assets. Other wrapper
agreements only provide for settlement when the wrapper agreement terminates
or the portfolio sells all of the covered assets.
The rate at which income accrues will generally reflect movements in
prevailing interest rates, though sometimes it may differ from these rates or
the actual interest income earned on the covered assets. The costs the
portfolio incurs when buying wrapper agreements will reduce its return and as
a result it may not perform as well as other high-quality fixed-income funds
of comparable duration.
The portfolio may have to maintain a specified percentage of its total assets
in short-term investments to cover redemptions and portfolio expenses. This
may result in a lower return for the portfolio than if it had invested in
longer-term debt securities.
There is no active trading market for wrapper agreements and the portfolio
does not expect one to develop.
Wrap providers do not typically assume the credit risk associated with the
issuer of any covered assets. Therefore, if an issuer of a security defaults
on payments of principal or interest or has its credit rating downgraded, the
fund may have to sell covered assets quickly and at prices that may not fully
reflect their current value. Downgrades below investment-grade and defaults by
the issuer of covered assets usually will cause the wrap provider to remove
such assets from the coverage of a wrapper agreement.
The fund might not be able to replace existing wrapper agreements with other
suitable wrapper agreements if (1) they mature or terminate or (2) the wrap
provider defaults or has its credit rating lowered. The portfolio may be
unable to obtain suitable wrapper agreements or may elect not to cover some or
all of its assets with wrapper agreements. This could occur if wrapper
agreements are not available or if the adviser believes that the terms of
available wrapper agreements are unfavorable.
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If the fund's attempts to stabilize its NAV fail, the value of its investments
could fall because of changes in interest rates. Rising interest rates tend to
cause the prices of debt securities (especially those with longer maturities),
and the fund's share price, to fall. Rising interest rates may also cause
investors to pay off mortgage-backed and asset-backed securities later than
anticipated, forcing the fund to keep its money invested at lower rates.
Falling interest rates, however, generally cause investors to pay off
mortgage-backed and asset-backed securities earlier than expected, forcing the
fund to reinvest the money at a lower interest rate.
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 unable to honor
its financial obligations, the security may lose some or all of its value.
Debt Securities
A debt security is an interest bearing security that corporations and
governments 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 a variety of types of debt
securities, including those 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 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 affected by
changes in interest rates than others. For example, changes in rates may
cause people to pay off or refinance the loans underlying mortgage-backed and
asset-backed securities earlier or later than expected, which would shorten or
lengthen the maturity of the security. This behavior can negatively affect
the performance of a portfolio by shortening or lengthening its average
maturity and, thus, changing its effective duration. The unexpected timing of
mortgage-backed and asset-backed prepayments 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 equality 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 unable to
honor its financial obligations, the security may lose some or all of its
value.
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HOW HAS THE FUND PERFORMED?
The following information illustrates some of the risks of investing in the
fund. The bar chart shows how performance of the fund has varied from year to
year. The average annual return table compares the average annual returns of
the fund to those of a broad-based securities market index. Returns are based
on past results and are not an indication of future performance.
Calendar Year Returns
(Performance to be inserted)
_____ _____ _____ _____ _____ _____
2000
During the periods shown in the chart for the fund, the highest return for a
quarter was __.__% (quarter ending __/__/__) and the lowest return for a
quarter was __.__% (quarter ending __/__/__).
Average Annual Returns For Periods Ended December 31, 2000
1 Year Since
8/31/99*
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IRA Capital Preservation
Portfolio
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Ryan 5-Year GIC Master Index
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U.S. Three Month Treasury Bill
Average
* Beginning of operations. Index comparisons began on 9/1/99.
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WHAT ARE THE FUND'S FEES AND EXPENSES?
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay them
indirectly. This table describes the fees and expenses that you may pay if you
buy and hold shares of the fund.
<TABLE>
<CAPTION>
IRA Capital Preservation
Portfolio
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Shareholder Fees (fees paid directly from your investment)
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<S> <C>
Redemption Fee (as a percentage of amount redeemed) 2.00%#
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Annual Fund Operating Expenses (expenses that are deducted
from the assets of the fund)
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Management Fee 0.50%
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Other Expenses* []%
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Total Annual Fund Operating Expenses* []%
</TABLE>
# Shareholders pay a redemtpion fee when they redeem shares held for less
than the number of days listed under "Redemption Fee" in the section on
"Transaction Policies."
* "Other Expenses" presented in the table above may be higher than the expenses
you would actually pay as a shareholder in the fund because the adviser has
voluntarily agreed to limit the expenses of the fund to the extent necessary to
keep its total expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) from exceeding 1.00% of its average daily net assets.
The adviser may change or cancel its expense limitation at any time. In
addition,"Other Expenses" do not take into account any expense offset
arrangement the fund may have that would reduce its custodian fee based on the
amount of cash the fund maintains with its custodian. This would also have the
effect of reducing the fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to the
cost of investing in other mutual funds. The example assumes you invest
$10,000 in the fund 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, that you reinvested all of your dividends
and distributions and that you paid the total expenses stated above (which do
not reflect any expense limitations) throughout the period of your investment.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 Year 3 Years 5 Years 10 Years
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[ ] [ ] [ ] [ ]
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Investing with the UAM Funds
Buying Shares
By Mail
You can open an account with the fund by sending a check or money order and
your account application to the UAM Funds. You should make your check or money
order payable to the "UAM Funds." The UAM Funds do not accept third-party
checks. You can add to an existing account by sending a check and, if
possible, the "Invest by Mail" stub that accompanied your statement to the UAM
Funds. Be sure your check identifies clearly your name, your account number
and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account number
and wire control number. Next, send your completed account application to the
UAM Funds. Finally, wire your money using the wiring instructions set forth
below. To add to an existing account by wire, call 1-877-826-5465 to get a
wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a completed
application to the UAM Funds. To cancel or change a plan, write to the UAM
Funds. Allow up to 15 days to create the plan and 3 days to cancel or change
it.
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Minimum Investments
You can open an IRA account with the fund with a minimum initial investment of
$500 ($250 for Spousal IRAs). You can buy additional shares for as little as
$100.
Fund Codes
The fund's reference information, which is listed below, will be helpful to
you when you contact the UAM Funds to purchase or exchange shares, check daily
net asset value per share (NAV) or get additional information.
Trading Symbol CUSIP Fund Code
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ICPPX 902555259 784
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
o Stop offering shares;
o Reject any purchase order; or
o Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting management
and by increasing expenses.)
REDEEMING SHARES
By Mail
Send a letter to the UAM Funds specifying:
o The fund name;
o The account number;
o The dollar amount or number of shares you wish to redeem;
o The account name(s); and
o The address.
All registered share owner(s) in the exact name(s) and any special capacity in
which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you need
more information.
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Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Redemption Fee
The Equity Portfolio for Taxable Investors will deduct a 1.00% redemption fee
from the redemption proceeds of any shareholder redeeming shares of the fund
held for less than twelve months.
The fund will retain the fee for the benefit of the remaining shareholders.
The fund charges the redemption fee to help minimize the impact the redemption
may have on the performance of the fund, to facilitate fund management and to
offset certain transaction costs and other expenses the fund incurs because of
the redemption. The fund also charges the redemption fee to discourage market
timing by those shareholders initiating redemptions to take advantage of
short-term market movements.
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To participate
in this service and to receive your redemptions by wire, you must complete the
appropriate sections of the account application and mail it to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login information,
including your personal identification number (PIN), please call 1-877-826-
5465.
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 another financial institution.
To participate in this service, you must complete the appropriate sections of
the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your bank
by ACH transfer or wired to your bank account (provided that your bank
information is already on file). The UAM Funds will pay for all shares
redeemed within seven days after they receive a redemption request in proper
form.
The UAM Funds may require that a bank or member firm of a national securities
exchange guarantee signatures. A notary public cannot guarantee a signature.
Signature guarantees are for the protection of shareholders. Before they grant
a redemption request, the UAM Funds may require a shareholder to furnish
additional legal documents to insure proper authorization.
If you redeem shares that were purchased by check, you will not receive your
redemption proceeds until the check has cleared, which may take up to 15 days
from the purchase date. You may avoid these delays by paying for shares with
a certified check, bank check or money order.
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Rights Reserved by the UAM Funds
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 suspend
your right to redeem if:
o Trading on the New York Stock Exchange is restricted; or
o The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
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. You can
also exchange shares of the UAM Funds on the Internet at www.uam.com. For
login information, including your personal identification number (PIN), please
call 1-877-826-5465. 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).
Rights Reserved by the UAM Funds
The UAM Funds may:
o Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
o Reject any request for an exchange; or
o Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
Who May Invest in the Fund?
With certain exceptions, the fund offers its shares to investors who wish to
invest in the fund through one of the following types of individual retirement
accounts:
Plans described in Section 408 of the Internal Revenue Code (includes
traditional IRAs, SEP-IRAs and SIMPLE IRAs);
Plans describe in Section 408A of the Internal Revenue Code (ROTH-IRAs);
Plans described in Section 530 of the Internal Revenue Code (Education IRAs);
and
Plans maintained by sole proprietorships (KEOGH Plans).
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From time to time, the fund may allow certain shareholders, including
affiliates of its investment adviser, to buy shares of the fund through an
account that does not qualify as one of the IRAs described above.
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New York
Stock Exchange is open at a price equal to its NAV next computed after it
receives and accepts your order. NAVs are calculated as of the close of
trading on the New York Stock Exchange (generally 4:00 p.m. Eastern Time).
Therefore, to receive the NAV on any given day, the UAM Funds must accept your
order before the close of trading on the New York Stock Exchange that day.
Otherwise, you will receive the NAV that is calculated at the close of trading
on the following business day.
Since securities that are traded on foreign exchanges may trade on days when
the New York Stock Exchange is closed, the value of a UAM Fund may change on
days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. The UAM Funds use current market prices to value their
investments. However, the UAM Funds may value investments at fair value when
market prices are not readily available or when events occur that make
established valuation methods (such as stock exchange closing prices)
unreliable. The UAM Funds will determine an investment's fair value according
to methods established by the Board. The UAM Funds value debt securities that
are purchased with remaining maturities of 60 days or less at amortized cost,
which approximates market value. The UAM Funds may use a pricing service to
value some of their assets, such as debt securities or foreign securities.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermediary
(such as a financial planner or adviser). Generally, to buy or sell shares at
the NAV of any given day your financial intermediary must receive your order
before the close of trading on the New York Stock Exchange 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. Your financial intermediary may charge additional
transaction fees for its services.
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.
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In-Kind Transactions
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities instead
of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The UAM Funds will not be responsible
for any loss, liability, cost or expense for following instructions received
by telephone reasonably believed to be genuine.
ACCOUNT POLICIES
Small Accounts
The UAM Funds may redeem your shares without your permission if the value of
your account falls below 50% of the required minimum initial investment. This
provision does not apply:
o To retirement accounts and certain other accounts; or
o When the value of your account falls because of market fluctuations and
not your redemptions.
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 fund declares its net investment income daily and pays it
monthly. In addition, the fund distributes its net capital gains at least once
a year. The UAM Funds will automatically reinvest dividends and distributions
in additional shares of the fund unless you elect on your account application
to receive them in cash.
To maintain a stable NAV, the fund may have to declare and pay dividends in
amounts that are not equal to the amount of net investment income it actually
earns. This may cause the fund to take some or all of the following actions:
o If the fund distributes more money than it actually earned through its
investments, it may have to make a distribution that may be considered a
return of capital.
o If the income the fund receives exceeds the amount of dividends
distributed, the fund may have to distribute that excess income to
shareholders and declare a reverse split of its shares.
The fund may split its shares when it distributes its net capital gains.
Share splits or reverse share splits will cause the number of shares owned by
shareholders to increase or decrease while allowing the NAV of the fund to
remain stable.
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Federal Taxes
The following is a summary of the federal income tax consequences of investing
in the fund. This summary does not apply to shares held in an individual
retirement account or other tax-qualified plan, which are not subject to
current tax. Transactions relating to shares held in such accounts may,
however, be taxable at some time in the future. You should always consult your
tax advisor for specific guidance regarding the tax effect of your investment
in the UAM Funds.
Taxes on Distributions. Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject to
income tax on these distributions regardless of whether they are paid in cash
or reinvested in additional shares. The amount of tax you may pay on a
distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distributions of
short-term capital gains (capital gains relating to securities held for twelve
months or less) are generally taxable at the same rate as ordinary income.
Distributions of long-term capital gains (capital gains relating to securities
held for more than twelve months) are generally taxable as long-term capital
gains. Once a year UAM Funds will send you a statement showing the types and
total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying a dividend" and should be
avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U. S. corporations
may be eligible for the corporate dividends-received deduction, subject to
certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received from
sources in foreign countries. The fund 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.
Taxes on Exchanges and Redemptions. If the fund fails to maintain a stable
NAV, when you redeem or exchange shares of the fund you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between 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.
15
<PAGE>
The one major exception to these tax principles is that distributions on, and
sales and redemptions of, shares held in an IRA (or other tax-qualified plan)
may not be currently taxable, but they may be taxable in the future.
Backup Withholding. By law, the fund must withhold 31% of your distributions
and redemption proceeds if you fail (i) to provide complete, correct taxpayer
information, (ii) to properly include on your return payments of taxable
interest or dividends, or (iii) to certify to the fund that you are not
subject to back-up withholding when required to do so or that you are an
"exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and
redemptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned above,
you should always consult your tax advisor for specific guidance regarding the
tax effect of your investment in the fund.
16
<PAGE>
Additional Information about the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concerning
any of the fund's investment practices and its risks, you should read the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that includes
forward foreign currency exchange contracts, futures, options and swaps to
protect its investments against changes resulting from market conditions (a
practice called "hedging"), to reduce transaction costs or to manage cash
flows. Forward foreign currency exchange contracts, futures and options are
called derivatives because their value is based on an underlying asset or
economic factor. Derivatives are often more volatile than other investments
and may magnify the fund's gains or losses. There are various factors that
affect the fund's ability to achieve its objectives with derivatives.
Successful use of a derivative depends on the degree to which prices of the
underlying assets correlate with price movements in the derivatives the fund
buys or sells. The fund could be negatively affected if the change in market
value of its securities fails to correlate perfectly with the values of the
derivatives it purchased or sold.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets in
a variety of high-quality, short-term debt securities, such as U.S. government
securities. The adviser may invest in these types of securities for temporary
defensive purposes, to earn a return on uninvested assets or to meet
redemptions. The adviser may temporarily adopt a defensive position to reduce
changes in the value of the shares of the fund that may result from adverse
market, economic, political or other developments. When the adviser pursues a
temporary defensive strategy, the fund may not profit from favorable
developments that it would have otherwise profited from if it were pursuing
its normal strategies. Likewise, these strategies may prevent the fund from
achieving its stated objectives.
Portfolio Turnover
A portfolio may buy and sell investments relatively often. Such a strategy
often involves higher expenses, including brokerage commissions, and may
increase the amount of capital gains (and, in particular, short-term gains)
realized by a portfolio. Shareholders must pay tax on such capital gains.
17
<PAGE>
INVESTMENT MANAGEMENT
Investment Adviser
Dwight Asset Management Company, a Delaware corporation located 100 Bank
Street, Burlington, Vermont 05401, is the investment adviser to the portfolio.
The adviser manages and supervises the investment of the portfolio's assets on
a discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
pension and profit-sharing plans, 401(k) and thrift plans since 1983.
The adviser has voluntarily agreed to limit the total expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses) of this
class of the fund to 1.00%, also expressed as a percentage of average net
assets. To maintain this expense limit, the adviser may waive a portion of
its management fee and/or reimburse certain expenses of the fund. The adviser
intends to continue its expense limitation until further notice, but may
discontinue it at any time. During the fund's most recent fiscal year, adviser
waived its entire management fee. During the fiscal period ended October 31,
1999, the adviser waived its entire management fee.
Portfolio Managers
A team of investment professionals of the adviser is primarily responsible for
the day-to-day management of the portfolio.
Adviser's Historical Performance
The adviser manages accounts of debt securities that have substantially
similar investment objectives as the portfolio. The adviser manages these
accounts using techniques and strategies substantially similar, though not
always identical, to those used to manage the portfolio. A composite of the
performance of all of these accounts is listed below. The performance data for
the managed accounts reflects the deduction of an average fee. All fees and
expenses of the separate accounts were less than the operating expenses of the
portfolio. If the performance of the managed accounts was adjusted to reflect
fees and expenses of the portfolio, the composite's performance would have
been lower.
Quarterly returns of the composite combine the individual account returns by
asset weighing each individual account's asset value as of the end of the
quarter. The yearly returns are computed by geometrically linking the returns
of each quarter within the year. This calculation method differs from the SEC
method of calculating returns. Had the adviser calculated its performance
using the SEC's method, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the Investment
Company Act of 1940 and the Internal Revenue Code. If they were, their
returns might have been lower. The performance of these separate accounts is
not intended to predict or suggest the performance of the portfolio and may be
calculated differently than the performance of the portfolio.
18
<PAGE>
<TABLE>
<CAPTION>
Dwight Asset Management Company All Ryan 5 Year GIC Master Index+
Funds Composite*
---------------------------------------------------------------------------------------------------------
Calendar Years
<S> <C> <C>
2000 [ ] [ ]
----------------------------------------------------------------------------------------------------------
1999 6.65% 6.57%
----------------------------------------------------------------------------------------------------------
1998 6.94% 6.57%
----------------------------------------------------------------------------------------------------------
1997 7.13% 6.58%
----------------------------------------------------------------------------------------------------------
1996 7.28% 6.73%
----------------------------------------------------------------------------------------------------------
1995 7.63% 7.19%
----------------------------------------------------------------------------------------------------------
1994 8.10% 7.52%
----------------------------------------------------------------------------------------------------------
1993 8.69% 8.15%
----------------------------------------------------------------------------------------------------------
1992 9.39% 8.70%
Average Annual Returns
For Periods Ended [ ]
1-year [ ] [ ]
3-years [ ] [ ]
----------------------------------------------------------------------------------------------------------
5-years [ ] [ ]
----------------------------------------------------------------------------------------------------------
10-years [ ] [ ]
</TABLE>
* All returns are dollar weighted, and are net of fees and expenses. Returns
are net of fees, which are based on a dollar weighted average of [ ] as of
[ ]. During the period shown, the maximum fee charged to the adviser's
accounts was [ ] and the minimum fee was [ ]. The adviser's composite has
not been audited
SHAREHOLDER SERVICING ARRANGEMENTS
Brokers, dealers, banks, trust companies and other financial representatives
may receive compensation from the fund or its service providers for providing
a variety of services. This section briefly describes how the 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 fund that are attributable 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 directly with the
fund. In addition, your financial representatives may charge you other
account fees for buying or redeeming shares of the fund or for servicing your
account. Your financial representative should provide you with a schedule of
its fees and services.
The fund may pay all or part of the fees paid to financial representatives.
Periodically, the UAM Funds' board reviews these arrangements to ensure that
the fees paid are appropriate for the services performed. The fund does 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.
UAM Fund Distributors, Inc., the fund's principal underwriter, may participate
in arrangements with selling dealers where the selling dealer waives its right
to distribution or shareholder servicing fees for selling fund shares or
servicing shareholder accounts. These arrangements typically are intended to
avoid
19
<PAGE>
duplicate payment of fees where the selling dealers transactions are
through an omnibus account with a different clearing broker, and that broker
is entitled to receive distribution and/or servicing fee from the fund.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with respect
to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
20
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the
financial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a single
share. The total returns in the table represent the rate that an investor
would have earned on an investment in the fund 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 fund,
which is available upon request by calling the UAM Funds at 1-877-826-5465.
Years Ended October 31, 2000 1999#
--------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00
Income from Investment Operations: 0.11
Net Investment Income
Net Realized and Unrealized Gain (Loss) -
Total From Investment Operations 0.11
Distributions:
Net Investment Income (0.11)
Net Realized Gain -
Total Distributions (0.11)
Net Asset Value, End of Period $ 10.00
Total Return+ 1.12%@
Ratios and Supplemental Data $866,829
Net Assets, End of Period (Thousands)
Ratio of Expenses to Average Net Assets 1.00%*
Ratio of Net Investment Income to Average Net 6.67%*
Assets
Portfolio Turnover Rate 137%
* Annualized.
# For the period from August 31, 1999 (commencement of operations) to
October 31, 1999.
@ Not annualized
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the periods indicated.
21
<PAGE>
IRA Capital Preservation Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional information.
The annual/semi-annual reports of the fund provide additional information
about its investments. In the annual report, you will also find a discussion
of the market conditions and investment strategies that significantly affected
the performance of the fund during the last fiscal year. The statement of
additional information contains additional detailed information about the fund
and is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of the statement of additional information,
shareholder reports and other information about the UAM Funds and can make
shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the statement of
additional information) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-202-942-8090. Reports and other information about the fund are available
on the EDGAR Database on the Securities and Exchange Commission's Internet
site at http://www.sec.gov. You may obtain copies of this information, after
paying a duplicating fee, by electronic request at the following E-mail
address: [email protected], or by writing the Securities and Exchange
Commission's Public Reference Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-5683.
22
<PAGE>
PART B
UAM FUNDS TRUST
The statement of additional information for IRA Capital Preservation Portfolio
is included in this Post-Effective Amendment No. 45 to Registration Statement,
filed on December 29, 2000.
The statements of additional information for the following portfolios are
contained in Post-Effective Amendment No. 44 to the Registration Statement,
filed August 28, 2000:
. BHM&S Total Return Bond Portfolio
. Cambiar Opportunity Portfolio
. Chicago Asset Management Intermediate Bond Portfolio and Chicago Asset
Management Value/Contrarian Portfolio
. Clipper Focus Portfolio
. MJI International Equity Portfolio
. Pell Rudman Mid-Cap Growth Portfolio
. PIC Twenty Portfolio
. TJ Core Equity Portfolio
. Sirach Growth II Portfolio
. TS&W International Octagon Portfolio
The statement of additional information for FPA Crescent Portfolio is contained
in Post-Effective Amendment No. 43, filed on July 31, 2000.
The statement of additional information for Heitman Real Estate Portfolio is
contained in Post-Effective Amendment No. 42 to this Registration Statement,
filed on April 28, 2000.
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
IRA Capital Preservation Portfolio
Institutional Class Shares
Statement of Additional Information
February __, 2001
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the prospectus of the Fund dated
February __, 2001, as supplemented from time to time. You may obtain the
Fund's prospectus by contacting the UAM Funds at the address listed above.
<PAGE>
Table Of Contents
Description of Permitted Investments................................1
Borrowing..........................................................1
Debt Securities....................................................1
Derivatives........................................................7
Equity Securities.................................................15
Foreign Securities................................................17
Investment Companies..............................................20
Repurchase Agreements.............................................21
Restricted Securities.............................................21
Securities Lending................................................21
Short Sales.......................................................21
When Issued Transactions..........................................22
Wrapper Agreements................................................22
Investment Policies of the FUND....................................26
Fundamental Policies..............................................26
Non-Fundamental Policies..........................................27
Management of the Company..........................................27
Board Members.....................................................28
Officers..........................................................29
Principal Shareholders.............................................29
Investment Advisory and Other Services.............................30
Investment Adviser................................................30
Distributor.......................................................31
Shareholder Servicing Arrangements................................31
Administrative Services...........................................32
Custodian.........................................................33
Independent Accountants...........................................33
Code of Ethics....................................................33
Brokerage Allocation and Other Practices...........................34
Selection of Brokers..............................................34
Simultaneous Transactions.........................................34
Brokerage Commissions.............................................34
Capital Stock and Other Securities.................................35
Purchase, Redemption and Pricing of Shares.........................37
Net Asset Value Per Share.........................................37
Purchase of Shares................................................37
Redemption of Shares..............................................38
Exchange Privilege................................................40
Transfer Of Shares................................................40
Performance Calculations...........................................40
Total Return......................................................40
Yield.............................................................41
Comparisons.......................................................41
Financial Statements...............................................42
Glossary...........................................................42
Bond Ratings.......................................................43
Moody's Investors Service, Inc....................................43
Standard & Poor's Ratings Services................................45
Duff & Phelps Credit Rating Co....................................47
Fitch IBCA Ratings................................................48
Comparative Benchmarks.............................................50
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies. This
SAI describes each of these investments/strategies and their risks. The Fund
may not notify shareholders before employing new strategies, unless it expects
such strategies to become principal strategies. You can find more information
concerning the limits on the ability of the Fund to use these investments in
"Investment Policies of the Fund?"
BORROWING
--------------------------------------------------------------------------------
The Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into reverse
repurchase agreements, in amounts up to 331/3% of its total assets
(including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone for
temporary purposes;
. It may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the extent
permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss. To
mitigate the risks of leverage, the Fund will limit the amount it may borrow
to not more than 33 1/3% of its total assets, taken at market value. In
addition, the Fund will only borrow from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares.
The Fund will not purchase securities while borrowings are outstanding except
to exercise prior commitments and to exercise subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities include
treasury notes, which have initial maturities of one to ten years and treasury
bonds, which have initial maturities of at least ten years and certain types
of mortgage-backed securities that are described under "Mortgage-Backed
Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
backed treasury and agency securities in detail in "Mortgage-Backed
Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities.
Unlike treasury securities, the full faith and credit of the U.S. government
generally do not back agency securities. Agency securities are typically
supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the obligations
of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation by investors,
the corporation promises to pay investors interest, and repay the principal
amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a mortgage-
backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. The adviser will consider
such insurance and guarantees and the creditworthiness of the issuers thereof
in determining whether a mortgage-related security meets its investment
quality standards. It is possible that the private insurers or guarantors will
not meet their obligations under the insurance policies or guarantee
arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls within
the Department of Housing and Urban Development. Securities issued by GNMA are
considered the equivalent of treasury securities and are backed by the full
faith and credit of the U.S. government. 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 Fund shares. To buy GNMA securities, the Fund may have to pay a
premium over the maturity value of the underlying mortgages, which the Fund
may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Securities issued by FNMA are agency securities,
which means FNMA, but not the U.S. government, guarantees their timely payment
of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA,
2
<PAGE>
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. For example, payments of
interest and principal are more frequent (usually monthly) and their interest
rates are sometimes adjustable. In addition, 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 Fund may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other than
mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. Due
to the quantity of vehicles involved and requirements under state laws, asset-
backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund 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.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest monthly and have a
more focused range of principal payment dates than pass-through securities.
While whole mortgage loans may collateralize CMOs, mortgage-backed securities
guaranteed by GNMA, FHLMC, or FNMA and their income streams more typically
collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund 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 Fund 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 Fund
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 Fund may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1 to
270 days issued by banks, corporations and other borrowers. Such investments
are unsecured and usually discounted. The Fund 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
4
<PAGE>
outstanding unsecured debt issue rated A or better by Moody's or by S&P. See
"Bond Ratings" for a description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of the interest and the remaining principal. In extreme cases,
one class will receive all of the interest ("interest only" or "IO" class)
while the other class will receive the entire principal sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. The Fund's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest
payments ("coupons") separated from the underlying principal ("corpus") by
their holder, typically a custodian bank or investment brokerage firm. Once
the holder of the security has stripped or separated corpus and coupons, it
may sell each component separately. The principal or corpus is then sold at a
deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. Typically, the coupons are sold separately or
grouped with other coupons with like maturity dates and sold bundled in such
form. The underlying treasury security is held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are owned ostensibly by the bearer or holder thereof), in
trust on behalf of the owners thereof. Purchasers of stripped obligations
acquire, in effect, discount obligations that are economically identical to
the zero coupon securities that the Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," the Fund may record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
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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.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of the
assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or a fund that invests in debt securities, to changes in
interest rates. It measures sensitivity more accurately than maturity because
it takes into account the time value of cash flows generated over the life of
a debt security. Future interest payments and principal payments are
discounted to reflect their present value and then are multiplied by the
number of years they will be received to produce a value expressed in years --
the duration. Effective duration takes into account call features and sinking
fund prepayments that may shorten the life of a debt security.
An effective duration of 4 years, for example, would suggest that for each 1%
reduction in interest rates at all maturity levels, the price of a security is
estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities, which
may cause your share price to fall. Lower rates motivate people to pay off
mortgage-backed and asset-backed securities earlier than expected. The Fund
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 Fund. If left unattended,
drifts in the average maturity of the Fund can have the unintended effect of
increasing or reducing the effective duration of the fund, which may adversely
affect the expected performance of the Fund.
Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity
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of the Fund to rising rates and its potential for price declines.
Extending the average life of a mortgage-backed security increases the risk of
depreciation due to future increases in market interest rates. For these
reasons, mortgage-backed securities may be less effective than other types of
U.S. government securities as a means of "locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer higher
yields than Treasury securities because their payment of interest and complete
repayment of principal is less certain. The credit rating or financial
condition of an issuer may affect the value of a debt security. Generally,
the lower the quality rating of a security, the greater the risks that the
issuer will fail to pay interest and return principal. To compensate investors
for taking on increased risk, issuers with lower credit ratings usually offer
their investors a higher "risk premium" in the form of higher interest rates
above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment
to this "risk premium." If an issuer's outstanding debt carries a fixed
coupon, adjustments to the risk premium must occur in the price, which effects
the yield to maturity of the bond. If an issuer defaults or becomes unable to
honor its financial obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause the Fund 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 Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation of
market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a Fund 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 Fund are not obligated to dispose of securities whose
issuers subsequently are in default or which are downgraded below the above-
stated ratings.
DERIVATIVES
--------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless otherwise stated
in the Fund's prospectus, the Fund may use derivatives to gain exposure to
various markets in a cost efficient manner, to reduce transaction costs or to
remain fully invested. The Fund may also invest in derivatives to protect it
from broad fluctuations in market prices, interest rates or foreign currency
exchange rates (a practice known as "hedging"). When hedging is successful,
the Fund 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
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could be used to control the exposure of the Fund to market fluctuations, the
use of derivatives may be a more effective means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party sells
and the other party agrees to buy a specified amount of a financial instrument
at an agreed upon price and time. The financial instrument underlying the
contract may be a stock, stock index, bond, bond index, interest rate, foreign
exchange rate or other similar instrument. Agreeing to buy the underlying
financial information is called buying a futures contract or taking a long
position in the contract. Likewise, agreeing to sell the underlying financial
instrument is called selling a futures contract or taking a short position in
the contract.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to pay
for or deliver the underlying financial instrument until some future date (the
delivery date). Contract markets require both the purchaser and seller to
deposit "initial margin" with a futures broker, known as a futures commission
merchant or custodian bank, when they enter into the contract. Initial margin
deposits are typically equal to a percentage of the contract's value. After
they open a futures contract, the parties to the transaction must compare the
purchase price of the contract to its daily market value. If the value of the
futures contract changes in such a way that a party's position declines, that
party must make additional "variation margin" payments so that the margin
payment is adequate. On the other hand, the value of the contract may change
in such a way that there is excess margin on deposit, possibly entitling the
party that has a gain to receive all or a portion of this amount. This
process is known as "marking to the market."
Although the actual terms of a futures contract calls for the actual delivery
of and payment for the underlying security, in many cases the parties may
close the contract early by taking an opposite position in an identical
contract. If the sale price upon closing out the contract is less than the
original purchase price, the person closing out the contract will realize a
loss. If the sale price upon closing out the contract is more that the
original purchase price, the person closing out the contract will realize a
gain. The opposite is also true. If the purchase price upon closing out the
contract is more than the original sale price, the person closing out the
contract will realize a loss. If the purchase price upon closing out the
contract is less than the original sale price, the person closing out the
contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
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 Fund 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
fund pays the current market price for the option (known as the "option
premium").
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The Fund 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
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying securities decreased below the exercise price sufficiently
to cover the premium and transaction costs. However, if the price of the
underlying instrument does not fall enough to offset the cost of purchasing
the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the Fund obtain the right
to purchase, rather than sell, the underlying instrument at the option's
strike price. The Fund would normally purchase call options in anticipation of
an increase in the market value of securities it owns or wants to buy. The
Fund 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 Fund 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 Fund 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 Fund
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 Fund 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 Fund 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 Fund 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 Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the Fund
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 Fund 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 Fund 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 Fund would expect the option to expire and the
premium it received to offset the decline of the security's value. However,
the Fund 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 Fund is permitted only to write covered options. At the time of selling
the call option, the Fund may cover the option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser exercise
price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
. Cash or liquid securities equal to at least the market value of the optioned
securities, interest rate, foreign currency or futures contract; or
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. In the case of an index, the portfolio of securities that corresponds to the
index.
At the time of selling a put option, the Fund may cover the put option by:
. 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 Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund 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 Fund 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 Fund 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 Fund would retain the option premium, which would offset, in part, any
decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if the market price declines, the Fund
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 Fund.
Combined Positions
The Fund 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 Fund 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 Fund 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
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substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded only on exchanges regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
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 Fund 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 Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security
values caused by other factors. The Fund could also hedge the position by
selling another currency expected to perform similarly to the currency in
which the Fund'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 Fund 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 Fund 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 Fund 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 Fund 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,
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the Fund may have to sell on the spot market some of the foreign currency it
received upon the sale of a security if the market value of such security
exceeds the amount of foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the
cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
amount on which the cash flows are calculated is called the notional amount.
Swaps are individually negotiated and structured to include exposure to a
variety of different types of investments or market factors, such as interest
rates, foreign currency rates, mortgage securities, corporate borrowing rates,
security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund 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 Fund. If a swap agreement calls for payments by the Fund, the Fund
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 Fund 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 Fund 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 Fund's gains
or losses. In order to reduce the risk associated with leveraging, the Fund
may cover its current obligations under swap agreements according to
guidelines established by the SEC. If the Fund 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 Fund's accrued obligations under the swap agreement
over the accrued amount the Fund are entitled to receive under the agreement.
If the fund 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 Fund'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 Fund 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, the Fund could lose money by
investing in an interest rate swap if interest rates change adversely. For
example, if the Fund enter into a swap where it agrees to exchange a floating
rate of interest for a fixed rate of interest, the Fund may have to pay more
money than it receives. Similarly, if the Fund enter into a swap where it
agrees to exchange a fixed rate of interest for a floating rate of interest,
the Fund 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. The Fund may
enter into a currency swap when it has one currency and desires a different
currency. Typically the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify the Fund'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
Fund holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund'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 Fund are 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 Fund's prediction of interest and currency rates,
market value, volatility or other economic factors is incorrect, the Fund may
lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. a difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
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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 Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund'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 Fund's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange the
contract was initially traded. Although the Fund intend 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 Fund may not be able
to close out its position. In an illiquid market, the Fund may:
. have to sell securities to meet its daily margin requirements at a time when
it is disadvantageous to do so;
. have to purchase or sell the instrument underlying the contract;
. not be able to hedge its investments; and
. not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. an exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. the facilities of the exchange may not be adequate to handle current trading
volume;
. equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or
. investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, the
Fund may lose money by investing in derivatives. For example, if the Fund 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
Fund could be required to sell the security upon exercise at a price below the
current market price. Similarly, if the Fund 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 Fund 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
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derivative at the end of trading on the previous day. Once the price of a
derivative reaches this value, the Fund 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 Fund and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund 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 respects, preferred stocks
are subordinated to the liabilities of the issuer. Unlike common stocks,
preferred stocks are generally not entitled to vote on corporate matters.
Types of preferred stocks include adjustable-rate preferred stock, fixed
dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the issuer's
common stock at the Fund's option during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). A
convertible security is generally a fixed income security that is senior to
common stock in an issuer's capital structure, but is usually subordinated to
similar non-convertible securities. 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. In general, the market value of
a convertible security is at least the higher of its "investment value' (i.e.,
its value as a fixed income security) or its "conversion value" (i.e., its
value upon conversion into its underlying common stock).
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. The price of a convertible security tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as
the market value of the underlying common stock declines.
A synthetic convertible security is a combination investment in which the Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. Government securities and (ii) call options or warrants
on the common stock of the same or different issuer with some or all of the
anticipated interest income from the associated debt obligation that is earned
over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
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opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. A synthetic convertible position has
similar investment characteristics, but may differ with respect to credit
quality, time to maturity, trading characteristics, and other factors. Because
the Fund will create synthetic convertible positions only out of high grade
fixed income securities, the credit rating associated with the Fund's
synthetic convertible investments is generally expected to be higher than that
of the average convertible security, many of which are rated below high grade.
However, because the options used to create synthetic convertible positions
will generally have expirations between one month and three years of the time
of purchase, the maturity of these positions will generally be shorter than
average for convertible securities. Since the option component of a
convertible security or synthetic convertible position is a wasting asset (in
the sense of losing "time value" as maturity approaches), a synthetic
convertible position may lose such value more rapidly than a convertible
security of longer maturity; however, the gain in option value due to
appreciation of the underlying stock may exceed such time value loss, the
market price of the option component generally reflects these differences in
maturities, and the Adviser and applicable sub-adviser take such differences
into account when evaluating such positions. When a synthetic convertible
position "matures" because of the expiration of the associated option, the
Fund may extend the maturity by investing in a new option with longer maturity
on the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that give
the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price that
is usually higher than the market price at the time the warrant is issued.
Corporations often issue warrants to make the accompanying debt security more
attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the
value of the underlying securities, and they cease to have value if they are
not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the
investment as compared with investing the same amount in the underlying
securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits of
owning a company, such investors must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production costs;
and
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. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
Investors in small and medium-sized companies typically take on greater risk
and price volatility than they would by investing in larger, more established
companies. This increased risk may be due to the greater business risks of
their small or medium size, limited markets and financial resources, narrow
product lines and frequent lack of management depth. The securities of small
and medium companies are often traded in the over-the-counter market and might
not be traded in volumes typical of securities traded on a national securities
exchange. Thus, the securities of small and medium capitalization companies
are likely to be less liquid, and subject to more abrupt or erratic market
movements, than securities of larger, more established companies.
Technology Companies
Stocks of technology companies have tended to be subject to greater volatility
than securities of companies that are not dependent upon or associated with
technological issues. Technology companies operate in various industries.
Since these industries frequently share common characteristics, an event or
issue affecting one industry may significantly influence other, related
industries. For example, technology companies may be strongly affected by
worldwide scientific or technological developments and their products and
services may be subject to governmental regulation or adversely affected by
governmental policies.
FOREIGN SECURITIES
--------------------------------------------------------------------------------
Types of Foreign Securities
Foreign securities are debt and equity securities that are traded in markets
outside of the United States. The markets in which these securities are
located can be developed or emerging. People can invest in foreign securities
in a number of ways:
. They can invest directly in foreign securities denominated in a foreign
currency;
. They can invest in American Depositary Receipts, European Depositary
Receipts and other similar global instruments; and
. They can invest in investment funds.
American Depositary Receipts (ADRs)
American Depositary Receipts (ADRs) are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or
elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities. EDRs are similar to ADRs, except that they are
typically issued by European Banks or trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank for
Reconstruction and Development (World Bank) and the International Finance
Corporation would consider to be an emerging or developing country. Typically,
emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP)
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than more developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and traded
on their stock exchanges through investment funds that they have specifically
authorized. Investments in these investment funds are subject to the
provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
investment funds will bear not only their proportionate share of the expenses
of the UAM Fund (including operating expenses and the fees of the adviser),
but also will bear indirectly bear similar expenses of the underlying
investment funds. In addition, these investment funds may trade at a premium
over their net asset value.
Risks of Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Political and Economic Factors
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. Listed below are some of the more important political and
economic factors that could negatively affect an investment in foreign
securities:
. The economies of foreign countries may differ from the economy of the United
States in such areas as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, budget deficits and
national debt;
. Foreign governments sometimes participate to a significant degree, through
ownership interests or regulation, in their respective economies. Actions by
these governments could significantly influence the market prices of
securities and payment of dividends;
. The economies of many foreign countries are dependent on international trade
and their trading partners and they could be severely affected if their
trading partners were to enact protective trade barriers and economic
conditions;
. The internal policies of a particular foreign country may be less stable
than in the United States. Other countries face significant external
political risks, such as possible claims of sovereignty by other countries
or tense and sometimes hostile border clashes; and
. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or control
foreign investments in its securities markets. These restrictions could
limit the Fund ability to invest in a particular country or make it very
expensive for the Fund to invest in that country. Some countries require
prior governmental approval, limit the types or amount of securities or
companies in which a foreigner can invest. Other countries may restrict the
ability of foreign investors to repatriate their investment income and
capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign countries more difficult and less reliable than domestic
companies.
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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. Foreign stock markets:
. are generally more volatile than, and not as developed or efficient as,
those in the United States;
. have substantially less volume;
. trade securities that tend to be less liquid and experience rapid and
erratic price movements;
. have generally higher commissions and are subject to set minimum rates, as
opposed to negotiated rates;
. employ trading, settlement and custodial practices less developed than those
in U.S. markets; and
. may have different settlement practices, which may cause delays and increase
the potential for failed settlements.
Foreign Currency Risk
While the UAM Fund denominate their net asset value in United States dollars,
the securities of foreign companies are frequently denominated in foreign
currencies. Thus, a change in the value of a foreign currency against the
United States dollar will result in a corresponding change in value of
securities denominated in that currency. Some of the factors that may impair
the investments denominated in a foreign currency are:
. It may be expensive to convert foreign currencies into United States dollars
and vice versa;
. Complex political and economic factors may significantly affect the values
of various currencies, including United States dollars, and their exchange
rates;
. Government intervention may increase risks involved in purchasing or selling
foreign currency options, forward contracts and futures contracts, since
exchange rates may not be free to fluctuate in response to other market
forces;
. There may be no systematic reporting of last sale information for foreign
currencies or regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis;
. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million) where
rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income the Fund receive from its investments. The Fund do 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;
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. Present greater risks of nationalization of businesses, restrictions on
foreign ownership and prohibitions on the repatriation of assets;
. Offer less protection of property rights than more developed countries; and
. Have economies that are based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer
from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
The Euro
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that began on January 1, 1999 and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies became denominations of the
Euro at fixed rates according to practices prescribed by the European Monetary
Institute and the Euro became available as a book-entry currency. On or about
that date, member states began conducting financial market transactions in
Euros and redenominating many investments, currency balances and transfer
mechanisms into Euros. The Fund also anticipates pricing, trading, settling
and valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, the Fund expect the conversion to the Euro
to impact investments in countries that adopt the Euro in all aspects of the
investment process, including trading, foreign exchange, payments,
settlements, cash accounts, custody and accounting. Some of the uncertainties
surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by the Fund. Like other shareholders, the Fund would pay
its proportionate share of those fees. Consequently, shareholders of the Fund
would pay not only the management fees of the Fund, but also the management
fees of the investment company in which the Fund invests. The Fund may invest
up to 10% of its total assets in the securities of other investment companies,
but may not invest more than 5% of its total assets in the securities of any
one investment company or acquire more than 3% of the outstanding securities
of any one investment company.
The SEC has granted an order that allows Fund in the UAM Complex to invest the
greater of 5% of its total assets or $2.5 million in the UAM DSI Money Market
Portfolio, provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The Fund's adviser waives any fees it earns on the assets of the Fund that
is invested in the UAM DSI Money Market Portfolio.
The Fund will bear expenses of the UAM DSI Money Market Portfolio on the same
basis as all of its other shareholders.
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REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
In a repurchase agreement, an investor agrees to buy a security (underlying
security) from a securities dealer or bank that is a member of the Federal
Reserve System (counter-party). At the time, the counter-party agrees to
repurchase the underlying security for the same price, plus interest.
Repurchase agreements are generally for a relatively short period (usually not
more than 7 days). The Fund normally use repurchase agreements to earn income
on assets that are not invested.
When the Fund enter into a repurchase agreement it will:
. Pay for the underlying securities only upon physically receiving them or
upon evidence of their receipt in book-entry form; and
. Require the counter party to add to the collateral whenever the price of the
repurchase agreement rises above the value of the underlying security (i.e.,
it will require the borrower to "mark to the market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for sale
to the general public. The Fund may also purchase shares that are not
registered for sale to the general public but which are eligible for resale to
qualified institutional investors under Rule 144A of the Securities Act of
1933. Under the supervision of the Board, the Adviser determines the
liquidity of such investments by considering all relevant factors. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities may not be treated as illiquid securities for purposes
of the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the Fund
or less than what may be considered the fair value of such securities.
SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund 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. If the Fund lend 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 Fund
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 Fund lend securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, the
Fund 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.
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SHORT SALES
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Description of Short Sales
Selling a security short involves an investor sale of 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.
The Fund 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 Fund replace the
borrowed security. Likewise, the Fund can profit if the price of the security
declines between those dates.
To borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The Fund will incur transaction
costs in effecting short sales. The Fund'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 Fund may be required to pay in connection with a
short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no extra
cost. The Fund will incur transaction costs to open, maintain and close short
sales against the box.
Restrictions on Short Sales
The Fund 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 Fund net assets.
. The market value of the securities of any single issuer that have been sold
short by the Fund would exceed the two percent (2%) of the value of the
Fund's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever the Fund sell 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 Fund are 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 TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction,
the Fund contract to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or deliver securities
until a later date. Typically, no income accrues on securities the Fund have
committed to purchase before the securities are delivered, although the Fund
may earn income on securities it has in a segregated account. The
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<PAGE>
Fund will only enter into these types of transactions with the intention of
actually acquiring the securities, but may sell them before the settlement
date.
The Fund would use when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When the Fund engage in when-issued, delayed-delivery
and forward delivery transactions, it relies on the other party to consummate
the sale. If the other party fails to complete the sale, the Fund 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 Fund assume the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date, these
risks are in addition to the risks associated with its other investments.
WRAPPER AGREEMENTS
--------------------------------------------------------------------------------
Wrapper agreements are used in order to stabilize the NAV of the fund. Each
wrapper agreement obligates the wrapper provider to maintain the "book value"
of a portion of the fund's assets (covered assets) up to a specified maximum
dollar amount, upon the occurrence of certain specified events. Generally, the
book value of the covered assets is their (1) purchase price plus interest on
the covered assets accreted at a rate specified in the wrapper agreement
(crediting rate) less an adjustment to reflect any defaulted securities. The
crediting rate used in computing book value is calculated by a formula
specified in the wrapper agreement and is adjusted periodically. In the case
of wrapper agreements purchased by the fund, the crediting rate is the actual
interest earned on the covered assets, or an index-based approximation
thereof, plus or minus an adjustment for an amount receivable from or payable
to the wrapper provider based on fluctuations in the market value of the
covered assets. As a result, while the crediting rate will generally reflect
movements in the market rates of interest, it may at any time be more or less
than these rates or the actual interest income earned on the covered assets.
The crediting rate may also be impacted by defaulted securities and by
increases and decreases of the amount of covered assets as a result of
contributions and withdrawals tied to the purchase and redemption of shares.
In no event will the crediting rate fall below zero percent under the wrapper
agreements entered into by the fund.
Wrapper providers are banks, insurance companies and other financial
institutions. The number of wrapper providers has been increasing in recent
years. As of April 1998, there were approximately fifteen wrapper providers
rated in one of the top two long-term rating categories by Moody's, S&P or
another NRSRO. The cost of wrapper agreements is typically 0.10% to 0.25% per
dollar of covered assets per annum.
Generally, under the terms of a wrapper agreement, if the market value (plus
accrued interest on the underlying securities) of the covered assets is less
than their book value at the time the covered assets are liquidated in order
to provide proceeds for withdrawals of fund interests resulting from
redemptions of shares by IRA Owners, the wrapper provider becomes obligated to
pay to the fund the difference. Conversely, the fund becomes obligated to make
a payment to the wrapper provider if it is necessary for the fund to liquidate
covered assets at a price above their book value in order to make withdrawal
payments. (Withdrawals generally will arise when the fund must pay
shareholders who redeem shares.) Because it is anticipated that each wrapper
agreement will cover all covered assets up to a specified dollar amount, if
more than one wrapper provider becomes obligated to pay to the fund the
difference between book value and market value (plus accrued interest on the
underlying securities), each wrapper provider will be obligated to pay an
amount as designated by their contract according to the withdrawal hierarchy
specified by the Adviser in the wrapper agreement. Thus, the fund will not
have the option of choosing which wrapper agreement to draw upon in any such
payment situation.
The terms of the wrapper agreements vary concerning when these payments must
actually be made between the fund and the wrapper provider. In some cases,
payments may be due upon disposition of covered assets; other wrapper
agreements provide for settlement of payments only upon termination of the
wrapper agreement or total liquidation of the covered assets.
The fund expects that the use of wrapper agreements by the fund will under
most circumstances permit the fund to maintain a constant NAV and to pay
dividends that will generally reflect over time both the interest income of,
and
23
<PAGE>
market gains and losses on, the covered assets held by the fund less the
expenses of the fund. However, there can be no guarantee that the fund will
maintain a constant NAV or that any shareholder will realize the same
investment return as might be realized by investing directly in the fund
assets other than the wrapper agreements. For example, a default by the issuer
of a fund Security or a wrapper provider on its obligations might result in a
decrease in the value of the fund assets and, consequently, the shares. The
wrapper agreements generally do not protect the fund from loss if an issuer of
fund securities defaults on payments of interest or principal. Additionally, a
fund shareholder may realize more or less than the actual investment return on
the fund Securities. Furthermore, there can be no assurance that the fund will
be able at all times to obtain wrapper agreements. Although it is the current
intention of the fund to obtain such agreements covering all of its assets
(with the exceptions noted), the fund may elect not to cover some or all of
its assets with wrapper agreements should wrapper agreements become
unavailable or should other conditions such as cost, in the Adviser's sole
discretion, render their purchase inadvisable.
If, in the event of a default of a wrapper provider, the fund were unable to
obtain a replacement wrapper agreement, participants redeeming shares might
experience losses if the market value of the fund's assets no longer covered
by the wrapper agreement is below book value. The combination of the default
of a wrapper provider and an inability to obtain a replacement agreement could
render the fund and the fund unable to achieve their investment objective of
maintaining a stable NAV. If the governing board determines that a wrapper
provider is unable to make payments when due, that Board may assign a fair
value to the wrapper agreement that is less than the difference between the
book value and the market value (plus accrued interest on the underlying
securities) of the applicable covered assets and the fund might be unable to
maintain NAV stability.
Some wrapper agreements require that the fund maintain a specified percentage
of its total assets in short-term investments (liquidity reserve). These
short-term investments must be used for the payment of withdrawals from the
fund and fund expenses. To the extent the liquidity reserve falls below the
specified percentage of total assets, the fund is obligated to direct all net
cash flow to the replenishment of the liquidity reserve. The obligation to
maintain a liquidity reserve may result in a lower return for the fund than if
these funds were invested in longer-term debt securities. The liquidity
reserve required by all wrapper agreements is not expected to exceed 2-10% of
the fund's total assets.
Wrapper agreements may also require that the covered assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The fund will purchase wrapper agreements whose
criteria in this regard are consistent with the fund's investment objective
and policies.
Wrapper agreements may also require the disposition of securities whose
ratings are downgraded below a certain level. This may limit the fund's
ability to hold such downgraded securities.
Wrapper agreements are structured with a number of different features. Wrapper
agreements purchased by the fund are of three basic types: (1) non-
participating, (2) participating and (3) "hybrid." In addition, the wrapper
agreements will either be of fixed-maturity or open-end maturity
("evergreen"). The fund enters into particular types of wrapper agreements
depending upon their respective cost to the fund and the wrapper provider's
creditworthiness, as well as upon other factors. Under most circumstances, it
is anticipated that the fund will enter into participating wrapper agreements
of open-end maturity and hybrid wrapper agreements.
Types of Wrapper Agreements
Non-Participating Wrapper Agreement
Under a non-participating wrapper agreement, the wrapper provider becomes
obligated to make a payment to the fund whenever the fund sells covered assets
at a price below book value to meet withdrawals of a type covered by the
wrapper agreement (a "Benefit Event"). Conversely, the fund becomes obligated
to make a payment to the wrapper provider whenever the fund sells covered
assets at a price above their book value in response to a Benefit Event. In
neither case is the crediting rate adjusted at the time of the Benefit Event.
Accordingly, under this type of wrapper agreement, while the fund is protected
against decreases in the market value of the covered assets below book value,
it does not realize increases in the market value of the covered assets above
book value; those increases are realized by the wrapper providers.
24
<PAGE>
Participating Wrapper Agreement
Under a participating wrapper agreement, the obligation of the wrapper
provider or the fund to make payments to each other typically does not arise
until all of the covered assets have been liquidated. Instead of payments
being made on the occurrence of each Benefit Event, these obligations are a
factor in the periodic adjustment of the crediting rate.
Hybrid Wrapper Agreement
Under a hybrid wrapper agreement, the obligation of the wrapper provider or
the fund to make payments does not arise until withdrawals exceed a specified
percentage of the covered assets, after which time payment covering the
difference between market value and book value will occur. For example, a
50/50 hybrid wrap on $100mm of securities would provide for a participating
wrapper be in place for the first $50 million of withdrawals which might lead
to adjustments in the crediting rate, with a non-participating wrapper in
place for the next $50 million of withdrawals, with those withdrawals not
creating any adjustment to the crediting rate.
Fixed-Maturity Wrapper Agreement
A fixed-maturity wrapper agreement terminates at a specified date, at which
time settlement of any difference between book value and market value of the
covered assets occurs. A fixed-maturity wrapper agreement tends to ensure that
the covered assets provide a relatively fixed rate of return over a specified
period of time through bond immunization, which targets the duration of the
covered assets to the remaining life of the wrapper agreement.
Evergreen Wrapper Agreement
An evergreen wrapper agreement has no fixed maturity date on which payment
must be made, and the rate of return on the covered assets accordingly tends
to vary. Unlike the rate of return under a fixed-maturity wrapper agreement,
the rate of return on assets covered by an evergreen wrapper agreement tends
to more closely track prevailing market interest rates and thus tends to rise
when interest rates rise and fall when interest rates fall. An Evergreen
wrapper agreement may be converted into a fixed-maturity wrapper agreement
that will mature in the number of years equal to the duration of the covered
assets.
Additional Risks of Wrapper Agreements
In the event of the default of a wrapper provider, the fund could potentially
lose the book value protections provided by the wrapper agreements with that
wrapper provider. However, the impact of such a default on the fund as a whole
may be minimal or non-existent if the market value of the covered assets
thereunder is greater than their book value at the time of the default,
because the wrapper provider would have no obligation to make payments to the
fund under those circumstances. In addition, the fund may be able to obtain
another wrapper agreement from another wrapper provider to provide book value
protections with respect to those covered assets. The cost of the replacement
wrapper agreement might be higher than the initial wrapper agreement due to
market conditions or if the market value (plus accrued interest on the
underlying securities) of those covered assets is less than their book value
at the time of entering into the replacement agreement. Such cost would also
be in addition to any premiums previously paid to the defaulting wrapper
provider. If the fund were unable to obtain a replacement wrapper agreement,
participants redeeming shares might experience losses if the market value of
the fund's assets no longer covered by the wrapper agreement is below book
value. The combination of the default of a wrapper provider and an inability
to obtain a replacement agreement could render the fund and the fund unable to
achieve its investment objective of seeking to maintain a stable NAV.
With respect to payments made under the wrapper agreements between the fund
and the wrapper provider, some wrapper agreements, as noted in the fund's
prospectus, provide that payments may be due upon disposition of the covered
assets, while others provide for payment only upon the total liquidation of
the Covered assets or upon termination of the wrapper agreement. In none of
these cases, however, would the terms of the wrapper agreements specify which
fund securities are to be disposed of or liquidated. Moreover, because it is
anticipated that each wrapper agreement will cover all covered assets up to a
specified dollar amount, if more than one wrapper provider becomes obligated
to pay to the fund the difference between book value and market value (plus
accrued interest on the underlying securities), each wrapper provider will pay
a pro-rata amount in proportion to the maximum dollar amount of coverage
provided. Thus, the fund will not have the option of choosing which wrapper
agreement to draw upon in any such
25
<PAGE>
payment situation. Under the terms of most wrapper agreements, the wrapper
provider will have the right to terminate the wrapper agreement in the event
that material changes are made to the fund's investment objectives or
limitations or to the nature of the fund's operations. In such event, the fund
may be obligated to pay the wrapper provider termination fees. The fund will
have the right to terminate a wrapper agreement for any reason. Such right,
however, may also be subject to the payment of termination fees. In the event
of termination of a wrapper agreement or conversion of an Evergreen Wrapper
Agreement to a fixed maturity, some wrapper agreements may require that the
duration of some portion of the fund's securities be reduced to correspond to
the fixed maturity or termination date and that such securities maintain a
higher credit rating than is normally required, either of which requirements
might adversely affect the return of the fund.
INVESTMENT POLICIES OF THE FUND
The Fund will determine investment limitation percentages (with the exception
of a limitation relating to borrowing) immediately after and as a result of
its acquisition of such security or other asset. Accordingly, the Fund 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 that the
Fund cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will not:
. Make any investment inconsistent with its classification as a diversified
series of an open-end investment company under the 1940 Act. This
restriction does not, however, apply to any fund classified as a non-
diversified series of an open-end investment company under the 1940 Act.
. Borrow money, except to the extent permitted by applicable law, as amended
and interpreted or modified from time to time by any regulatory authority
having jurisdiction and the guidelines set forth in the Fund's prospectus
and statement of additional information as they may be amended from time to
time.
. Issue senior securities, except to the extent permitted by applicable law,
as amended and interpreted or modified from time to time by any regulatory
authority having jurisdiction.
. Underwrite securities of other issuers, except insofar as a fund may
technically be deemed to be an underwriter under the Securities Act of 1933
in connection with the purchase or sale of its portfolio securities.
. Concentrate its investments in the securities of one or more issuers
conducting their principal business activities in the same industry (other
than securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities).
. Purchase or sell real estate, except (1) to the extent permitted by
applicable law, as amended and interpreted or modified from time to time by
any regulatory authority having jurisdiction, (2) that a fund may invest in,
securities of issuers that deal or invest in real estate and (3) that the
Fund may purchase securities secured by real estate or interests therein.
. Purchase or sell commodities or contracts on commodities except that the
Fund may engage in financial futures contracts and related options and
currency contracts and related options and may otherwise do so in accordance
with applicable law and without registering as a commodity pool operator
under the Commodity Exchange Act.
. Make loans to other persons, except that the Fund may lend its portfolio
securities in accordance with applicable law, as amended and interpreted or
modified from time to time by any regulatory authority having jurisdiction
and
26
<PAGE>
the guidelines set forth in a fund's prospectus and statement of additional
information as they may be amended from time to time. The acquisition of
investment securities or other investment instruments shall not be deemed to
be the making of a loan.
NON-FUNDAMENTAL POLICIES
--------------------------------------------------------------------------------
The following limitations are non-fundamental, which means the Fund may change
them without shareholder approval. The Fund may:
. purchase and sell currencies or securities on a when-issued, delayed
delivery or forward-commitment basis.
. purchase and sell foreign currency, purchase options on foreign currency and
foreign currency exchange contracts.
. invest in the securities of foreign issuers.
. notwithstanding any fundamental policy or other limitation, invest all of
its investable assets in securities of a single open-end management
investment company with substantially the same investment objectives,
policies and limitations.
. invest in illiquid and restricted securities to the extent permitted by
applicable law. The Fund intends to follow the policies of the SEC as they
are adopted from time to time with respect to illiquid securities, including
(1) treating as illiquid securities that may not be disposed of in the
ordinary course of business within 7 days at approximately the value at
which the fund has valued the investment on its books; and (2) limiting its
holdings of such securities to 15% of net assets.
. purchase shares of other investment companies to the extent permitted by
applicable law.
. invest up to 10% of its total assets in the securities of other investment
companies. However, a Fund may not invest more than 5% of its total assets
in the securities of any one investment company or acquire more than 3% of
the outstanding securities of any one investment company.
. write covered call options and may buy and sell put and call options.
. enter into repurchase agreements.
. lend portfolio securities to registered broker-dealers or other
institutional investors. These loans may not exceed 33 1/3% of the fund's
total assets taken at market value. In addition, a Fund must receive at
least 100% collateral.
. sell securities short and engage in short sales "against the box."
. enter into swap transactions.
Management of the Company
The Board manages the business of the Company. The Board elects officers to
manager the day-to-day operations of the company and to execute policies the
Board has formulated. The Company pays each Independent Trustee the following
fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events per
year.
27
<PAGE>
In addition, the Company reimburses each Independent Trustee for travel and
other expenses incurred while attending board meetings. The $3,000 meeting
fee and expense reimbursements are aggregated for all of the Trustees and
allocated proportionately among all Fund in the UAM Complex. The Company does
not pay its Interested Trustees or officers for their services as Trustees or
officers.
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of __
Funds. Those people with an asterisk (*) beside their name are "interested
persons" of the Company 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 Funds in the UAM Funds Complex.
However, the Company does not believe that the relationship is a material
business relationship, and, therefore, does not consider him to be an
interested Board member. If these circumstances change, the Board will
determine whether any action is required to change the composition of the
Board.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
NAME, ADDRESS, DATE OF FROM COMPANY AS OF UAM FUNDS COMPLEX AS OF
BIRTH PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS 10/31/00 10/31/00
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment
RR2 Box 700 Management Company, Inc. and Great Island
Center Harbor, NH 03226 Investment Company, Inc. (investment management).
1/26/29 From 1988 to 1993, Mr. Bennett was President of
Bennett Management Company. Mr. Bennett serves
on the Board of each Company in the UAM Funds
Complex.
-----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World
1250 24th St., NW Wildlife Fund (nonprofit), since January 1999.
Washington, DC 20037 From 1991 to 1999, Ms. Dunn was Vice President
8/14/51 for Finance and Administration and Treasurer of
Radcliffe College (Education). Ms. Dunn serves on
the Board of each Company in the UAM Funds Complex.
-----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President
10401 N. Meridian St Administration, General Counsel and Secretary
Suite 400 of Lone Star Industries Inc. (cement and ready-mix
Indianapolis, IN 46290 concrete) since March 2000. From June 1998 to
4/21/42 March 2000 he was Executive Vice President and Chief
Administrative Officer of Philip Services Corp.
(ferrous scrap processing, brokerage and industrial
outsourcing services). Mr. Humenuk was a Partner
in the Philadelphia office of the law firm
Dechert Price & Rhoads from July 1976 to June 1998.
He was also formerly a Trustee of Hofler Corp.
(manufacturer of gear grinding machines).
Mr. Humenuk serves on the Board of each Company in
the UAM Funds Complex.
-----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer
16 West Madison Street of Broventure Company, Inc., a company engaged in
Baltimore, MD 21201 the investment management business. He is also
8/5/48 Chairman of the Board of Chektec Corporation (Drugs)
and Cyber Scientific, Inc. (computer mouse company).
Mr. English serves on the Board of each Company in
the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------------
James F. Orr III* President, Chief Executive Officer and Trustee 0 0
One International Place of UAM since May 2000; Chairman and Chief Executive
Boston, MA 02110 Officer of UNUM Corporation (Insurance) from 1988 to
3/5/43 1999; Trustee of Bates College and the Committee for
Economic Development; Chairman-elect of the Board
of Trustees of the Rockefeller Foundation; Member
of The Business Roundtable, the Harvard Center for
Society, and the Health Advisory Council at the
Harvard School of Public Health; Director of the
Nashua Corporation and the National Alliance of
Business.
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
OFFICERS
-------------------------------------------------------------------------------
The following table lists the officers of the Company and provides information
regarding their present positions, date of birth, address and their principal
occupations during the past five years. The Company's officers are paid by
UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION> AGGREGATE
POSITION AGGREGATE COMPENSATION COMPENSATION FROM
NAME, ADDRESS, DATE OF WITH FROM THE FUND AS OF THE FUND COMPLEX AS OF
BIRTH FUND PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS OCTOBER 31, 2000 OCTOBER 31, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James F. Orr III* Board President, Chief Executive Officer and Trustee 0 0
One International Place Member of UAM since May 2000; Chairman and Chief
Boston, MA 02110 President Executive Officer of UNUM Corporation
3/5/43 (Insurance) from 1988 to 1999; Trustee of
Bates College and the Committee for
Economic Development; Chairman-elect of the
Board of Trustees of the Rockefeller
Foundation; Member of The Business Roundtable,
the Harvard Center for Society, and the
Health Advisory Council at the Harvard School
of Public Health; Director of the
Nashua Corporation and the National Alliance
of Business.
-----------------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM 0 0
211 Congress Street Investment Services, Inc. (financial services);
Boston, MA 02110 Senior Vice President and General Counsel of
7/31/65 UAMFSI (financial services) and UAMFDI
(broker-dealer) since April 2000; Senior Vice
President and Secretary of Signature Financial
Group, Inc. (financial services) and affiliated
broker-dealers from 1991 to 2000; Director and
Secretary of Signature Financial Group Europe,
Ltd. (financial services) from 1995 to 2000;
Secretary of the Citigroup Family of Mutual
Funds (mutual funds) from 1996 to 2000;
Secretary of the 59 Wall Street Family of
Mutual Funds (mutual funds) from 1996 to 2000.
-----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; Treasurer of the 0 0
211 Congress Street Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110 held various other offices with Fidelity
7/4/51 Investments from November 1990 to March 1995.
-----------------------------------------------------------------------------------------------------------------------------------
Theresa DelVecchio Assistant Secretary of UAMFSI (financial services) since 0 0
211 Congress Street Secretary February 1998; Secretary and Compliance Officer of
Boston, MA 02110 UAMFDI (broker-dealer) since February 2000;
12/23/63 Assistant Vice President of Scudder Kemper
Investments (financial services) from May 1992
to February 1998.
-----------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - 0 0
SEI Investments Treasurer SEI Investments; Senior Manager at
One Freedom Valley Rd. Arthur Andersen prior to 1994.
Oaks, PA 19456
12/17/63
</TABLE>
29
<PAGE>
PRINCIPAL SHAREHOLDERS
As of December 15, 2000, the following persons or organizations held of record
or beneficially 5% or more of the shares of a fund:
<TABLE>
<CAPTION>
Name and Address of Shareholder Percentage of Shares Owned Class
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 71.97% Institutional Class Shares
Reinvest Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
---------------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette 5.98& Institutional Class Shares
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2502
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding shares
of a fund may be presumed to "control" (as that term is defined in the 1940
Act) the fund. Shareholders controlling the fund could have the ability to
vote a majority of the shares of the fund on any matter requiring the approval
of shareholders of the fund. As of December 15, 2000, the directors and
officers of the Fund owned less than 1% of the outstanding shares of the fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Dwight Asset Management Company, a Delaware corporation located at 100 Bank
Street, Suite 8000, Burlington, Vermont 05401, is the investment adviser to
the fund. The adviser manages and supervises the investment of the fund's
assets on a discretionary basis. The adviser, an affiliate of United Asset
Management Corporation, has provided investment management services to
corporations, pension and profit-sharing plans, 401(k) and thrift plans since
1983. For its services, the fund pays the adviser a fee of 0.50% of its
average net assets. United Asset Management Corporation is a wholly-owned
subsidiary of Old Mutual plc, a United Kingdom based financial services group.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated in
Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to retain
control over their investment advisory decisions is necessary to allow them to
continue to provide investment management services that are intended to meet
the particular needs of their respective clients. Accordingly, after
acquisition by UAM, UAM Affiliated Firms continue to operate under their own
firm name, with their own leadership and individual investment philosophy and
approach. Each UAM Affiliated Firm manages its own business independently on a
day-to-day basis. Investment strategies employed and securities selected by
UAM Affiliated Firms are separately chosen by each of them. Several UAM
Affiliated Firms also act as investment advisers to separate series or funds
of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions the Investment
Advisory Agreement. The Company has filed the agreement with the SEC as part
of its registration statement on Form N-1A.
Service Performed by Adviser
The adviser:
. Manages the investment and reinvestment of the Fund's assets;
. Continuously reviews, supervises and administers the investment program of
the Fund; and
. Determines what portion of the Fund's assets will be invested in securities
and what portion will consist of cash.
30
<PAGE>
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence on
the part of the adviser in the performance of its obligations and duties under
the Investment Advisory Agreement, (2) reckless disregard by the adviser of
its obligations and duties under the Investment Advisory Agreement, or (3) a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services, the adviser shall not be subject to any liability
whatsoever to the Company, for any error of judgment, mistake of law or any
other act or omission in the course of, or connected with, rendering services
under the Investment Advisory Agreement.
Continuing an Investment Advisory Agreement
An Investment Advisory Agreement continues in effect for periods of one year
so long as such continuance is specifically approved at least annually by a:
. Majority of those Board Members who are not parties to the Investment
Advisory Agreement or interested persons of any such party; and
. (2) (a) majority of the Board Members or (b) a majority of the shareholders
of the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of Board
Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately terminate
if it is assigned.
Advisory Fees
For its services, the Fund pay its adviser the following annual fees, which
are expressed as a percentage of the average daily net assets of the Fund. Due
to the effect of fee waivers by the adviser, the actual percentage of average
net assets that the Fund pay in any given year may be different from the rate
set forth in its contract with the adviser. For the last three fiscal years,
the Fund paid the following in management fees to the adviser:
<TABLE>
<CAPTION>
Investment Advisory Investment Advisory Total Investment
Fees Paid Fees Paid Advisory Fees
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dwight IRA Capital Preservation Portfolio
2000
-----------------------------------------------------------------------------------------------------------------------------------
1999 $0 $410 $410
-----------------------------------------------------------------------------------------------------------------------------------
1998 N/A N/A N/A
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for the Fund of the Company. The Company
offers its shares continuously. While UAMFDI will use its best efforts to
sell shares of the Fund, it is not obligated to sell any particular amount of
shares. UAMFDI receives no compensation for its services. UAMFDI, an
affiliate of UAM, is located at 211 Congress Street, Boston, Massachusetts
02110.
SHAREHOLDER SERVICING ARRANGEMENTS
--------------------------------------------------------------------------------
UAM and each of its affiliates, may, at its own expense, compensate a Service
Agent or other person for marketing, shareholder servicing, record-keeping
and/or other services performed with respect to the Company or the Fund. 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 Fund.
31
<PAGE>
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. 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 Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of its
services under the Fund Administration Agreement. UAMFSI may, at its own
expense, 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 Company. UAMFSI will pay such people for
such employment. The Company will not incur any obligations with respect to
such people. Other expenses incurred in the operation of the Company will be
borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Company stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Company or Fund expenses.
The Fund Administration Agreement continues in effect from year to year if the
Board specifically approves such continuance every year. The Board or UAMFSI
may terminate the Fund Administration Agreement, without penalty, on not less
than ninety (90) days' written notice. The Fund Administration Agreement
automatically terminates upon its assignment by UAMFSI without the prior
written consent of the Company.
Administration and Transfer Agency Services Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administrative services calculated as follows:
. $19,500 for the first operational class; plus
32
<PAGE>
. $3,750 for each additional class; plus
. A fee calculated from the aggregate net assets of the Fund at the
following rate:
Annual Rate
-------------------------------------------------------------------------------
Dwight IRA Capital Preservation Portfolio 0.06%
2. An annual fee to UAMFSI for sub-administration and other services, which
UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM Funds
Complex.
3. An annual base fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual base fee to UAMFSI for services as sub-shareholder servicing
agent, which UAMFSI pays to UAMSSC, calculated as follows:
. $7,500 for the first operational class;
. and $2,500 for each additional class.
For the last three fiscal years the Fund paid the following in administration
and sub-administration fees:
<TABLE>
<CAPTION> Total Administration
Administrator's Fee Sub-Administrator's Fee Fee
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dwight IRA Capital
Preservation Portfolio
2000
-------------------------------------------------------------------------------------------------------------------------
1999 $2,472 $5,874 $8,346
-------------------------------------------------------------------------------------------------------------------------
1998 N/A N/A N/A
</TABLE>
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a code
of ethics under Rule 17j-1 of the 1940 Act that permits investment personnel
to purchase and sell securities for their personal account.
33
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the Fund. The Investment Agreement also directs the adviser to use its
best efforts to obtain the best execution with respect to all transactions for
the Fund. The adviser may select brokers based on research, statistical and
pricing services they provide to the adviser. Information and research
provided by a broker will be in addition to, and not instead of, the services
the adviser is required to perform under the Investment Advisory Agreement.
In so doing, the Fund 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. Research services provided by brokers
through which the Fund effects securities transactions may be used by the
fund's investment adviser in servicing all of its accounts and not all of
these services may be used by the adviser in connection with the fund. Such
research include research reports on particular industries and companies,
economic surveys and analyses, recommendations as to specific securities and
other products or services (e.g., quotation equipment and computer related
costs and expenses), advice concerning the value of securities, the
advisability of investing in, purchasing or selling securities, the
availability of securities or the purchasers or sellers of securities,
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, fund strategy and performance of accounts,
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement) and providing lawful and appropriate
assistance to the adviser in the performance of its decision-making
responsibilities.
During the fiscal year ended October 31, 2000, the adviser directed $____ of
the fund's brokerage transactions in exchange for certain research services.
Commissions paid on those transactions were $____. As of October 31, 2000, the
fund do not hold any securities of its regular brokers or dealers, as that
term is defined in the 1940 Act.
When allocating brokerage to brokers or effecting principal transactions with
dealers, the investment adviser may also consider the amount of fund shares a
broker-dealer has sold and the referral of other clients by the broker to the
adviser, subject to the requirements of best execution described above. In
addition, 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 Fund 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 Fund, in a fair and reasonable manner. Although there
is no specified formula for allocating such transactions, the Company's
governing board periodically reviews the various allocation methods used by
the adviser.
BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's
34
<PAGE>
mark down. When the Fund execute transactions in the over-the-counter market,
it will deal with primary market makers unless prices that are more favorable
are otherwise obtainable.
Commissions Paid
For the last two fiscal years, the Fund paid the following in brokerage
commissions:
Brokerage Commissions
------------------------------------------------------------------------------
Dwight IRA Capital Preservation Portfolio
2000
------------------------------------------------------------------------------
1999 $0
CAPITAL STOCK AND OTHER SECURITIES
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed its
name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders should
direct all correspondence to the address listed on the cover of this SAI. The
Company is an open-end, management investment company and the Fund is
diversified. This means that with respect to 75% of its total assets, the
Fund may not invest more than 5% of its total assets in the securities of any
one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to issue
an unlimited number of shares of beneficial interest, without par value. The
Board has the power to designate one or more series (funds) or classes of
shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the Company
are fully paid and non-assessable, and have no pre-emptive rights or
preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative 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 a 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 Company is liquidated, the shareholders of each fund or any class
thereof are entitled to receive the net assets belonging to that fund, or in
the case of a class, belonging to that fund and allocable to that class. The
Company will distribute is net assets to its shareholders in proportion to the
number of shares of that fund 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 fund or class at any time.
The Company will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The governing board has authorized three classes of shares, Institutional,
Institutional Service and Adviser. The three classes represent interests in
the same assets of a fund and, except as discussed below:
. Institutional Shares do not bear any expenses for shareholder servicing and
the distribution of such shares pursuant to a distribution plan or other
12b-1 plan;
35
<PAGE>
. 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;
and
. Advisor Shares bear certain expenses related to shareholder servicing and
the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the fund has undistributed net income.
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 Fund at NAV
(as of the business day following the record date). Shareholders may change
their dividend and distributions option by writing to the Fund at least three
days before the record date for income dividend or capital gain distribution.
The Fund sends account statements to shareholders whenever it pays an income
dividend or capital gains distribution.
FEDERAL TAXES
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code, and to distribute out its income to
shareholders each year so that it generally will be relieved of federal income
and excise taxes. If the Fund were to fail to make sufficient distributions in
a year, it would be subject to corporate income taxes and/or excise taxes. In
addition, if the shortfall were large enough, the Fund could be disqualified
as a regulated investment company. If a Fund was to fail to so qualify: (1) it
would be taxed at regular corporate rates without any deduction for
distributions to shareholder; and (2) its shareholders would be taxed as if
they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. Moreover, if a Fund was to
fail to make sufficient distributions in a year, the Fund would be subject to
corporate income taxes and/or excise taxes in respect of the shortfall or, if
the shortfall is large enough, the Fund could be disqualified as a regulated
investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year period
ending October 31 of such calendar year and 100% of any such amounts that were
not distributed in the prior year. The Fund intend to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December
31 of such year if such dividends are actually paid during January of the
following year.
As of October 31, 2000, the Fund has no capital loss carryovers.
36
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF SHARES
NET ASSET VALUE PER SHARE
--------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to the
NAV of its Fund. The Fund calculates its NAV 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 Fund,
plus cash and other assets plus income accrued but not yet received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00 p.m.
The NYSE is closed on the following days: New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
How the Fund Values its Assets
Equity Securities
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
Debt Securities
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the governing board determines that amortized cost reflects fair
value.
Other Assets
The value of other assets and securities for which no quotations are readily
available (including restricted securities) is determined in good faith at
fair value using methods determined by the governing board.
PURCHASE OF SHARES
--------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. To do so, the Service Agent must receive your investment order
before the close of trading on the NYSE and must transmit it to the Fund
before the close of its business day to receive that day's share price. The
Fund must receive proper payment for the order by the time it calculates its
NAV on the following business day. Service Agents are responsible to their
customers and the Company for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
Shareholders can buy full and fractional (calculated to three decimal places)
shares of the Fund. The Company will not issue certificates for fractional
shares and will only issue certificates for whole shares upon the written
request of a shareholder.
37
<PAGE>
The Company 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
Fund shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares of
Fund the with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Fund Values it Assets" at
the next determination of net asset value after acceptance. The Company will
issue shares of the Fund at the NAV of the Fund determined as of the same
time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-kind
purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. 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 Fund 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 Fund cannot exceed 5% of the net assets of
the Fund. 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 Fund investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of shares or
dollar amount the shareholder wishes to redeem signed by all registered
owners of the shares in the exact names in which they are registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts, guardianships,
custodianships, corporations, pension and profit sharing plans and other
organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to receive
redemption proceeds. To change an account in this manner, you must submit a
written request signed by each shareholder, with each signature guaranteed.
. Redeem shares represented by a certificate.
38
<PAGE>
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable for
any losses if they fail to do so. These procedures include requiring the
investor to provide certain personal identification at the time an account is
opened and before effecting each transaction requested by telephone. In
addition, all telephone transaction requests will be recorded and investors
may be required to provide additional telecopied written instructions of such
transaction requests. The Company or UAMSSC may be liable for any losses due
to unauthorized or fraudulent telephone instructions if the Company or the
UAMSSC do not employ the procedures described above. Neither the Company 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 Fund in lieu of cash in
conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of fund securities received in payment of redemptions.
The Fund have 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 Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should specify
the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your account,
the Fund and its sub-transfer agent from fraud.
The Fund will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. You can get a complete definition of eligible guarantor
institutions by calling 1-877-826-5465. Broker-dealers guaranteeing
signatures must be a member of a clearing corporation or maintain net capital
of at least $100,000. Credit unions must be authorized to issue signature
guarantees.
Other Redemption Information
Normally, the Company will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Company will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of payment:
. when the NYSE and custodian bank are closed;
. when trading on the NYSE is restricted;
39
<PAGE>
. during any period when an emergency exists as defined by the rules of the
SEC as a result of which it is not reasonably practicable for the Fund to
dispose of securities owned by it, or to fairly determine the value of its
assets; or
. for such other periods as the SEC may permit.
EXCHANGE PRIVILEGE
-------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds 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 Company nor any of its service providers will be responsible for
the authenticity of the exchange instructions received by telephone. The
Board 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 other mutual funds in
the UAM Funds Complex and their shareholders.
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the account
and number of shares you wish to transfer. All registered owners should sign
the request and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
PERFORMANCE CALCULATIONS
The Fund measure 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 Fund calculate their current
yield and average annual total return information according to the methods
required by the SEC.
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund 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 fund by finding the
average annual compounded rates of return over one, five and ten-year periods
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes that all dividends and distributions
are reinvested when paid. The quotation assumes the amount was completely
redeemed at the end of each one, five and ten-year period and the deduction of
all applicable Fund expenses on an annual basis. Since Institutional Service
Class Shares bear additional service and distribution expenses, their average
annual total return will generally be lower than that of the Institutional
Class Shares.
The Fund calculates these figures according to the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
40
<PAGE>
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods at the end of the
1, 5 or 10 year periods (or fractional
portion thereof).
Set forth in the table below are the funds' average annual returns for the
one-year period and the five-year period ended October 31, 2000 and the
shorter of the ten-year period ended October 30, 2000 or the period from a
fund's inception date through October 31, 2000.
<TABLE>
<CAPTION>
Shorter of 10
Years or Since
One Year Five Years Inception 30-Day Yield Inception Date
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dwight IRA Capital Preservation N/A 8/30/99
Portfolio
2000
</TABLE>
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a fund over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all mutual funds. As this differs
from other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during the
base period. Since Institutional Service Class shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2[((a-b)/(cd)+1)6-1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period.
COMPARISONS
--------------------------------------------------------------------------------
A fund's performance may be compared to data prepared by independent services
which monitor the performance of investment companies, data reported in
financial and industry publications, and various indices as further described
in this SAI. This information may also be included in sales literature and
advertising.
To help investors better evaluate how an investment in a 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 "Comparative Benchmarks" for publications, indices and averages
that may be used.
In assessing such comparisons of performance, an investor should keep in mind:
. that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in a fund;
. that the indices and averages are generally unmanaged; and
. that the items included in the calculations of such averages may not be
identical to the formula used by a fund to calculate its performance; and
41
<PAGE>
. that shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that a fund will continue this
performance as compared to such other averages.
FINANCIAL STATEMENTS
The following documents are included in the Fund's October 31, 2000 Annual
Report:
. Financial statements for the fiscal year ended October 31, 2000.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into this
SAI. However, no other parts of the Fund's Annual Report is incorporated by
reference herein. Shareholders may get copies of the Fund's Annual Report
free of charge by calling the UAM Funds at the telephone number appearing on
the front page of this SAI.
GLOSSARY
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus(es) of the Fund.
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 Fund.
Board Member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
Company refers to UAM Funds, Inc.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
Fund refers to a single series of the Company, while Funds refer to all of the
series of the Company.
Governing Board, see Board.
NAV is the net asset value per share of a Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The Big
Board."
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.
SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
and all of their Funds.
42
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UAM is United Asset Management Corporation.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's
sub-shareholder-servicing agent.
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well-maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue that which is rated "baa" is considered to be a medium--grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but maybe
questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
plus(+)or Moody's applies numerical modifiers 1, 2, and 3 in each rating
minus(-) classification: the modifier 1 indicates that the security ranks in
the higher end of its generic rating catefory; the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
43
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Debt Ratings - Taxable Debt & Deposits Globally
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Con.(...) (This rating applies only to U.S. Tax-Exempt Municipals) Bonds for
which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating experience,
(c) rentals that begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
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.
44
<PAGE>
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior
ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
. Leading market positions in well-established industries.
. Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and
may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
STANDARD & POOR'S RATINGS SERVICES
--------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above. Accordingly, in the case of junior debt, the
rating may not conform exactly with the category definition.
AAA An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
45
<PAGE>
A An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
Obligations rated 'BB', 'B', 'CCC' , 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposures to adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated 'CCC' is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C' is
CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed
or similar action taken, but payments on this obligation are being
continued. A 'C' will also be assigned to a preferred stock issue in
arrears on dividends or sinking fund payments, but that is currently
paying.
D An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during
such grace period. The 'D' rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligation linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk - such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as inverse
floaters.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard
& Poor's does not rate a particular obligation as a matter of
policy.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
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<PAGE>
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity
to meet its financial commitment on the obligation; however, it
faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
C A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment
on the obligation.
D A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not expired,
unless Standard & Poors' believes that such payments will be made
during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign
currency issuer ratings are also distinguished from local currency issuer
ratings to identity those instances where sovereign risks make them different
for the same issuer.
DUFF & PHELPS CREDIT RATING CO.
--------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt .
AA+/AA/ High credit quality. Protection factors are strong. Risk is modest
AA- but may vary slightly from time to time because of economic
conditions.
A+/A/A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+/BBB Below-average protection factors but still considered sufficient
BBB- for prudent investment. Considerable variability in risk during
economic cycles.
BB+/BB/ Below investment grade but deemed likely to meet obligations when
BB- due. Present or prospective financial protection factors
fluctuate according to industry conditions. Overall quality may
move up or down frequently within this category.
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<PAGE>
B+/B/B- Below investment grade and possessing risk that obligation will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments .
DP Preferred stock with dividend arrearages.
Short-Term Debt
High Grade
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor .
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify issues
as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity is not sufficient
to insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or interest payments.
FITCH IBCA RATINGS
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable
events.
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<PAGE>
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions
than is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently
a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal
imminent default.
DDD,DD,D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with
any precision, the following serve as general guidelines. "DDD"
obligations have the highest potential for recovery, around 90%-100%
of outstanding amounts and accrued interest. "D" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%. Entities rated in this category have
defaulted on some or all of their obligations. Entities rated "DDD"
have the highest prospect for resumption of performance or continued
operation with or without a formal reorganization process. Entities
rated "DD" and "D" are generally undergoing a formal reorganization
or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated "D" have a poor prospect for repaying all obligations.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
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<PAGE>
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
Notes
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, to categories below `CCC', or to short-term ratings other than `F1'.
`NR' indicates that Fitch IBCA does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there
is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for a potential downgrade, or "Evolving", if ratings may
be raised, lowered or maintained. RatingAlert is typically resolved over a
relatively short period.
Comparative Benchmarks
(ALPHABETICALLY)
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics -- a statistical measure of change, over time in the price
of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on the
New York Stock Exchange. It has been a widely followed indicator of the stock
market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
Companies Service -- publications that rate fund performance over specified
time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-weighted
index maintained by the International Finance Corporation. This index
consists of over 890 companies in 26 emerging equity markets, and is designed
to measure more precisely the returns fund 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.
50
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Lehman Brothers Indices:
------------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes
fixed rate issuers of investment grade (BBB) or higher, with maturities of at
least one year and outstanding par values of at least $100 million for U.S.
government issues and $25 million for others.
Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
Also included are yankee bonds, which are dollar-denominated SEC registered
public, noncovertible debt issued or guaranteed by foreign sovereign
governments, municipalities, or governmental agencies, or international
agencies.
Lehman Brothers Government Bond Index -an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued
debt of U.S. government agencies and quasi-federal corporations, and corporate
debt guaranteed by the U.S. government). In addition to the aggregate index,
sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of
at least one year and outstanding par value of at least $100 million of U.S.
government issues and $25 million for others. Any security downgraded during
the month is held in the index until month end and then removed. All returns
are market value weighted inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar
denominated, noncovertible, have at least one year remaining to maturity and
an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and four corporate bond
sectors.
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Associateion (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30 largest
mutual funds within their respective fund investment objectives. The indices
are currently grouped in six categories: U.S. Diversified Equity with 12
indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new fund-based mutual fund
classification method in which peer comparisons are based upon characteristics
of the specific stocks in the underlying funds, rather than upon a broader
investment objective stated in a prospectus. Certain of Lipper, Inc.'s
classifications for general equity funds' investment objectives were changed
while other equity objectives remain unchanged. Changing investment
objectives include Capital Appreciation Funds, Growth Funds, Mid-Cap Funds,
Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity Income
Funds. Unchanged investment objectives include Sector Equity Funds, World
Equity Funds, Mixed Equity Funds, and certain other funds including all Fixed
Income Funds and S&P(R) Index Funds.
Criteria for the Lipper Indices are: 1) component funds are largest in group;
2) number of component funds remains the same (30); 3) component funds are
defined annually; 4) can be linked historically; and 5) are used as a
benchmark for fund performance.
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Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers, liquidations,
etc.; and 4) will be inaccurate if historical averages are linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt
issues (BBB or higher) with dollar-weighted average maturities of one to five
years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing 60%
or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by prospectus
or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to
grow significantly faster than the earnings of the stocks represented in the
major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper -Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions, exclusive
of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an unmanaged
index composed of U.S. treasuries, agencies and corporates with maturities
from 1 to 4.99 years. Corporates are investment grade only (BBB or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market value-
weighted averages of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.
Nekkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indexes:
----------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell 1000(R) Index - an unmanaged index which measures the performance of
the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
52
<PAGE>
Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,5000 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.
Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indexes.
Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Top 200(TM) Growth Index - measures the performance of those Russell
Top 200 companies with higher price-to-book ratios and higher forecasted
growth values. The stocks re also members of the Russell 1000 Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of $1
million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and does
not reflect any transaction costs. Direct investment in the index is not
possible.
Standard & Poor's U.S. Indices:
-------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10
economic sectors aggregated from 23 industry groups, 59 industries, and 123
sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their
53
<PAGE>
respective indices. Features of the new classification include 10 economic
sectors, rather than the 11 S&P currently uses. Sector and industry gradations
are less severe. Rather than jumping from 11 sectors to 115 industries under
the former S&P system, the new system progresses from 10 sectors through 23
industry groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its market
value. It is used by over 95% of U.S. managers and pension plan sponsors. More
than $25 billion is indexed to the S&P Midcap400.
S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The
index is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred
benchmark for both active and passive management due to its low turnover and
greater liquidity. Approximately $8 billion is indexed to the S&P SmallCap
600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate portfolio. The Index covers over 80%
of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including 23
electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable
portfolio. This index, which covers 29 countries and consists of seven
regional components, offers global investors an easily accessible, tradable
set of stocks and particularly suits the new generation of index products,
such as exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents. Both indices provide geographic and economic diversity over 11
industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed as
the new Canadian large cap benchmark and will ultimately replace the Toronto
35 and the TSE 100.
54
<PAGE>
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries --
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
are represented in the new index.
S&P Latin America 40 Index -part of the S&P Global 1200 Index, includes highly
liquid securities from major economic sectors of Mexican and South American
equity markets. Companies from Mexico, Brazil, Argentina, and Chile are
represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad
enough to provide representation of the market, but narrow enough to ensure
liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization)
of the Extended Market Index, of both developed and emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill issues.
Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available. A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used
by the institutional investment community as a broad measure of the
performance of public real estate equity for asset allocation and performance
comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.
55
<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 45 . . . #45 filed herewith; PEA
44 = Post Effective Amendment No 44, filed on August 28, 2000; PEA 43 = Post
Effective Amendment No. 43, filed on July 27, 2000; PEA 42 = Post Effective
Amendment No. 42 filed on April 28, 2000; Post-Effective Amendment No. 41 filed
on February 28, 2000; PEA 39 = Post-Effective Amendment No. 39 filed on December
28, 1999; PEA 35 = Post-Effective Amendment No. 35 filed on August 9, 1999; PEA
34 = Post-Effective Amendment No. 34 filed on July 28, 1999, PEA 30 = Post-
Effective Amendment No. 30 filed on April 23, 1999, PEA 29 = Post-Effective
Amendment No. 29 filed on April 12, 1999, PEA 27 = Post-Effective Amendment No.
27 filed on February 5, 1999, PEA 24 = Post Effective Amendment No. 24 filed on
July 10, 1998; PEA 19 = Post-Effective Amendment No. 19 filed on February 3,
1998; PEA17 = Post-Effective Amendment No. 17 filed on December 15, 1997, PEA16
= Post-Effective Amendment No. 16 filed on July 10, 1997.
<TABLE>
<CAPTION>
Incorporated by
Exhibit Reference to (Location):
-------- --------------------------
<S> <C> <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 for the Filed Herewith
IRA Capital Preservation Portfolio dated December 29, 2000
7. Investment Advisory Agreement between Registrant and First Pacific Advisors, Inc. PEA 27
8. Investment Advisory Agreement between Registrant and Hanson Investment Management Company PEA 27
9. Investment Advisory Agreement between Registrant and Heitman/PRA Securities Advisors, Inc. PEA 27
10. Investment Advisory Agreement between Registrant and Jacobs Asset Management, L.P. PEA 27
10. A. Form of Amendment to Investment Advisory Agreement between Registrant and Jacobs Asset PEA 43
Management, L. P.
11. Investment Advisory Agreement between Registrant and Murray Johnstone International Limited PEA 27
12. Investment Advisory Agreement between Registrant and Pacific Financial Research, Inc. PEA 27
13. Investment Advisory Agreement between Registrant and Pell Rudman Trust Company, N.A. PEA 27
14. Investment Advisory Agreement between Registrant and Provident Investment Counsel PEA 39
15. Investment Advisory Agreement between Registrant and Tom Johnson Investment Management PEA 27
16. Investment Advisory Agreement between Registrant and Sirach Capital Management, Inc. PEA 44
E. 1. Distribution Agreement between Registrant and UAM Fund Distributors PEA 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Exhibit Reference to (Location):
-------- --------------------------
<S> <C> <C>
E. 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 PEA 29
of March 31, 1999
E.5.A Form of Selling Dealer Agreement - Institutional Service Class Shares PEA 42
B. Form of Selling Dealer Agreement - Institutional Class Shares PEA 42
C. Form of Broker Services Agreement - Institutional Service Class Shares PEA 42
D. Form of Broker Services Agreement - Institutional Class Shares PEA 42
F. Trustees' and Officers' Contracts and Programs Not applicable
G. 1. Global Custody Agreement PEA 16
H. 1. Fund Administration Agreement PEA 27
2. Fund Administration Agreement Fee Schedule PEA 30
3. Mutual Funds Service Agreement PEA 41
I. Opinions and Consents of Counsel PEA 34, PEA 39, PEA 41,
42, 43, 44, filed herewith
J. Consent of Independent Auditors PEA 34, PEA 35, PEA 39,
PEA 41, 42, 43, 44, 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. Amended and Restated Rule 18f-3 Multiple Class Plan PEA 24
O. Powers of Attorney PEA 24, PEA 27, filed
herewith
P. 1. Code of Ethics of The UAM Funds PEA 43
2. Code of Ethics of UAM Fund Distributors, Inc. (distributor) PEA 43
3. Code of Ethics - Cambiar Investors, Inc. (investment adviser) PEA 43
4. Code of Ethics - Chicago Asset Management Company (investment adviser) PEA 43
5. Code of Ethics - Dwight Asset Management Company (investment adviser) PEA 43
6. Code of Ethics - First Pacific Advisors, Inc. (investment adviser) PEA 43
7. Code of Ethics - Heitman/PRA Securities Advisors, Inc. (investment adviser) PEA 43
8. Code of Ethics - Murray Johnstone International Limited (investment adviser) PEA 43
9. Code of Ethics - Pacific Financial Research, Inc. (investment adviser) PEA 43
10. Code of Ethics - Pell Rudman Trust Company (investment adviser) PEA 43
11. Code of Ethics - Provident Investment Counsel, Inc. (investment adviser) PEA 43
12. Code of Ethics - Sirach Capital Management, Inc. (investment adviser) PEA 44
13. Code of Ethics - Thompson, Siegel & Walmsley, Inc. (investment adviser) PEA 43
14. Code of Ethics - Tom Johnson Investment Management, Inc. (investment adviser) PEA 43
</TABLE>
<PAGE>
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
Pell Rudman Trust Company, N.A., the information required by this Item 26 with
respect to each director, officer, or partner of each other investment adviser
of the Registrant is incorporated by reference to the Forms ADV filed by the
investment advisers listed below with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940, as amended, under the file
numbers indicated:
<TABLE>
<CAPTION>
Investment Adviser File No.
--------------------------------------------------------------------------------------------------------- ------------------
<S> <C>
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
Heitman/PRA Securities Advisors, Inc. 801-48252
Murray Johnstone International Ltd. 801-34926
Pacific Financial Research, Inc. 801-54352
Provident Investment Counsel, Inc. 801-47993
Sirach Capital Management, Inc. 801-33477
Thompson, Siegel & Walmsley, Inc. 801-06273
Tom Johnson Investment Management, Inc. 801-42549
</TABLE>
<TABLE>
<CAPTION>
Positions and Offices with Pell Rudman Trust Positions and Offices with Pell
Name and Principal Business Address Company, N.A. Rudman & Co., Inc.
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey S. Thomas Director Chief Financial Officer of
100 Federal Street Pell, Rudman & Co., Inc.
Boston, Massachusetts
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices with Pell Rudman Trust Positions and Offices with Pell
Name and Principal Business Address Company, N.A. Rudman & Co., Inc.
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward I. Rudman Director Chairman and President of Pell,
100 Federal Street Rudman & Co., Inc.
Boston, Massachusetts
-------------------------------------------------------------------------------------------------------------------------------
James S. McDonald Director Executive Vice President of
100 Federal Street Pell, Rudman & Co., Inc.
Boston, Massachusetts
-------------------------------------------------------------------------------------------------------------------------------
Susan W. Hunnewell Director Senior Vice President of Pell,
100 Federal Street Rudman & Co., Inc.
Boston, Massachusetts
</TABLE>
Barrow, Hanley, Mewhinney & Strauss, Inc., Cambiar Investors, Inc., Chicago
Asset Management Company, Dwight Asset Management Company, First Pacific
Advisors, Inc., Hanson Investment Management Company, Heitman/PRA Securities
Advisors, Inc., Murray Johnstone International Ltd., Pacific Financial Research,
Inc., Pell Rudman Trust Company, N.A., Provident Investment Counsel, Sirach
Capital Management, Inc, Thompson, Siegel & Walmsley Inc., and Tom Johnson
Investment Management, Inc., are affiliates of United Asset Management
Corporation ("UAM" which is wholly-owned subsidiary of Old Mutual, PLC), 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 limited
co-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.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act of 1940, as amended, and the rules promulgated thereunder
will be maintained in the physical possession of the Registrant, the
Registrant's Advisers, the Registrant's Administrator (UAM Fund Services, Inc.,
211 Congress Street, 4th Floor, Boston, MA 02110), Sub-Administrative Agent (SEI
Investments Mutual Funds Services, 530 East Swedesford Road, Wayne, PA 19087-
1658), Sub-Shareholder Servicing Agent (UAM Shareholder Services Center, Inc.,
825 Duportail Road, Wayne, PA 19087), the Registrant's Sub-Transfer Agent (DST
Systems, Inc., 210 West 10th Street, Kansas City, MO 64105), and the
Registrant's Custodian Bank (The Chase Manhattan Bank 4 Chase MetroTech Center,
Brooklyn, New York, 11245).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant certifies that it 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 29th day of December, 2000.
UAM FUNDS TRUST
/s/Linda T. Gibson
------------------
Linda T. Gibson
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 29th day of December, 2000.
*
___________________________
James F. Orr, III, Chairman and
President
*
___________________________
John T. Bennett, Jr., Trustee
*
___________________________
Nancy J. Dunn, Trustee
*
___________________________
Philip D. English, Trustee
*
___________________________
William A. Humenuk, Trustee
/s/Linda T. Gibson
------------------
Linda T. Gibson, Secretary
/s/Linda T. Gibson
------------------
* Linda T. Gibson
(Attorney-in-Fact)
<PAGE>
UAM FUNDS TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
------------ -----------
<S> <C>
D. 5 Dwight Asset Management Company for the IRA Capital Preservation Portfolio
J. Opinion of Drinker Biddle & Reath LLP
I. Consent of PricewaterhouseCoopers, LLC
0.1 Power of Attorney - Bennett
0.2 Power of Attorney - Dunn
0.3 Power of Attorney - English
0.4 Power of Attorney - Humenuk
0.5 Power of Attorney - Orr
</TABLE>
