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UAM Funds
Funds for the Informed Investor/sm/
PIC Twenty Portfolio
Institutional Class Prospectus December 29, 1999
[LOGO OF UAM]
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
PORTFOLIO SUMMARY............................................................1
WHAT IS THE INVESTMENT OBJECTIVE OF THE PORTFOLIO?........................1
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?............1
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?............................1
HOW HAS THE PORTFOLIO PERFORMED?..........................................2
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?..........................3
INVESTING WITH THE UAM FUNDS.................................................4
BUYING SHARES.............................................................4
REDEEMING SHARES..........................................................5
EXCHANGING SHARES.........................................................5
TRANSACTION POLICIES......................................................5
ACCOUNT POLICIES.............................................................9
SMALL ACCOUNTS............................................................9
DISTRIBUTIONS.............................................................9
FEDERAL TAXES.............................................................9
PORTFOLIO DETAILS...........................................................11
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIO.........................11
OTHER INVESTMENT PRACTICES AND STRATEGIES................................13
YEAR 2000................................................................14
INVESTMENT MANAGEMENT....................................................14
SHAREHOLDER SERVICING ARRANGEMENTS.......................................16
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PORTFOLIO SUMMARY
WHAT IS THE INVESTMENT OBJECTIVE OF THE PORTFOLIO?
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The portfolio seeks long-term growth of capital. The portfolio cannot
guarantee it will meet its investment objective. The portfolio may change
its investment objective without shareholder approval.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIO?
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This section summarizes the principal investment strategies of the
portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIO."
The portfolio seeks to achieve its objective by normally investing in
approximately 20-30 stocks selected primarily from the stocks contained
within the S&P/BARRA Growth and Russell 1000 Growth Indices. The portfolio
primarily emphasizes large companies (i.e., companies with market
capitalizations of $5 billion or greater at the time of purchase).
The adviser applies a "bottom-up" (i.e., focusing on individual stocks
rather than industries or sectors) fundamental approach to find equity
securities that it believes will appreciate in value. The adviser's equity
selection process involves creating proprietary financial models, gathering
information from various computer databases and analyzing research provided
by a number of Wall Street investment firms and in many cases, meeting with
company management teams. In selecting investments for the portfolio, the
adviser will include equity securities of companies that it believes are
currently experiencing growth in earnings and revenue that are above the
average of the company's peers and the U.S. stock market in general.
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIO?
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This section summarizes the principal risks associated with investing in
the portfolio. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE PORTFOLIO."
As with all mutual funds, at any time, your investment in the portfolio may
be worth more or less than the price that you originally paid for it. You
may lose money by investing in the portfolio because:
. The portfolio may not achieve its goal because its strategy did not
produce the intended results or because it did not implement its
strategy properly.
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. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
As with all equity funds, the risks that could affect the value of the
portfolio's shares and the total return on your investment include the
possibility that the equity securities held by the portfolio would
experience sudden, unpredictable drops in value or long periods of decline
in value. This may occur because of factors affecting the securities
markets generally, an entire industry or sector or a particular company.
Since the portfolio is not diversified, it may invest a greater percentage
of its assets in a particular issuer than a diversified fund. Diversifying
a mutual fund's investment can reduce the risks of investing by limiting
the amount of money it invests in any one issuer. Therefore, being
non-diversified may cause the value of its shares to be more sensitive to
changes in the market value of a single issuer or industry relative to
diversified mutual funds.
HOW HAS THE PORTFOLIO PERFORMED?
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The portfolio has not presented a bar chart or performance table because it
has been in existence for less than one year.
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WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIO?
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Shareholder Transaction Fees (fees paid directly from your account)
The portfolio is a no-load investment, which means there no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio
assets)
The portfolio 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 portfolio.
PIC Twenty Portfolio
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Management Fee 0.90%
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Other Expenses 0.87%
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Total Annual Fund Operating Expenses* 1.77%
* Expected Fees and Expenses The portfolio expects that the percentages
stated in the table above will be higher than the expenses you will
actually pay. Due to certain voluntary expense limits by the adviser and
expense offsets, you are expected to pay the total operating expenses
listed in the table below during its first fiscal year. The adviser may
change or cancel its expense limitation at any time.
PIC Twenty Portfolio
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Expected Annual Fund Operating Expenses 1.30%
Example
This example can help you to compare the cost of investing in this
portfolio to the cost of investing in other mutual funds. The example
assumes you invest $10,000 in the portfolio for the periods shown and then
redeem all of your shares at the end of those periods. The example also
assumes that you earned a 5% return on your investment each year, 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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PIC Twenty Portfolio $180 $557 $959 $2084
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INVESTING WITH THE UAM FUNDS
Buying Shares
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To open an account To buy more shares
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By Mail Send a check or money order Send a check and, if
and your account possible, the "Invest by
application to the UAM Mail" stub that accompanied
Funds. Make checks payable your statement to the UAM
to "UAM Funds" (the UAM Funds. Be sure your check
Funds will not accept identifies clearly your
third-party checks). name, account number and
the UAM Fund into which you
want to invest.
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By Wire Call 1-877-826-5465 for an Call 1-877-826-5465 to get
account number and wire a wire control number and
control number. Send your wire your money to the UAM
completed account Funds as follows:
application to the UAM
Funds. Wire your money to
the UAM Funds as follows:
Wiring Instructions
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United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: portfolio name/account number/
account name/wire control number
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By Automatic You may not open an To set up a plan, mail a
Investment account via ACH. completed application to
Plan (Via ACH) the UAM Funds. To cancel
or change a plan, write
to the UAM Funds. Allow
up to 15 days to create
the plan and 3 days to
cancel or change it.
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Minimum $2,500 -- regular account $100
Investments $500 -- IRAs
$250 -- spousal IRAs
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
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Redeeming Shares
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By Mail Send a letter signed by all registered parties on the account
to the UAM Funds specifying:
. The UAM Fund.
. The account number.
. The dollar amount or number of shares you wish to redeem.
Certain shareholders may need to include additional documents
to redeem shares. Please see the Statement of Additional
Information (SAI) if you need more information.
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By You must first establish the telephone redemption privilege
Telephone (and, if desired, the wire redemption privilege) by completing
the appropriate sections of the account application.
Call 1-877-826-5465 to redeem your shares. Based on your
instructions, the UAM Funds will mail your proceeds to you or
wire them to your bank.
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By If your account balance is at least $10,000, you may
Systematic transfer as little as $100 per month from your UAM Funds
Withdrawal account to your financial institution.
Plan (Via
ACH) To participate in this service, you must complete the
appropriate sections of the account application and mail
it to the UAM Funds.
Exchanging Shares
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At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, please read the prospectus of the UAM Fund
for which you want to exchange. You may obtain any UAM Fund prospectus by
calling 1-877-826-5465. You may only exchange shares between accounts with
identical registrations (i.e., the same names and addresses).
Transaction Policies
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Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value per share (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) on each day the New York
Stock
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Exchange is open. Therefore, to receive the NAV on any given day, the UAM
Funds must accept your order before the close of trading on the 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. The UAM
Funds are open for business on the same days as the New York Stock
Exchange, which is closed on weekends and certain holidays.
Securities that are traded on foreign exchanges may trade on days when the
New York Stock Exchange is closed. Consequently, 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 market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established by the
UAM Funds. The UAM Funds may also value securities at fair value when
events occur that make established valuation methods (such as stock
exchange closing prices) unreliable. 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 NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to the
UAM Funds on time. 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.
In-Kind Transactions
At the UAM Funds' discretion, you may pay for shares with securities
instead of cash. In addition, the UAM Funds may pay all or part of your
redemption proceeds with securities instead of cash.
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Payment of Redemption Proceeds
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper form. To be in proper form, a
written redemption request must include the following information:
. the name of the UAM Fund;
. the account number;
. the account name(s);
. the address;
. the dollar amount or number of shares you wish to redeem; and
. the signatures of all registered share owner(s) in the exact name(s)
and any special capacity in which they are registered.
The UAM Funds may require that signatures be guaranteed by a bank or member
firm of a national securities exchange. 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.
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 that it reasonably believes to be
genuine.
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Rights Reserved by the UAM Funds
Purchases
At any time and without notice, the UAM Funds may:
. Stop offering shares.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting
management and by increasing expenses.)
Redemptions
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may
suspend your right to redeem if:
. Trading on the New York Stock Exchange is restricted.
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
Exchanges
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
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ACCOUNT POLICIES
Small Accounts
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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:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum
because of market fluctuations.
The UAM Funds will notify you before liquidating your account and allow you
60 days to increase the value of your account.
Distributions
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Normally, the portfolio distributes its net investment income and net
capital gains once a year. The UAM Funds will automatically reinvest
dividends and distributions in additional shares of the portfolio, unless
you elect on your account application to receive them in cash.
Federal Taxes
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The following is a summary of the federal income tax consequences of
investing in the portfolio. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for specific
guidance regarding the tax effect of your investment in the UAM Funds.
Taxes on Distributions
The distributions of the portfolio will generally be taxable to
shareholders as ordinary income or capital gains (which may be taxable at
different rates depending on the length of time the portfolio held the
relevant assets). You will be subject to income tax on these distributions
regardless of whether they are paid in cash or reinvested in additional
shares. Once a year the UAM Funds will send you a statement showing the
types and total amount of distributions you received during the previous
year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided. Call 1-877-826-5465 to find out when the
portfolio expects to make a distribution to shareholders.
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Taxes on Exchanges and Redemptions
When you exchange or redeem shares in any UAM Fund, you may recognize a
capital gain or loss for federal tax purposes. This gain or loss will be
based on the difference between the cost of your shares (tax basis) and the
amount you receive for them. To aid in computing your tax basis, you should
keep your account statements for the periods during which you held shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable, but they may be taxable
in the future.
Backup Withholding
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
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PORTFOLIO DETAILS
Principal Investments And Risks Of The Portfolio
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This section briefly describes the principal investment strategies the
portfolio may employ in seeking its objectives. For more information
concerning these investment strategies and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI.
In What Types of Securities does the Portfolio Invest?
Normally, the portfolio invests in approximately 20-30 stocks selected
primarily from the stocks contained within the S&P/BARRA Growth and Russell
1000 Growth Indices. The portfolio may also invest in companies contained
within the S&P/BARRA Value and Russell 1000 Value Indices. The portfolio
primarily emphasizes large companies (i.e., companies with market
capitalizations of $5 billion or greater at the time of purchase).
How Does the Adviser Select Securities for the Portfolio?
The adviser narrows the portfolio's investment universe of potential
investments to develop a watch list of approximately 350 names by screening
for:
. large companies (i.e., companies with market capitalization of $5
billion or greater at the time of purchase);
. companies that meet its revenue and earnings growth expectations
(normally exceeding the average revenue and earnings growth
expectations for the market on which the security is primarily
traded); and
. companies that the adviser believes possess superior financial
characteristics relative to the company's competitors/peers and that
of the market on which the security is primarily traded.
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Through further research employing technical and fundamental screens,
company contact and communication with other research firms, the adviser
develops a buy list of no more than 60 stocks. Using a "bottom-up" security
selection process (i.e., focusing on individual stocks rather than
industries or sectors) the adviser searches for companies:
. possessing at least one catalyst for growth, such as new products,
exploiting demographic trends, proprietary products, gaining market
share and/or a changing cost structure in order to attain or maintain
very strong earnings per share growth;
. where management owns a significant portion of the company's stock;
and
. having strong management goals and growth plans supported by stringent
controls and a commitment to enhancing shareholder value.
Finally, the adviser conducts regular meetings of its Portfolio Management
Team, during which the team reviews individual security holdings and
weightings, proposed new purchases and sales, sector weights, and
performance attribution. The team evaluates a number of key economic and
market criteria, and assesses the current environment for equity
investments to help confirm its analysts' stock recommendations. The
adviser then focuses the assets of the portfolio on its best investment
ideas.
The adviser considers selling a stock when:
. the stock reaches its target price, which is set by the adviser based
on an analysis of relative price/earnings ratios;
. the stock's price fails to meet the adviser's expectations or
experiences a 15% or more decline from a recent high, or its purchase
price;
. the adviser notices a fundamental change in the company's outlook,
such as a pre-announced earnings or revenue short-falls, problems with
suppliers, large order cancellations, product regulatory approval and
changes in company management; or
. the adviser identifies a more attractive alternative based on the
adviser's investment criteria.
What are the Characteristics and Risks of the Securities in which the Portfolio
Invests?
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks,
preferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the
<PAGE>
general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry or sector, such
as increases in production costs, or factors directly related to a specific
company, such as decisions made by its management.
Growth stocks, which are stocks of companies that the adviser believes have
earnings that will grow relatively rapidly, typically trade at higher
multiples of current earnings than other stocks. Therefore, the values of
growth stocks may be more sensitive to changes in current or expected
earnings than the values of other stocks. Value oriented mutual funds may
not perform as well as certain other types of equity mutual funds during
periods when value stocks are out of favor.
Other Investment Practices and Strategies
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In addition to its principal investment strategies, the portfolio may use
the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning
these and other investment practices and their risks, you should read the
SAI.
American Depositary Receipts (ADRs)
The portfolio may invest up to 20% of its assets in ADRs. ADRs are
certificates evidencing ownership of shares of a foreign issuer that are
issued by depository banks and generally trade on an established market in
the United States or elsewhere. Although they are alternatives to directly
purchasing the underlying foreign securities in their national markets and
currencies, ADRs continue to be subject to many of the risks associated
with investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political
and economic developments or changes in the value of foreign currency can
make it harder for a portfolio to sell its securities and could reduce the
value of your shares. Changes in tax and accounting standards and
difficulties obtaining information about foreign companies can negatively
affect investment decisions.
In January 1999, certain European nations began to use the new European
common currency, called the Euro. The nations that use the Euro will have
the same monetary policy regardless of their domestic economy, which could
have adverse effects on those economies. In addition, difficulties in
converting to the Euro could negatively affect the investments of a
portfolio.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The adviser may invest in these types of
securities for
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temporary defensive purposes, to earn a return on uninvested assets or to
meet redemptions. The adviser may temporarily adopt a defensive position to
reduce changes in the value of the shares of the portfolio that may result
from adverse market, economic, political or other developments.
When the adviser pursues a temporary defensive strategy, the portfolio may
not profit from favorable developments that it would have otherwise
profited from if it were pursuing its normal strategies. Likewise, these
strategies may prevent the portfolio from achieving its stated objectives.
Year 2000
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Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent have taken steps they believe are reasonably necessary to address any
portfolio-related year 2000-related computer problems. They have made
necessary changes to their own computer systems to prepare for the year
2000. Each of the UAM Funds major service providers has indicated that it
is ready for the transition to the year 2000. In addition, the UAM Funds
have reviewed contingency plans for their key service providers and believe
that such service providers are as ready as possible for the transition to
the year 2000. However, the UAM Funds cannot predict the degree to which
the year 2000 issue will affect their investments or operations. Any
negative consequences could adversely affect your investment in the UAM
Funds.
Investment Management
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Investment Adviser
Provident Investment Counsel (PIC), located at 300 North Lake Avenue,
Pasadena, California 91101, 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 a variety of
investors since 1951.
The portfolio has agreed to pay the adviser a management fee equal to 0.90%
of the portfolio's average net assets. In addition, the adviser has
voluntarily agreed to limit the total expenses of the portfolios to 1.30%,
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
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expenses of the portfolio. The adviser intends to continue its expense
limitation until further notice, but may discontinue it at any time.
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 separate accounts that have the same 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 these separate accounts is listed below. The performance
data for the managed accounts does not reflect deductions for fees and
expenses. All fees and expenses of the separate accounts were less than the
operating expenses of the portfolio. If the performance of the managed
accounts was adjusted to reflect the fees and expenses of the portfolio,
the composite's performance would have been lower.
The adviser calculated its performance using the standards of the
Association for Investment Management and Research. Had the adviser
calculated its performance using the SEC's methods, it results might have
differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the
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.
PIC Concentrated
Growth Equity
Returns for Periods Ended 9/30/99 Composite* S&P 500 Index
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Current quarter -6.44% -6.17%
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Year to date 4.02% 5.29%
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1 Year 34.00% 27.73%
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3-years (annualized) 29.21% 25.17%
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Since Inception (1/1/96) 30.63% 23.82%
(annualized)
Source: Provident Investment Counsel
* During the period shown (1/1/96 9/30/9)9 the adviser's average annual
management fee was 0.837%. The adviser's composite has not been audited.
Shareholder Servicing Arrangements
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Broker, dealers, banks, trust companies and other financial representatives
may receive compensation from the UAM Funds or their service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
<PAGE>
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the UAM Funds that are
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 UAM Funds. In addition, your financial
representatives may charge you other account fees for buying or redeeming
shares of the UAM Funds or for servicing your account. Your financial
representative should provide you with a schedule of its fees and services.
The UAM Funds may pay all or part of the fees paid to financial
representatives. Periodically, the board of the UAM Funds reviews these
arrangements to ensure that the fees paid are appropriate to the services
performed. The UAM Funds do not pay these service fees on shares purchased
directly. In addition, the adviser and its affiliates may, at their own
expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with
respect to the UAM Funds.
The adviser may pay its affiliated companies distribution and marketing
services performed with respect to the UAM Funds.
<PAGE>
PORTFOLIO CODES
The reference information below will be helpful to you when you contact the
UAM Funds to purchase or exchange shares, check daily NAVs or get
additional information.
CUSIP Number Portfolio Number
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902556737 788
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PIC Twenty Portfolio
For investors who want more information about the portfolio, the following
documents are available upon request.
Annual/Semi-Annual Report
The annual/semi-annual report of the portfolio provides additional
information about the portfolio's 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 portfolio
during the last fiscal year. The portfolio expects that its first annual
report will be mailed to shareholders in June 2000.
Statement of Additional Information
The SAI contains additional detailed information about the portfolio and is
incorporated by reference into (legally part of) this prospectus.
How to Get More Information
Investors can receive free copies of SAI, 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 portfolio (including the SAI)
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 portfolio 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
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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.
The portfolio's Investment Company Act of 1940 file number is 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
Provident Focus Portfolio
Institutional Class Shares
Statement of Additional Information
December 29, 1999
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the portfolio dated
December 29, 1999, as supplemented from time to time. You may obtain the fund's
prospectuses by contacting the fund at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
I: Portfolio Summary I-1
Provident Focus Portfolio............................................ I-2
What Investment Strategies May The Portfolio Use?.................. I-2
What Are The Investment Policies Of The Portfolio?................. I-2
Who Is The Investment Adviser Of The Portfolio?.................... I-3
How Much Does The Portfolio Pay For Administrative Services?....... I-3
II: The UAM Funds in Detail II-1
Description of Permitted Investments................................. II-2
Debt Securities.................................................... II-2
Equity Securities.................................................. II-8
Foreign Securities................................................. II-10
Investment Companies............................................... II-14
Repurchase Agreements.............................................. II-14
Restricted Securities.............................................. II-14
Securities Lending................................................. II-15
When-Issued, Forward Commitment and Delayed Delivery Transactions.. II-15
Management Of The Fund............................................... II-16
Investment Advisory and Other Services............................... II-17
Investment Adviser................................................. II-17
Distributor........................................................ II-19
Shareholder Servicing Arrangements................................. II-19
Administrative Services............................................ II-19
Administrator...................................................... II-19
Administration and Transfer Agency Services Fees................... II-20
Custodian.......................................................... II-20
Independent Public Accountant...................................... II-20
Brokerage Allocation and Other Practices............................. II-21
Selection of Brokers............................................... II-21
Simultaneous Transactions.......................................... II-21
Brokerage Commissions.............................................. II-21
Capital Stock and Other Securities................................... II-22
The Fund........................................................... II-22
Description Of Shares And Voting Rights............................ II-22
Dividends and Capital Gains Distributions.......................... II-23
Purchase, Redemption and Pricing of Shares........................... II-23
Net Asset Value Per Share.......................................... II-23
Purchase of Shares................................................. II-24
Redemption of Shares............................................... II-25
Exchange Privilege................................................. II-27
Transfer Of Shares................................................. II-27
Performance Calculations............................................. II-27
Total Return....................................................... II-27
Yield.............................................................. II-28
Comparisons........................................................ II-28
III: Glossary III-1
IV: Appendix A -- Description of Securities and Ratings IV-1
Moody's Investors Service, Inc....................................... IV-2
Preferred Stock Ratings............................................ IV-2
Debt Ratings - Taxable Debt & Deposits Globally.................... IV-2
Short-Term Prime Rating System - Taxable Debt & Deposits Globally.. IV-3
Standard & Poor's Ratings Services................................... IV-4
Preferred Stock Ratings............................................ IV-4
Long-Term Issue Credit Ratings..................................... IV-4
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Short-Term Issue Credit Ratings.................................... IV-5
Duff & Phelps Credit Rating Co....................................... IV-6
Long-Term Debt and Preferred Stock................................. IV-6
Short-Term Debt.................................................... IV-6
Fitch IBCA Ratings................................................... IV-7
International Long-Term Credit Ratings............................. IV-7
V: Appendix B - Comparisons V-1
</TABLE>
<PAGE>
I: Portfolio Summary
1-1
<PAGE>
Provident Focus Portfolio
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
- -------------------------------------------------------------------------------
The portfolio may use the securities and investment strategies listed below in
seeking its objective. This SAI describes each of these investments/strategies
and their risks in Part II under "Description of Permitted Investments." The
investments that are italicized are principal strategies and you can find more
information on these techniques in the prospectus of the portfolio. You can
find more information concerning the ability of the portfolio to use these
investments in "What Are the Investment Policies of the Portfolio?"
. Equity securities.
. American Depositary Receipts
. Investment company securities.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When-issued securities.
WHAT ARE THE INVESTMENT POLICIES OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
The portfolio will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the portfolio's
acquisition of such security or other asset. Accordingly, the portfolio will
not consider changes in values, net assets or other circumstances when
determining whether the investment complies with its investment limitations.
Fundamental Policies
The following investment limitations are fundamental, which means the
portfolio cannot change them without approval by the vote of a majority of the
outstanding voting securities of the portfolio, as defined by the 1940 Act.
The portfolio will not:
. Make any investment that is inconsistent with its classification as a non-
diversified investment management company under the 1940 Act.
. Concentrate its investments in securities of issuers primarily engaged in
any particular industry (other than securities issued or guaranteed by the
United States government or its agencies or instrumentalities or when the
portfolio adopts a temporary defensive position).
. Issue senior securities, except as permitted by the 1940 Act.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships, although
it may purchase and sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate.
. Make loans except (i) by that the acquisition of investment securities or
other investment instruments in accordance with the portfolio's prospectus
and statement of additional information shall not be deemed to be the
making of a loan; and (ii) that the portfolio may lend
1-2
<PAGE>
its portfolio securities in accordance with applicable law and the
guidelines set forth in the portfolio's prospectus and statement of
additional information, as they may be amended from time to time.
. Underwrite the securities of other issuers.
. Borrow money, except to the extent permitted by applicable law and the
guidelines set forth in the portfolio's prospectus and statement of
additional information, as they may be amended from time to time.
Non-Fundamental Policies
The following limitations are non-fundamental, which means the portfolio may
change them without shareholder approval. The portfolio will not:
. Purchase on margin or sell short except that the portfolio may purchase
futures as described in the prospectus and this SAI.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one-
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
Borrowing
The portfolio may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. The portfolio may also borrow an additional 5% of its total assets
from banks or others for temporary or emergency purposes, such as the
redemption of portfolio shares. The portfolio may purchase additional
securities so long as borrowings do not exceed 5% of its total assets. The
portfolio may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. The portfolio may
purchase securities on margin and engage in short sales to the extent
permitted by applicable law.
WHO IS THE INVESTMENT ADVISER OF THE PORTFOLIO?
- --------------------------------------------------------------------------------
Provident Investment Counsel is the portfolio's investment adviser. For its
services, the portfolio pays its adviser a fee equal to 0.90% of the
portfolio's average daily net assets.
Due to the effect of fee waivers by the adviser, the actual percentage of
average net assets that the portfolio pays in any given year may be different
from the rate set forth in its contract with the adviser. For more
information concerning the adviser, see "Investment Advisory and Other
Services" in Part II of this SAI.
HOW MUCH DOES THE PORTFOLIO PAY FOR ADMINISTRATIVE SERVICES?
- --------------------------------------------------------------------------------
In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.04% of the aggregate net assets of the portfolio.
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<PAGE>
The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated at
the annual rate of:
. $35,500 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.030% of their pro rata share of the combined assets of the UAM Funds
Complex.
1-4
<PAGE>
II: The UAM Funds in Detail
II-1
<PAGE>
Description of Permitted Investments
DEBT SECURITIES
- --------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return and
repayment of the amount borrowed at maturity. Some debt securities, such as
zero-coupon bonds, do not pay current interest and are purchased at a discount
from their face value. Debt securities may include, among other things, all
types of bills, notes, bonds, mortgage-backed securities or asset-backed
securities.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the United States Treasury has
issued (treasury securities) and securities that a federal agency or a
government-sponsored entity has issued (agency securities). Treasury
securities include treasury notes, which have initial maturities of one to ten
years and treasury bonds, which have initial maturities of at least ten years
and certain types of mortgage-backed securities that are described under
"Mortgage-Backed and Other Asset-Backed Securities." This SAI discusses
mortgage-backed treasury and agency securities in detail in the section called
"Mortgage-Backed and Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities.
Unlike treasury securities, the full faith and credit of the United States
government generally do not back agency securities. Agency securities are
typically supported in one of three ways:
. by the right of the issuer to borrow from the United States Treasury;
. by the discretionary authority of the United States government to buy the
obligations of the agency; or
. by the credit of the sponsoring agency.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of the portfolio.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation by investors, the
corporation promises to pay investors interest, and repay the principal amount
of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity and 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
II-2
<PAGE>
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a mortgage
backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure or
guaranty the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. The adviser will consider
such insurance and guarantees and the creditworthiness of the issuers thereof
in determining whether a mortgage-related security meets its investment
quality standards. It is possible that the private insurers or guarantors will
not meet their obligations under the insurance policies or guarantee
arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls within
the Department of Housing and Urban Development. Securities issued by GNMA are
treasury securities, which means the faith and credit of the U.S. government
backs them. GNMA guarantees the timely payment of principal and interest on
securities issued by institutions approved by GNMA and backed by pools of FHA-
insured or VA-guaranteed mortgages. GNMA does not guarantee the market value
or yield of mortgage-backed securities or the value of portfolio shares. To
buy GNMA securities, the portfolio may have to pay a premium over the maturity
value of the underlying mortgages, which the portfolio may lose if prepayment
occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Securities issued by FNMA are agency securities,
which means FNMA, but not the U.S. government, guarantees their timely payment
of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970 to
increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages from its national portfolio. Like FNMA, FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to guaranteeing
the mortgage-related security, such issuers may service and/or have originated
the underlying mortgage loans. Pools created by these issuers generally offer
a higher rate of interest than pools created by GNMA, FNMA & FHLMC because
they are not guaranteed by a government agency.
II-3
<PAGE>
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways, the most significant
differences are mortgage-backed securities:
. payments of interest and principal are more frequent (usually monthly);
. they usually have adjustable interest rates; and
. they may pay off their entire principal substantially earlier than their
final distribution dates so that the price of the security will generally
decline when interest rates rise.
In addition to risks associated with changes in interest rates described in
"Factors Affecting the Value of Debt Securities," a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, the portfolio may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other than
mortgage, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which allow debtors to
reduce their balances by offsetting certain amounts owed on the credit cards.
Most issuers of asset-backed securities backed by automobile receivables
permit the servicers of such receivables to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. Due to
the quantity of vehicles involved and requirements under state laws, asset-
backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The portfolio may also invest in residual interests in asset-backed
securities, which is the excess cash flow remaining after making required
payments on the securities and paying related administrative expenses. The
amount of residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying
assets.
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepay principal
semiannually. While whole mortgage loans
II-4
<PAGE>
may collateralize CMOs, portfolios of mortgage-backed securities guaranteed by
GNMA, FHLMC, or FNMA and their income streams more typically collateralize
them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the portfolio may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
Investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The portfolio may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1 to
270 days issued by banks, corporations and other borrowers. Such investments
are unsecured and usually discounted. The portfolio may invest in commercial
paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, or, if not
rated, issued by a corporation having an outstanding unsecured debt issue
rated A or better by Moody's or by S&P. See Appendix A for a description of
commercial paper ratings.
II-5
<PAGE>
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. The portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest
payments ("coupons") separated from the underlying principal ("corpus") by
their holder, typically a custodian bank or investment brokerage firm. Once
the holder of the security has stripped or separated corpus and coupons, it
may sell each component separately. The principal or corpus is then sold at a
deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. Typically, the coupons are sold separately or
grouped with other coupons with like maturity dates and sold bundled in such
form. The underlying treasury security is held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are owned ostensibly by the bearer or holder thereof), in
trust on behalf of the owners thereof. Purchasers of stripped obligations
acquire, in effect, discount obligations that are economically identical to
the zero coupon securities that the Treasury sells itself.
The United States Treasury has facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities through
the Federal Reserve book-entry record keeping system. Under a Federal Reserve
program known as "STRIPS" or "Separate Trading of Registered Interest and
Principal of Securities," the portfolio can record its beneficial ownership of
the coupon or corpus directly in the book-entry record-keeping system.
Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay the
amount it borrowed (principal) from investors. Some debt securities, however,
are callable, meaning the issuer can repay the principal earlier, on or after
specified dates (call dates). Debt securities are most likely to be called
when interest rates are falling because the issuer can refinance at a lower
rate, similar to a homeowner refinancing a mortgage. The effective maturity of
a debt security is usually its nearest call date.
The portfolio that invests in debt securities has no real maturity. Instead,
it calculates its weighted average maturity. This number is an average of the
stated maturity of each debt security held by the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
II-6
<PAGE>
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or the portfolio that invests in debt securities, to changes in
interest rates. It measures sensitivity more accurately than maturity because
it takes into account the time value of cash flows generated over the life of
a debt security. Future interest payments and principal payments are
discounted to reflect their present value and then are multiplied by the
number of years they will be received to produce a value expressed in years --
the duration. Effective duration takes into account call features and sinking
fund prepayments that may shorten the life of a debt security.
An effective duration of 4 years, for example, would suggest that for each 1%
reduction in interest rates at all maturity levels, the price of a security is
estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities, which
may cause your share price to fall. Lower rates motivate people to pay off
mortgage-backed and asset-backed securities earlier than expected. The
portfolio may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the portfolio. If
left unattended, drifts in the average maturity of the portfolio can have the
unintended effect of increasing or reducing the effective duration of the
portfolio, which may adversely affect the expected performance of the
portfolio.
Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the portfolio's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the portfolio to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security increases
the risk of depreciation due to future increases in market interest rates. For
these reasons, mortgage-backed securities may be less effective than other
types of U.S. government securities as a means of "locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate
II-7
<PAGE>
securities offer higher yields than treasury securities because their payment
of interest and complete repayment of principal is less certain. The credit
rating or financial condition of an issuer may affect the value of a debt
security. Generally, the lower the quality rating of a security, the greater
the risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment
to this "risk premium." Since an issuer's outstanding debt carries a fixed
coupon, adjustments to the risk premium must occur in the price, which effects
the yield to maturity of the bond. If an issuer defaults or becomes unable to
honor its financial obligations, the bond may lose some or all of its value
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if it
believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause the portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolio currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation of
market risk. Appendix A contains further information concerning the ratings of
certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings.
EQUITY SECURITIES
Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks usually
carry voting rights and earn dividends. Unlike preferred stocks, which are
described below, dividends on common stocks are not fixed but are declared at
the discretion of the company's board of directors.
II-8
<PAGE>
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and the
liquidation of the company. However, in all other resects, preferred stocks
are subordinated to the liabilities of the issuer. Unlike common stocks,
preferred stocks are generally not entitled to vote on corporate matters.
Types of preferred stocks include adjustable-rate preferred stock, fixed
dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are debt securities and preferred stocks that are
convertible into common stock at a specified price or conversion ratio. In
exchange for the conversion feature, many corporations will pay a lower rate
of interest on convertible securities than debt securities of the same
corporation. Their market price tends to go up if the stock price moves up.
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities.
Rights and Warrants
A right is a privilege granted to exiting shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued. Rights
normally have a short life, usually two to four weeks, are freely transferable
and entitle the holder to buy the new common stock at a lower price than the
public offering price. Warrants are securities that are usually issued
together with a debt security or preferred stock and that give the holder the
right to buy proportionate amount of common stock at a specified price.
Warrants are freely transferable and are traded on major exchanges. Unlike
rights, warrants normally have a life that measured in years and entitle the
holder to buy common stock of a company at a price that is usually higher than
the market price at the time the warrant is issued. Corporations often issue
warrants to make the accompanying debt security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the
value of the underlying securities, and they cease to have value if they are
not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the
investment as compared with investing the same amount in the underlying
securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows 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;
II-9
<PAGE>
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
II-10
<PAGE>
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 country that the International Bank for
Reconstruction and Development (World Bank) and the International Finance
Corporation would consider to be an emerging or developing country. Typically,
emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and traded
on their stock exchanges through investment funds that they have specifically
authorized. Investments in these investment funds are subject to the
provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
investment funds will bear not only their proportionate share of the expenses
of UAM Fund (including operating expenses and the fees of the adviser), but
also will bear indirectly bear similar expenses of the underlying investment
funds. In addition, these investment funds may trade at a premium over their
net asset value.
Risks of Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
Political and Economic Factors
Local political, economic, regulatory, or social instability, military action
or unrest, or adverse diplomatic developments may affect the value of foreign
investments. Listed below are some of the more important political and
economic factors that could negatively affect an investment in foreign
securities.
. The economies of foreign countries may differ from the economy of the
United States in such areas as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, budget deficits
and national debt;
. Foreign governments sometimes participate to a significant degree, through
ownership interests or regulation, in their respective economies. Actions
by these governments could significantly influence the market prices of
securities and payment of dividends;
. The economies of many foreign countries are dependent on international
trade and their trading partners and they could be severely affected if
their trading partners were to enact protective trade barriers and economic
conditions;
. The internal policies of a particular foreign country may be less stable
than in the United States. Other countries face significant external
political risks, such as possible claims of sovereignty by other countries
or tense and sometimes hostile border clashes; and
. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or
control foreign investments in its securities markets. These restrictions
could limit the portfolio's ability to invest a particular country or make
it very expensive for the
II-11
<PAGE>
portfolio to invest in that country. Some countries require prior
governmental approval, limit the types or amount of securities or companies
in which a foreigner can invest. Other countries may restrict the ability
of foreign investors to repatriate their investment income and capital
gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable United States
companies. The lack of comparable information makes investment decisions
concerning foreign countries more difficult and less reliable than domestic
companies.
Stock Exchange and Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter
(OTC) market located outside of the United States will be the best available
market for foreign securities. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as the markets in the
United States. Foreign stocks markets tend to differ from those in the United
States in a number of ways:
. They are generally not as developed or efficient as, and more volatile,
than those in the United States;
. They have substantially less volume;
. Their securities tend to be less liquid and to experience rapid and erratic
price movements;
. Commissions on foreign stocks are generally higher and subject to set
minimum rates, as opposed to negotiated rates;
. Foreign security trading, settlement and custodial practices are often less
developed than those in U.S. markets; and
. They may have different settlement practices, which may cause delays and
increase the potential for failed settlements.
Foreign Currency Risk
While, the UAM Funds denominate their net asset value in United States
dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in a 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;
II-12
<PAGE>
. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the portfolio to recover
a portion of these taxes, the portion that cannot be recovered will reduce the
income the portfolio receives from its investments. The portfolio does not
expect such foreign withholding taxes to have a significant impact on
performance.
Emerging Markets
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may:
. Have relatively unstable governments;
. Present greater risks of nationalization of businesses, restrictions on
foreign ownership and prohibitions on the repatriation of assets;
. Offer less protection of property rights than more developed countries; and
. Have economies that are based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer
from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
The Euro
The single currency for the European Economic and Monetary Union ("EMU"), the
Euro, is scheduled to replace the national currencies for participating member
countries over a period that began on January 1, 1999 and ends in July 2002.
At the end of that period, use of the Euro will be compulsory and countries in
the EMU will no longer maintain separate currencies in any form. Until then,
however, each country and issuers within each country are free to choose
whether to use the Euro.
On January 1, 1999, existing national currencies became denominations of the
Euro at fixed rates according to practices prescribed by the European Monetary
Institute and the Euro became available as a book-entry currency. On or about
that date, member states began conducting financial market transactions in
Euros and redenominating many investments, currency balances and transfer
mechanisms into Euros. The portfolio also anticipates pricing, trading,
settling and valuing investments whose nominal values remain in their existing
domestic currencies in Euros. Accordingly, the portfolio expects the
conversion to the Euro to impact investments in countries that adopt the Euro
in all aspects of the investment process, including trading, foreign exchange,
payments, settlements, cash accounts, custody and accounting. Some of the
uncertainties surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
II-13
<PAGE>
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
- --------------------------------------------------------------------------------
The portfolio may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by the portfolio. Like other shareholders, the portfolio
would pay its proportionate share those fees. Consequently, shareholders of
the portfolio would pay not only the management fees of the portfolio, but
also the management fees of the investment company in which the portfolio
invests.
The SEC has granted an order that allows the portfolio to invest the greater
of 5% of its total assets or $2.5 million in the UAM DSI Money Market
Portfolio, provided that the investment is:
. For cash management purposes;
. Consistent with the portfolio's investment policies and restrictions; and
. The adviser to the investing portfolio waives any fees it earns on the
assets of the portfolio that are invested in the UAM DSI Money Market
Portfolio.
The portfolio will bear expenses of the UAM DSI Money Market Portfolio on the
same basis as all of its other shareholders.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
In a repurchase agreement, an investor agrees to buy a security (underlying
security) from a securities dealer or bank that is a member of the Federal
Reserve System (counter-party). At the time, the counter-party agrees to
repurchase the underlying security for the same price, plus interest.
Repurchase agreements are generally for a relatively short period (usually not
more than 7 days). The portfolio normally uses repurchase agreements to earn
income on assets that are not invested.
When the portfolio enters into a repurchase agreement it will:
. Pay for the underlying securities only upon physically receiving them or
upon evidence of their receipt in book-entry form; and
. Require the counter party to add to the collateral whenever the price of
the repurchase agreement rises above the value of the underlying security
(i.e., it will require the borrower "mark to the market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the portfolio's right to sell the
security may be restricted. In addition, the value of the security might
decline before the portfolio can sell it and the portfolio might incur
expenses in enforcing its rights.
RESTRICTED SECURITIES
- --------------------------------------------------------------------------------
The portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under
the supervision of the Board, the Adviser determines the liquidity of such
investments by considering all relevant factors. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of
II-14
<PAGE>
the portfolio's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
portfolio or less than what may be considered the fair value of such
securities.
SECURITIES LENDING
- --------------------------------------------------------------------------------
The portfolio may lend a portion of its total assets to broker- dealers or
other financial institutions. It may then reinvest the collateral it receives
in short-term securities and money market funds. When the portfolio lends its
securities, it will follow the following guidelines:
. The borrower must provide collateral at least equal to the market value of
the securities loaned;
. The collateral must consist of cash, an irrevocable letter of credit issued
by a domestic U.S. bank or securities issued or guaranteed by the U. S.
government;
. The borrower must add to the collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis);
. It must be able to terminate the loan at any time;
. It must receive reasonable interest on the loan (which may include the
portfolio investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements. When
the portfolio lends securities, there is a risk that the borrower fails
financially become financially unable to honor its contractual obligations. If
this happens, the portfolio could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED DELIVERY TRANSACTIONS
- --------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, the
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or deliver securities
until a later date. Typically, no income accrues on securities the portfolio
has committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. The
portfolio will only enter into these types of transactions with the intention
of actually acquiring the securities, but may sell them before the settlement
date.
The portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at
the time of purchase. When the portfolio engages in when-issued, delayed-
delivery and forward delivery transactions, it relies on the other party to
consummate the sale. If the other party fails to complete the sale, the
portfolio may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher
II-15
<PAGE>
than those obtained in the transaction itself. Because the portfolio does not
pay for the security until the delivery date, these risks are in addition to
the risks associated with its other investments.
The portfolio will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The portfolio will segregate additional liquid assets daily so
that the value of such assets is equal to the amount of its commitments.
MANAGEMENT OF THE FUND
The governing board manages the business of the Fund. The governing board
elects officers to manage the day-to-day operations of the Fund and to execute
policies the board has formulated. The Fund pays each board member who is not
also an officer or affiliated person (independent board member) a $150
quarterly retainer fee per active portfolio per quarter and a $2,000 meeting
fee. In addition, the Fund reimburses each independent board member for travel
and other expenses incurred while attending board meetings. The $2,000 meeting
fee and expense reimbursements are aggregated for all of the board members and
allocated proportionately among the portfolios of the UAM Funds Complex. The
Fund does not pay board members that are affiliated with the fund for their
services as board members. UAM, its affiliates or SEI pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds Complex. The UAM Funds Complex is currently comprised of 48
portfolios. Those people with an asterisk beside their name are "interested
persons" of the Fund as that term is defined in the 1940 Act. Mr. English does
have an investment advisory relationship with Investment Counselors of
Maryland, an investment adviser to one of the portfolios in the UAM Funds
Complex. However, the Fund does not believe that the relationship is a
material business relationship, and, therefore, does not consider him to be an
"interested person" of the Fund. If these circumstances change, the Board will
determine whether any action is required to change the composition of the
Board.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board President of Squam Investment Management Company, $8,094 $89,900
College Road -- RFD 3 Member Inc. and Great Island Investment Company, Inc.;
Meredith, NH 03253 President of Bennett Management Company from 1988
1/26/29 to 1993.
----------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Financial Officer of World Wildlife Fund since $8,094 $40,575
10 Garden Street Member January 1999; Vice President for Finance and
Cambridge, MA 02138 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
----------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Executive Vice President and Chief Administrative $8,094 $40,930
100 King Street West Member Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law firm
Hamilton Ontario, Dechert Price & Rhoads and a Director of Hofler
Canada L8N-4J6 Corp.
4/21/42
----------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board President and Chief Executive Officer of $8,094 $40,702
16 West Madison Street Member Broventure Company, Inc.; Chairman of the Board of
Baltimore, MD 21201 Chektec Corporation and Cyber Scientific, Inc.
8/5/48
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-16
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From UAM
Position Principal Occupations During the Past 5 from Fund as Funds Complex
Name, Address, DOB with Fund years of 4/30/99 as of 12/31/98
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James P. Pappas* Board President of UAM Investment Services, Inc. since 0 0
211 Congress Street Member March 1999; Vice President UAM Trust Company since
Boston, MA 02110 January 1996; Principal of UAM Fund Distributors,
2/24/53 Inc. since December 1995; Vice President of UAM
Investment Services, Inc. from January 1996 to
March 1999 and a Director and Chief Operating
Officer of CS First Boston Investment Management
from 1993-1995.
----------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Board Chairman, Chief Executive Officer and a Director 0 0
One International Place Member; of United Asset Management Corporation; Director,
Boston, MA 02110 President Partner or Trustee of each of the Investment
3/21/35 and Companies of the Eaton Vance Group of Mutual Funds.
Chairman
----------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Board President and Chief Investment Officer of Dewey 0 0
One Financial Center Member Square Investors Corporation since 1988; Director
Boston, MA 02111 and Chief Executive Officer of H.T. Investors,
7/1/43 Inc., formerly a subsidiary of Dewey Square.
----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; Treasurer of the 0 0
211 Congress Street Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110 held various other offices with Fidelity
7/4/51 Investments from November 1990 to March 1995.
----------------------------------------------------------------------------------------------------------------------------------
Michael E. DeFao Secretary Vice President and General Counsel of UAMFSI and 0 0
211 Congress Street UAMFDI; Associate Attorney of Ropes & Gray (a law
Boston, MA 02110 firm) from 1993 to 1995.
2/28/68
----------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of CGFSC from 1995
Boston, MA 02110 to 1996; Senior Manager of Deloitte & Touche LLP
9/18/63 from 1985 to 1995,
----------------------------------------------------------------------------------------------------------------------------------
Michael J. Leary Assistant Vice President of Chase Global Funds Services 0 0
73 Tremont Street Treasurer Company since 1993. Manager of Audit at Ernst &
Boston, MA 02108 Young from 1988 to 1993.
11/23/65
----------------------------------------------------------------------------------------------------------------------------------
Michelle Azrialy Assistant Assistant Treasurer of Chase Global Funds Services 0 0
73 Tremont Street Secretary Company since 1996. Senior Public Accountant with
Boston, MA 02108 Price Waterhouse LLP from 1991 to 1994.
4/12/69
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control Of Adviser
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
II-17
<PAGE>
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 act as investment advisers to mutual
funds in the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Fund has filed the Investment Advisory Agreement
with the SEC as part of its registration statement on Form N-1A.
Service Performed by Adviser
The adviser:
. Manages the investment and reinvestment of the portfolio's assets;
. Continuously reviews, supervises and administers the investment
program of the portfolio; and
. Determines what portion of the portfolio's assets will be invested in
securities and what portion will consist of cash.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence
on the part of the adviser in the performance of its obligations and duties
under the Investment Advisory Agreement, (2) reckless disregard by the
adviser of its obligations and duties under the Investment Advisory
Agreement, or (3) a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services, the adviser shall not
be subject to any liability whatsoever to the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services under the Investment Advisory Agreement.
Continuing an Investment Advisory Agreement
The Investment Advisory Agreement continues in effect for periods of one
year so long as such continuance is specifically approved at least annually
by a:
. Majority of those Members who are not parties to the Investment
Advisory Agreement or interested persons of any such party;
. (2) (a) majority of the Members or (b) a majority of the shareholders
of the portfolio.
Terminating an Investment Advisory Agreement
The Fund may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the portfolio's shareholders vote to do so; and
. It gives the adviser 60 days' written notice.
. The adviser may terminate the Investment Advisory Agreements at any
time, without the payment of any penalty, upon 90 days' written notice
to the Fund. An Investment Advisory Agreement will automatically and
immediately termi nate if it is assigned.
II-18
<PAGE>
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI is the Fund's distributor. The Fund offers its shares continuously.
While UAMFDI will use its best efforts to sell shares of the Fund, it is
not obligated to sell any particular amount of shares. UAMFDI receives no
compensation for its services. UAMFDI, an affiliate of UAM, is located at
211 Congress Street, Boston, Massachusetts 02110.
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
UAM and each of its affiliates, may, at its own expense, compensate a
Service Agent or other person for marketing, shareholder servicing, record-
keeping and/or other services performed with respect to the Fund, the
portfolio or any class of shares of the portfolio. The person making such
payments may do so out of its revenues, its profits or any other source
available to it. Such services arrangements, when in effect, are made
generally available to all qualified service providers. The adviser may
also compensate its affiliated companies for referring investors to the
portfolio.
ADMINISTRATIVE SERVICES
ADMINISTRATOR
- --------------------------------------------------------------------------------
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend
disbursing and transfer agent services for the Fund. UAMFSI, an affiliate
of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Fund.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
II-19
<PAGE>
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Fund.
UAMFSI will from time to time employ other people to assist it in
performing its duties under the Fund Administration Agreement. Such people
may be officers and employees who are employed by both UAMFSI and the Fund.
UAMFSI will pay such people for such employment. The Fund will not incur
any obligations with respect to such people.
ADMINISTRATION AND TRANSFER AGENCY SERVICES FEES
- --------------------------------------------------------------------------------
The portfolio pays a four-part fee to UAMFSI as follows:
1. In exchange for administrative services, the portfolio pays a fee to
UAMFSI calculated at the annual rate of:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.063% of the aggregate net assets of the portfolio.
2. The portfolio also pays a fee to UAMFSI for sub-administration and
other services provided by SEI. The fee, which UAMFSI pays to SEI, is
calculated at the annual rate of:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the Fund,
UAM Funds, Inc. and UAM Funds Trust II.
3. An annual base fee that UAMFSI pays to DST Systems, Inc. for its
services as transfer agent and dividend-disbursing agent equal to
$10,500 for the first operational class and $10,500 for each additional
class.
4. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational
class and $2,500 for each additional class.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Fund.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for the Fund.
II-20
<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 portfolio. The Investment Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the portfolio. The adviser may select brokers based
on research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the portfolio may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction.
It is not the practice of the Fund to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Fund may place trades with qualified broker
dealers who recommend the Fund or who act as agents in the purchase of Fund
shares for their clients.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for the portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Fund's governing board periodically reviews the
various allocation methods used by the adviser.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, a portfolio will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the portfolio
executes transactions in the over-the-counter market, it will deal with
primary market makers unless prices that are more favorable are otherwise
obtainable.
II-21
<PAGE>
CAPITAL STOCK AND OTHER SECURITIES
THE FUND
- --------------------------------------------------------------------------------
The Fund was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Fund changed its
name to "UAM Funds Trust." The Fund's principal executive office is located
at 211 Congress Street, Boston, MA 02110; however, shareholders should
direct all correspondence to the address listed on the cover of this SAI.
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Fund's Agreement and Declaration of Trust permits the Fund to issue an
unlimited number of shares of beneficial interest, without par value. The
Board has the power to designate one or more series (portfolios) or classes
of shares of beneficial interest without shareholder approval. The Board
has authorized three classes of shares: Institutional Class, Institutional
Service Class, and Advisor Class. Not all of the portfolios issue all of
the classes.
Description of Shares
When issued and paid for, the shares of each series and class of the Fund
are fully paid and nonassessable, and have no pre-emptive rights or
preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Fund have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the
election of board members can elect 100% of the board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in his name on the books of the
Fund. Shares of all classes will vote together as a single class except
when otherwise required by law or as determined by the Board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio,
or in the case of a class, belonging to that portfolio and allocable to
that class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held
by them and recorded on the books of the Fund. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Fund will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. The three classes represent interests in
the same assets of the portfolio and, except as discussed below, are
identical in all respects.
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures.
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income
II-22
<PAGE>
. Dividends
. NAV to the extent the portfolio has undistributed net income.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, the fund will
automatically reinvest all dividends in additional shares of the portfolio
at NAV (as of the business day following the record date). Shareholders may
change their dividend and distributions option by writing to the fund at
least three days before the record date for income dividend or capital gain
distribution.
The fund sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Taxes on Distributions
The portfolio intends to distribute substantially all of its net investment
income and net realized capital gains so as to avoid income taxes on its
dividends and distributions and the imposition of the federal excise tax on
undistributed income and capital gains. However, the portfolio cannot
predict the time or amount of any such dividends or distributions.
Each series of the Fund will be treated as a separate entity (and hence as
a separate "regulated investment company") for federal tax purposes. The
capital gains/losses of one series will not be offset against the capital
gains/losses of another series.
"Buying a Dividend"
Distributions by the portfolio reduce its NAV. A distribution that reduces
the NAV of the portfolio below its cost basis is taxable as described in
the prospectus of the portfolio, although from an investment standpoint, it
is a return of capital. If you buy shares of the portfolio on or just
before the "record date" (the date that establishes which shareholders will
receive an upcoming distribution) for a distribution, you will receive some
of the money you invested as a taxable distribution.
PURCHASE, REDEMPTION AND PRICING OF SHARES
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of a portfolio is equal to
the NAV of the portfolio. The Fund calculates the NAV of the portfolio by
subtracting its liabilities from its total assets and dividing the result
by the total number of shares outstanding. For purposes of this
calculation:
II-23
<PAGE>
. Liabilities include accrued expenses and dividends payable; and
. Total assets include the market value of the securities held by the
portfolio, plus cash and other assets plus income accrued but not yet
received.
The portfolio normally calculates its NAV as of the close of trading on the
NYSE every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Fund Values it Assets
Equity Securities
Equity securities listed on a securities exchange for which market quotations
are readily available are valued at the last quoted sale price of the day.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The converted value is based upon the
bid price of the foreign currency against U.S. dollars quoted by any major
bank or by a broker.
Debt Securities
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the governing board determines that amortized cost reflects fair
value.
Other Assets
The value of other assets and securities for which no quotations are readily
available (including restricted securities) is determined in good faith at
fair value using methods determined by the governing board.
PURCHASE OF SHARES
Service Agents may enter confirmed purchase orders on behalf of their
customers. To do so, the Service Agent must receive your investment order
before the close of trading on the NYSE and must transmit it to the fund
before the close of its business day to receive that day's share price. The
fund must receive proper payment for the order by the time the portfolio
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Fund for timely transmission of all
subscription and redemption requests, investment information, documentation
and money.
Shareholders can buy full and fractional (calculated to three decimal places)
shares of a portfolio. The fund will not issue certificates for fractional
shares and will only issue certificates for whole shares upon the written
request of a shareholder.
The Fund may reduce or waive the minimum for initial and subsequent investment
for certain fiduciary accounts, such as employee benefit plans or under
circumstances, where certain economies can be achieved in sales of the
portfolio's shares.
II-24
<PAGE>
In-Kind Purchases
At its discretion, the Fund may permit shareholders to purchase shares of the
portfolio with securities, instead of cash. If the Fund allows a shareholder
to make an in-kind purchase, it will value such securities according to the
policies described under "How the Fund Values its Assets" at the next
determination of net asset value after acceptance. The Fund will issue shares
of the portfolio at the NAV of the portfolio determined as of the same time.
The Fund will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Fund will only accept in-kind
purchases if the transaction meets the following conditions:
. The securities are eligible investments for the portfolio;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and that
there are no restrictions on their resale imposed by the 1933 Act or
otherwise;
. All dividends, interest, subscription, or other rights pertaining to such
securities become the property of the portfolio and are delivered to the
fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all securities
of the same issuer held by the portfolio cannot exceed 5% of the net assets
of the portfolio. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of shares or
dollar amount the shareholder wishes to redeem signed by all registered
owners of the shares in the exact names in which they are registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations must submit any other
necessary legal documents.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to receive
redemption proceeds. To change an account in this manner, you must submit a
written request signed by each shareholder, with each signature
guaranteed).
. Redeem shares represented by a certificate.
II-25
<PAGE>
The fund and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable for
any losses if they fail to do so. These procedures include requiring the
investor to provide certain personal identification at the time an account is
opened and before effecting each transaction requested by telephone. In
addition, all telephone transaction requests will be recorded and investors
may be required to provide additional telecopied written instructions of such
transaction requests. The Fund or UAMSSC may be liable for any losses due to
unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
does not employ the procedures described above. Neither the Fund nor the
UAMSSC will be responsible for any loss, liability, cost or expense for
following instructions received by telephone that it reasonably believes to be
genuine.
Redemptions-In-Kind
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the portfolio in lieu of
cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities received in payment of
redemptions.
However, the Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the Board
may deem advisable; however, payment will be made wholly in cash unless the
governing board believes that economic or market conditions exist which would
make such a practice detrimental to the best interests of the Fund. If
redemptions are paid in investment securities, such securities will be valued
as set forth under "Valuation of Shares." A redeeming shareholder would
normally incur brokerage expenses if these securities were converted to cash.
Signature Guarantees
The Fund requires signature guarantees for certain types of documents,
including.
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should specify
the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your account,
the Fund and its sub-transfer agent from fraud.
The Fund will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. You can get a complete definition of eligible guarantor
institutions by calling 1-877-826-5465. Broker-dealers guaranteeing signatures
must be a member of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will pay
your redemption proceeds earlier as applicable law so requires.
II-26
<PAGE>
The Fund may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed
. Trading on the NYSE is restricted.
. During any period when an emergency exists as defined by the rules of the
Commission as a result of which it is not reasonably practicable for the
portfolio to dispose of securities owned by it, or to fairly determine the
value of its assets.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do not
charge a sales commission or charge of any kind for exchanges.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The governing
board of the Fund may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and may
be for the purpose of assuring such exchanges do not disadvantage the Fund and
its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of the portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are subject
to the transfer. The signature on the letter of request, the stock certificate
or any stock power must be guaranteed in the same manner as described under
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
Performance Calculations
A portfolio measures its performance by calculating its yield and total
return. Yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The SEC has adopted rules
that require mutual funds to present performance quotations in a standard
manner. Mutual funds can present non-standard performance quotations only if
they also provide certain standardized performance information that they have
computed according to the requirements of the SEC. Current yield and average
annual compounded total return information are calculated using the method of
computing performance mandated by the SEC.
The performance is calculated separately for each Class of a portfolio.
Dividends paid by a portfolio with respect to each Class will be calculated in
the same manner at the same time on the same day and will be in the same
amount, except that service fees, distribution charges and any incremental
transfer agency costs relating to Advisor or Service Class Shares will be
borne exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in the portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period. An average annual total return is a hypothetical rate of return that,
II-27
<PAGE>
if achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period.
The fund calculates the average annual total return of a portfolio by finding
the average annual compounded rates of return over one, five and ten-year
periods that would equate an initial hypothetical $1,000 investment to its
ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount was
completely redeemed at the end of each one, five and ten-year period and the
deduction of all applicable Fund expenses on an annual basis. Since
Institutional Service Class Shares bear additional service and distribution
expenses, their average annual total return will generally be lower than that
of the Institutional Class Shares.
The fund calculates these figures according to the following formula:
P (1 + T)/n/ = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1, 5
or 10 year periods (or fractional portion thereof).
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds. As
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during the
base period. Since Institutional Service Class shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2[((a-b)/(cd)+1)/6/-1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period.
COMPARISONS
- --------------------------------------------------------------------------------
The portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in this SAI. This information may also be included in sales
literature and advertising.
II-28
<PAGE>
To help investors better evaluate how an investment in the portfolio of the
Fund might satisfy their investment objective, advertisements regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages that
may be used.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the composition of investments in the portfolio, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
portfolio to calculate its performance. In addition, there can be no assurance
that the portfolio will continue this performance as compared to such other
averages.
II-29
<PAGE>
III: Glossary
III-1
<PAGE>
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus(es) of the portfolios.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the portfolio.
Board member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.
Distribution Plan refers to the Distribution Plan the Fund has adopted for its
Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.
Fund refers to UAM Funds Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The Big
Board," the NYSE is located on Wall Street and is the largest exchange in the
United States.
Plan member refers to members of the board who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Plans.
Plans refers to the Distribution and Shareholder Servicing Plans the Fund has
adopted for its Service Class Shares pursuant to Rule 12b-1 under the 1940
Act.
SEC is the Securities and Exchange Commission. The SEC is the federal agency
that administers most of the federal securities laws in the United States. In
particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.
Service Plan refers to the Shareholder Servicing Plan the Fund has adopted for
its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.
Service Class means the Institutional Service Class shares of a portfolio.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
and all of their portfolios.
UAM is United Asset Management Corporation.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, the Fund's sub-shareholder-
servicing agent.
III-2
<PAGE>
IV: Appendix A -- Description of Securities and Ratings
IV-1
<PAGE>
Moody's Investors Service, Inc.
PREFERRED STOCK RATINGS
- -------------------------------------------------------------------------------
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stock.
aa An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classification, earnings and
asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may
be questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long periods of
time may be small.
caa An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to
indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood
of eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY
- -------------------------------------------------------------------------------
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
IV-2
<PAGE>
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest .
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT & DEPOSITS GLOBALLY
- --------------------------------------------------------------------------------
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
sample asset protection.
. Broad leading market positions in well-established industries.
. margins in earnings coverage of fixed financial charges and high internal
cash generation.
. Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Prime 3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
IV-3
<PAGE>
Standard & Poor's Ratings Services
PREFERRED STOCK RATINGS
- --------------------------------------------------------------------------------
AAA This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely
strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-
quality, fixed-income security. The capacity to pay preferred
stock obligations is very strong , although not as overwhelming
as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category .
BB, B, CCC Preferred stock rated BB, B, and CCC are regarded, on balance,
as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest. While such
issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is
currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer
in default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Plus (+) or To provide more detailed indications of preferred stock quality,
minus (-) ratings from AA to CCC may be modified by the addition of a plus
or minus sign to show relative standing within the major rating
categories.
LONG-TERM ISSUE CREDIT RATINGS
- --------------------------------------------------------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA An obligation rated AAA have the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is ve ry strong.
A An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher- rated categories.
However, the obligor's capacity to meet its financial commitment
on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligator
to meet its financial commitment on the obligation.
IV-4
<PAGE>
Obligations rated BB, B, CCC , CC and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial
commitment on the obligation .
CCC An obligation rated CCC is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the
obligations.
CC An obligation rated CC is currently highly vulnerable to
nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
- -------------------------------------------------------------------------------
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating in which the short-term rating
addresses the put feature, in addition to the usual long-term rating.
Medium-term notes are assigned long-term ratings.
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligation in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
IV-5
<PAGE>
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has
not expired, unless Standard & Poors' believes that such
payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition or
the taking of a similar action if payments on an obligation
are jeopardized.
Duff & Phelps Credit Rating Co.
LONG-TERM DEBT AND PREFERRED STOCK
- -------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+/AA High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic
stress.
BBB+/BBB Below-average protection factors but still considered
BBB- sufficient for prudent investment. Considerable variability in
risk during economic cycles.
BB+/BB/BB- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors
fluctuate according to industry conditions. Overall quality
may move up or down frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation
will not be net when due. Financial protection factors will
fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest
or preferred dividends. Protection factors are narrow and risk
can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
High Grade
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
IV-6
<PAGE>
Good Grade
D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
Fitch IBCA Ratings
INTERNATIONAL LONG-TERM CREDIT RATINGS
- -------------------------------------------------------------------------------
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment for financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
B Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a possibility
of credit risk developing, particularly as the result of
adverse economic change over time; however, business or
financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are
not investment grade.
B Highly speculative. 'B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
IV-7
<PAGE>
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A 'CC' rating
indicates that default of some kind appears probable. 'C' ratings
signal imminent default.
DDD,DD,D Default. Securities are not meeting current obligations and are
extremely speculative. 'DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For
U.S. corporates, for example, 'DD' indicates expected recovery of
50% - 90% of such outstandings, and 'D' the lowest recovery
potential, i.e. below 50%.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse
changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained ,
favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
Notes
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the 'AAA' long-term rating
category, to categories below 'CCC', or to short-term ratings other than 'F1'.
'NR' indicates that Fitch IBCA does not rate the issuer or issue in question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is
a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
IV-8
<PAGE>
V: Appendix B - Comparisons
V-I
<PAGE>
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics -- a statistical measure of change, over time in the price
of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on the
New York Stock Exchange. It has been a widely followed indicator of the stock
market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper Analytical Services, Inc., Morningstar,
Inc., New York Times, Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance over
specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable - an average of all major money market
fund yields, published weekly for 7- and 30-day yields.
IFC Investable Index - an unmanaged index maintained by the International
Finance Corporation. This index consists of 890 companies in 25 emerging
equity markets, and is designed to measure more precisely the returns
portfolio managers might receive from investment in emerging markets equity
securities by focusing on companies and markets that are legally and
practically accessible to foreign investors.
Lehman Aggregate Bond Index - an unmanaged fixed income market value-weighted
index that combines the Lehman Government/Corporate Index and the Lehman
Mortgage-Backed Securities Index, and includes treasury issues, agency issues,
corporate bond issues and mortgage backed securities. It includes fixed rate
issuers of investment grade (BBB) or higher, with maturities of at least one
year and outstanding par values of at least $200 million for U.S. government
issues and $25 million for others.
Lehman Corporate Bond Index - an unmanaged indices of all publicly issues,
fixed-rate, nonconvertible investment grade domestic corporate debt. Also
included are yankee bonds, which are dollar-denominated SEC registered public,
noncovertible debt issued or guaranteed by foreign sovereign governments,
municipalities, or governmental agencies, or international agencies.
Lehman Government Bond Index -an unmanaged treasury bond index including all
public obligations of the U.S. Treasury, excluding flower bonds and foreign-
targeted issues, and the Agency Bond Index (all publicly issued debt of U.S.
government agencies and quasi-federal corporation, and corporate debt
guaranteed by the U.S. government). In addition to the aggregate index, sub-
indices cover intermediate and long term issues.
Lehman Government/Corporate Index -- an unmanaged fixed income market value-
weighted index that combines the Government and Corporate Bond Indices,
including U.S. government treasury securities, corporate and yankee bonds.
All issues are investment grade (BBB) or higher, with maturities of at least
one year and outstanding par value of at least $100 million of U.S. government
issues and $25 million for others. Any security downgraded during the month is
held in the index until month end and then removed. All returns are market
value weighted inclusive of accrued income.
V-2
<PAGE>
Lehman High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar
denominated, noncovertible, have at least one year remaining to maturity and
an outstanding par value of at least $100 million.
Lehman Intermediate Government/Corporate Index - an unmanaged fixed income
market value-weighted index that combines the Lehman Government Bond Index
(intermediate-term sub-index) and Lehman Corporate Bond Index.
Lipper 1-5 Year Short Investment Grade Debt Funds Average -- is an average of
100 funds that invest at least 65% of assets in investment grade debt issues
(BBB or higher) with dollar-weighted average maturities of 5 years or less.
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all time a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing 60%
or more of the portfolio in equities.
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds which by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase.
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by prospectus
or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase.
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size in this investment objective.
Lipper Mutual Fund Performance Analysis and Lipper -Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions, exclusive
of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an unmanaged
index composed of U.S. treasuries, agencies and corporates with maturities
from 1 to 4.99 years. Corporates are investment grade only (BBB or higher).
Morgan Stanley Capital International EAFE Index -- arithmetic, market value-
weighted averages of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.
New York Stock Exchange composite or component indices -- unmanaged indices of
all industrial, utilities, transportation and finance stocks listed on the New
York Stock Exchange.
Russell 1000 Index - an unmanaged index composed of the 1000 largest stocks in
the Russell 3000 Index.
Russell 2000 Growth Index - contains those Russell 2000 securities with higher
price-to-book ratios and higher forecasted growth values.
Russell 2000 Index -- an unmanaged index composed of the 2,000 smallest stocks
in the Russell 3000 Index.
V-3
<PAGE>
Russell 2000 Value Index - contains those Russell 2000 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values than the growth universe.
Russell 2500 Growth Index - contains those Russell 2500 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe.
Russell 2500 Index - an unmanaged index composed of the 2,5000 smallest stocks
in the Russell 3000.
Russell 2500 Value Index - contains those Russell 2500 securities with a less-
than-average growth orientation. Securities in this index tend to exhibit
lower price-to-book and price-earnings ratios, higher dividend yields and
lower forecasted growth values then the Growth universe.
Russell 3000 Index - composed of the 3,000 largest U.S. publicly traded
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell Mid-Cap Index -- is composed of the 800 smallest stocks in the Russell
1000 Index, with an average capitalization of $1.96 billion.
Salomon Smith Barney Global excluding U.S. Equity Index - an comprised of the
smallest stocks (less than $1 billion market capitalization) of the Extended
Market Index, of both developed and emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill issues.
Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.
Standard & Poor's 600 Small Cap Index - an unmanaged index comprised of 600
domestic stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors.
Standard & Poor's Midcap 400 Index -- consists of 400 domestic stocks chosen
for market size (medium market capitalization of approximately $700 million),
liquidity, and industry group representation. It is a market-value weighted
index with each stock affecting the index in proportion to its market value.
Standard & Poor's 500 Stock Index- an unmanaged index composed of 400
industrial stocks, 40 financial stocks, 40 utilities stocks and 20
transportation stocks.
Standard & Poor's Barra Value Index - is constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. This index
contains the securities with the lower price-to-book ratios; the securities
with the higher price-to-book ratios are contained in the Standard & Poor's
Barra Growth Index.
Standard & Poor's Utilities Stock Price Index - a market capitalization
weighted index representing three utility groups and, with the three groups,
43 of the largest utility companies listed on the New York Stock Exchange,
including 23 electric power companies, 12 natural gas distributors and 8
telephone companies.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
V-4
<PAGE>
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line -- composed of over 1,600 stocks in the Value Line Investment
Survey.
Wilshire Real Estate Securities Index - a market capitalization weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used
by he institutional investment community as a broad measure of the performance
of public real estate equity for asset allocation and performance comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.
V-5
