<PAGE>
Securities Act File No. 33-79858
Investment Company Act of 1940 File No. 811-8544
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 44 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 45 /X/
UAM FUNDS TRUST
(Exact Name of Registrant as specified in Charter)
c/o UAM Fund Services, Inc.
211 Congress St., 4/th/ Floor
Boston, Massachusetts 02110
Registrant's Telephone Number (617) 542-5440
(Address of Principal Executive Offices)
----------------------------------------
Gary L. French, Treasurer
UAM Fund Services, Inc.
211 Congress Street
Boston, Massachusetts 02110
(Name and Address of Agent for Service)
---------------------------------------
COPY TO:
Audrey C. Talley, Esq.
Drinker Biddle & Reath LLP
One Logan Square
Philadelphia, PA 191037
It is proposed that this filing become effective (check appropriate box):
[X] Immediately upon filing pursuant to Paragraph (b)
[_] on (date) pursuant to Paragraph (b)
[_] 60 days after filing pursuant to paragraph (a) (1)
[_] on (date) pursuant to paragraph (a) (1)
[_] 75 days after filing pursuant to Paragraph (a) (2)
[_] on (date) pursuant to Paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
PART A
UAM FUNDS TRUST
The prospectuses for the following portfolios are included in this Post-
Effective Amendment No. 44 to the Registration Statement, filed on August 28,
2000.
. BHM&S Total Return Bond Portfolio Institutional Class Shares
. BHM&S Total Return Bond Portfolio Institutional Service Class Shares
. Cambiar Opportunity Portfolio Institutional Class Shares
. Chicago Asset Management Intermediate Bond Portfolio
. Chicago Asset Management Value/Contrarian Portfolio
. Clipper Focus Portfolio Institutional Class Shares
. MJI International Equity Portfolio Institutional Class Shares
. MJI International Equity Portfolio Institutional Service Class Shares
. Pell Rudman Mid-Cap Growth Portfolio Institutional Class Shares
. PIC Twenty Portfolio Institutional Class Chares
. Sirach Growth II Portfolio Institutional Class Shares
. TJ Core Equity Portfolio Institutional Service Class Shares
. TS&W International Octagon Portfolio Institutional Class Shares
Supplement, dated August 28, 2000, to the prospectuses listed above, is included
in this Post-Effective Amendment No. 44 to the Registration Statement, filed on
August 28, 2000.
The Institutional Class prospectus for FPA Crescent Portfolio dated July 31,
2000, along with a Supplement dated July 31, 2000, is contained in Post-
Effective Amendment No. 43, filed on July 27, 2000.
The Advisor Class and Institutional Class prospectuses for Heitman Real Estate
Portfolio are contained in Post-Effective Amendment No. 42, filed on April 28,
2000.
The Institutional Class and the Institutional Service Class prospectuses for IRA
Capital Preservation Portfolio (formerly known as Dwight Capital Preservation
Portfolio) are contained in Post-Effective Amendment No. 41, filed on February
28, 2000.
<PAGE>
PART B
UAM FUNDS TRUST
The statements of additional information for the following portfolios is
included in this Post-Effective Amendment No. 44 to the Registration Statement,
filed August 28, 2000:
. BHM&S Total Return Bond Portfolio
. Cambiar Opportunity Portfolio
. Chicago Asset Management Intermediate Bond Portfolio and Chicago Asset
Management Value/Contrarian Portfolio
. Clipper Focus Portfolio
. MJI International Equity Portfolio
. Pell Rudman Mid-Cap Growth Portfolio
. PIC Twenty Portfolio
. TJ Core Equity Portfolio
. Sirach Growth II Portfolio
. TS&W International Octagon Portfolio
The statement of additional information for FPA Crescent Portfolio is contained
in Post-Effective Amendment No. 43, filed on July 31, 2000.
The statement of additional information for Heitman Real Estate Portfolio is
contained in Post-Effective Amendment No. 42 to
this Registration Statement, filed on April 28, 2000.
The statement of additional information for IRA Capital Preservation Portfolio
(formerly known as the Dwight Capital Preservation Portfolio) is contained in
Post-Effective Amendment No. 41 to this Registration Statement, filed on
February 28, 2000.
<PAGE>
PART C
UAM FUNDS TRUST
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibits previously filed by the Fund are incorporated by reference to such
filings. The following table describes the location of all exhibits. In the
table, the following references are used: PEA 44 = Post Effective Amendment No
44, filed herewith; PEA 43 = Post Effective Amendment No. 43, filed on July 27,
2000; PEA 42 = Post Effective Amendment No. 42 filed on April 28, 2000; Post-
Effective Amendment No. 41 filed on February 28, 2000; PEA 39 = Post-Effective
Amendment No. 39 filed on December 28, 1999; PEA 35 = Post-Effective Amendment
No. 35 filed on August 9, 1999; PEA 34 = Post-Effective Amendment No. 34 filed
on July 28, 1999, PEA 30 = Post-Effective Amendment No. 30 filed on April 23,
1999, PEA 29 = Post-Effective Amendment No. 29 filed on April 12, 1999, PEA 27 =
Post-Effective Amendment No. 27 filed on February 5, 1999, PEA 24 = Post
Effective Amendment No. 24 filed on July 10, 1998; PEA 19 = Post-Effective
Amendment No. 19 filed on February 3, 1998; PEA17 = Post-Effective Amendment No.
17 filed on December 15, 1997, PEA16 = Post-Effective Amendment No. 16 filed on
July 10, 1997.
<TABLE>
<CAPTION>
Incorporated by
Exhibit Reference to (Location):
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<S> <C> <C>
A. 1. Agreement and Declaration of Trust PEA 24
2. Certificate of Trust PEA 24
3. Certificate of Amendment to Certificate of Trust PEA 24
B. 1. By-Laws PEA 24
2. Amendment to By-Laws dated December 10, 1998 PEA 27
C. 1. Form of Specimen Share Certificate PEA 24
2. The rights of security holders are defined in the Registrant's Agreement and Declaration of PEA 24
Trust and By-Laws
D. 1. Investment Advisory Agreement between Registrant and Barrow, Hanley, Mewhinney & Strauss PEA 27
2. Investment Advisory Agreement between Registrant and Cambiar Investors, Inc. PEA 27
3. Investment Advisory Agreement between Registrant and Chicago Asset Management Company PEA 27
(Intermediate Bond Portfolio)
4. Investment Advisory Agreement between Registrant and Chicago Asset Management Company PEA 27
(Value/Contrarian Portfolio)
5. Investment Advisory Agreement between Registrant and Dwight Asset Management Company PEA 27
7. Investment Advisory Agreement between Registrant and First Pacific Advisors, Inc. PEA 27
8. Investment Advisory Agreement between Registrant and Hanson Investment Management Company PEA 27
9. Investment Advisory Agreement between Registrant and Heitman/PRA Securities Advisors, Inc. PEA 27
10. Investment Advisory Agreement between Registrant and Jacobs Asset Management, L.P. PEA 27
10. A. Form of Amendment to Investment Advisory Agreement between Registrant and Jacobs Asset PEA 43
Management, L. P.
11. Investment Advisory Agreement between Registrant and Murray Johnstone International Limited PEA 27
12. Investment Advisory Agreement between Registrant and Pacific Financial Research, Inc. PEA 27
13. Investment Advisory Agreement between Registrant and Pell Rudman Trust Company, N.A. PEA 27
14. Investment Advisory Agreement between Registrant and Provident Investment Counsel PEA 39
15. Investment Advisory Agreement between Registrant and Tom Johnson Investment Management PEA 27
16. Form of Interim Investment Advisory Agreement between Registrant and Sirach Capital filed herewith
Management, Inc.
E. 1. Distribution Agreement between Registrant and UAM Fund Distributors PEA 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Exhibit Reference to (Location)
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<S> <C>
E. 2. Distribution Agreement between Registrant and UAM Fund Distributors, Inc. dated as of March
31, 1999 (Advisor Class Shares) PEA 29
2. Distribution Agreement between Registrant and ACG Capital Corporation (Advisor Class Shares) PEA 19
4. Amendment to Distribution Agreement between Registrant and ACG Capital Corporation dated as PEA 29
E.5.A Form of Selling Dealer Agreement - Institutional Service Class Shares PEA 42
B. Form of Selling Dealer Agreement - Institutional Class Shares PEA 42
C. Form of Broker Services Agreement - Institutional Service Class Shares PEA 42
D. Form of Broker Services Agreement - Institutional Class Shares PEA 42
F. Trustees' and Officers' Contracts and Programs Not applicable
G. 1. Global Custody Agreement PEA 16
H. 1. Fund Administration Agreement PEA 27
2. Fund Administration Agreement Fee Schedule PEA 30
3. Mutual Funds Service Agreement PEA 41
I. Opinions and Consents of Counsel PEA 34, PEA 39, PEA 41
42, 43, filed herewith
J. Consent of Independent Auditors PEA 34, PEA 35, PEA 39
PEA 41, 42, 43, filed
herewith
K. Other Financial Statements Not applicable
L. Purchase Agreement PEA 24
M. 1. Distribution Plan PEA 24
2. Shareholder Services Plan PEA 24
3. Service Agreement PEA 24
N. Amended and Restated Rule 18f-3 Multiple Class Plan PEA 24
O. Powers of Attorney PEA 24, PEA 27
P. 1. Code of Ethics of The UAM Funds PEA 43
2. Code of Ethics of UAM Fund Distributors, Inc. (distributor) PEA 43
3. Code of Ethics - Cambiar Investors, Inc. (investment adviser) PEA 43
4. Code of Ethics - Chicago Asset Management Company (investment adviser) PEA 43
5. Code of Ethics - Dwight Asset Management Company (investment adviser) PEA 43
6. Code of Ethics - First Pacific Advisors, Inc. (investment adviser) PEA 43
7. Code of Ethics - Heitman/PRA Securities Advisors, Inc. (investment adviser) PEA 43
8. Code of Ethics - Murray Johnstone International Limited (investment adviser) PEA 43
9. Code of Ethics - Pacific Financial Research, Inc. (investment adviser) PEA 43
10. Code of Ethics - Pell Rudman Trust Company (investment adviser) PEA 43
11. Code of Ethics - Provident Investment Counsel, Inc. (investment adviser) PEA 43
12. Code of Ethics - Sirach Capital Management, Inc. (investment adviser) filed herewith
13. Code of Ethics - Thompson, Siegel & Walmsley, Inc. (investment adviser) PEA 43
14. Code of Ethics - Tom Johnson Investment Management, Inc. (investment adviser) PEA 43
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not applicable.
<PAGE>
ITEM 25. INDEMNIFICATION
Reference is made to Article VI of Registrant's Declaration of Trust, which is
incorporated herein by reference. Registrant hereby also makes the undertaking
consistent with Rule 484 under the Securities Act of 1933, as amended. Insofar
as indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Provisions for indemnification of UAM Fund Services, Inc. are contained in
Section 6 of its Fund Administration Agreement with the Registrant.
Provisions for indemnification of the Registrant's investment advisers are
contained in Section 7 of their respective Investment Advisory Agreements with
the Registrant.
Provisions for indemnification of Registrant's principal underwriter, UAM Fund
Distributors, Inc., are contained in its Distribution Agreement with the
Registrant.
Provisions for indemnification of Registrant's custodian, The Chase Manhattan
Bank, are contained in Section 12 of its Fund Global Custody Agreement with the
Registrant.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Investment Adviser" in the Prospectuses
constituting Part A of this Registration Statement and "Investment Adviser" in
Part B of this Registration Statement. Except for information with respect to
Pell Rudman Trust Company, N.A., the information required by this Item 26 with
respect to each director, officer, or partner of each other investment adviser
of the Registrant is incorporated by reference to the Forms ADV filed by the
investment advisers listed below with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940, as amended, under the file
numbers indicated:
<TABLE>
<CAPTION>
Investment Adviser File No.
------------------ --------
<S> <C>
Barrow, Hanley, Mewhinney & Strauss, Inc. 801-31237
Cambiar Investors, Inc. 801-09538
Chicago Asset Management Company 801-20197
Dwight Asset Management Company 801-45304
First Pacific Advisors, Inc. 801-39512
Heitman/PRA Securities Advisors, Inc. 801-48252
Murray Johnstone International Ltd. 801-34926
Pacific Financial Research, Inc. 801-54352
Provident Investment Counsel, Inc. 801-47993
Sirach Capital Management, Inc. 801-33477
Thompson, Siegel & Walmsley, Inc. 801-06273
Tom Johnson Investment Management, Inc. 801-42549
</TABLE>
<TABLE>
<CAPTION>
Positions and Offices with Pell Rudman Positions and Offices with Pell
Name and Principal Business Address Trust Company, N.A. Rudman & Co., Inc.
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey S. Thomas Director Chief Financial Officer of
100 Federal Street Pell, Rudman & Co., Inc.
Boston, Massachusetts
----------------------------------------------------------------------------------------------------------------------------
Edward I. Rudman Director Chairman and President of Pell,
100 Federal Street Rudman & Co., Inc.
Boston, Massachusetts
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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James S. McDonald Director Executive Vice President of
100 Federal Street Pell, Rudman & Co., Inc.
Boston, Massachusetts
-------------------------------------------------------------------------------------------------------------------------------
Susan W. Hunnewell Director Senior Vice President of Pell,
100 Federal Street Rudman & Co., Inc.
Boston, Massachusetts
</TABLE>
Barrow, Hanley, Mewhinney & Strauss, Inc., Cambiar Investors, Inc., Chicago
Asset Management Company, Dwight Asset Management Company, First Pacific
Advisors, Inc., Hanson Investment Management Company, Heitman/PRA Securities
Advisors, Inc., Murray Johnstone International Ltd., Pacific Financial Research,
Inc., Pell Rudman Trust Company, N.A., Provident Investment Counsel, Sirach
Capital Management, Inc, Thompson, Siegel & Walmsley Inc., and Tom Johnson
Investment Management, Inc., are affiliates of United Asset Management
Corporation ("UAM"), a Delaware corporation owning firms engaged primarily in
institutional investment management.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) UAM Fund Distributors, Inc. ("UAMFDI") acts as distributor of the
registrant's shares. ACG Capital Corporation ("ACG") also acts as limited
co-distributor of the Heitman Real Estate Portfolio Advisor Class Shares.
(b) The information required with respect to each director and officer of
UAMFDI is incorporated by reference to Schedule A of Form BD filed pursuant
to the Securities and Exchange Act of 1934 (SEC File No. 8-41126).
(c) The information required with respect to each Director and officer of ACG
is incorporated by reference to Schedule A of Form BD filed pursuant to the
Securities and Exchange Act of 1934 (SEC File No. 8-47813).
(d) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act of 1940, as amended, and the rules promulgated thereunder
will be maintained in the physical possession of the Registrant, the
Registrant's Advisers, the Registrant's Administrator (UAM Fund Services, Inc.,
211 Congress Street, 4th Floor, Boston, MA 02110), Sub-Administrative Agent (SEI
Investments Mutual Funds Services, 530 East Swedesford Road, Wayne, PA 19087-
1658), Sub-Shareholder Servicing Agent (UAM Shareholder Services Center, Inc.,
825 Duportail Road, Wayne, PA 19087), the Registrant's Sub-Transfer Agent (DST
Systems, Inc., 210 West 10/th/ Street, Kansas City, MO 64105), and the
Registrant's Custodian Bank (The Chase Manhattan Bank 4 Chase MetroTech Center,
Brooklyn, New York, 11245).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the registrant certifies that it meets all of the requirement for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Boston, and State
of Massachusetts on the 28th day of August, 2000.
UAM FUNDS TRUST
/s/ Linda T. Gibson
-------------------
Linda T. Gibson
Secretary
Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities indicated on
this 28th day of August, 2000.
*
___________________________
Norton H. Reamer, Chairman and
President
*
___________________________
John T. Bennett, Jr., Trustee
*
___________________________
Nancy J. Dunn, Trustee
*
___________________________
Philip D. English, Trustee
*
___________________________
William A. Humenuk, Trustee
*
___________________________
James P. Pappas, Trustee
*
___________________________
Peter M. Whitman, Jr., Trustee
/s/ Gary L. French
------------------
Gary L. French, Treasurer
/s/ Gary L. French
------------------
* Gary L. French
(Attorney-in-Fact)
<PAGE>
UAM FUNDS
FUNDS FOR THE INFORMED INVESTOR SM
Supplement dated August 28, 2000, to the prospectuses for each of the following
portfolios:
BHM&S Total Return Bond Portfolio, Cambiar Opportunity Portfolio, Chicago Asset
Management Intermediate Bond Portfolio, Chicago Asset Management
Value/Contrarian Portfolio, Clipper Focus Portfolio, MJI International Equity
Portfolio, Pell Rudman Mid-Cap Growth Portfolio, PIC Twenty Portfolio, Sirach
Growth II Portfolio, TJ Core Equity Portfolio, and TS&W International Octagon
Portfolio (each a "fund").
Each fund's adviser is an affiliate of United Asset Management Corporation.
On June 19, 2000, Old Mutual, plc and United Asset Management Corporation
announced an agreement for Old Mutual to acquire United Asset Management
Corporation. Old Mutual is a UK-based financial services group with
substantial asset management, insurance and banking businesses. The closing
of the transaction is expected to take place during the fourth quarter of
2000 and is subject to a number of conditions. As required by the
Investment Company Act of 1940, the funds' board of trustees has called a
shareholders meeting for October 27, 2000 to seek shareholder approval of a
new investment advisory agreement with each fund's adviser, to take effect
upon the consummation of the transaction. The new agreement will be
identical to the current agreement in all respects except for its effective
and termination dates. The new agreement will have no effect on the
contractual advisory fee rate payable by the fund. No changes are currently
planned which would affect the services being provided to the fund.
UAM logo (registered trademark)
<PAGE>
UAM FUNDS TRUST
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
D. 16 Form of Interim Investment Advisory Agreement between Registrant
and Sirach Capital Management, Inc.
I. Consent of PricewaterhouseCoopers LLC
J. Other Opinions and Consents
P. 12 Code of Ethics of Sirach Capital Management, Inc.
<PAGE>
UAM Funds
Funds for the Informed Investor/sm/
BHM&S Total Return Bond Portfolio
Institutional Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary.................................................................. 1
What are the Fund's Objectives?.............................................. 1
What are the Fund's Principal Investment Strategies?......................... 1
What are the Fund's Principal Risks?......................................... 2
How Has the Fund Performed?.................................................. 3
What are the Fund's Fees and Expenses?....................................... 3
Investing with the UAM Funds.................................................. 5
Buying Shares................................................................ 5
Redeeming Shares............................................................. 6
Exchanging Shares............................................................ 8
Transaction Policies......................................................... 8
Account Policies.............................................................10
Additional Information About the Fund.........................................12
Other Investment Practices and Strategies....................................12
Investment Management........................................................13
Shareholder Servicing Arrangements...........................................14
Additional Classes...........................................................14
Financial Highlights..........................................................15
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks maximum long-term total return consistent with reasonable
risk to principal by investing in investment grade fixed income securities
of varying maturities. The fund may change its investment objective with-
out shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
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The fund invests at least 90% of its total assets in dollar-denominated
investment-grade debt securities. The fund tries to maintain an average
weighted duration comparable to the Salomon Brothers' Broad Index or Leh-
man Brothers Aggregate Index, which is approximately five years. To manage
its duration, the fund may hedge its interest rate risk by purchasing and
selling futures. If a security is not rated, or is rated under a different
system, the adviser may determine that it is of investment grade. The ad-
viser may retain securities that are downgraded if it believes that keep-
ing those securities is warranted.
A debt security is an interest bearing security that corporations and gov-
ernments use to borrow money from investors. The issuer of a debt security
promises to pay interest at a stated rate, which may be variable or fixed,
and to repay the amount borrowed at maturity (dates when debt securities
are due and payable). The fund may invest in a variety of types of debt
securities, including those issued by corporations and the U.S. government
and its agencies, mortgage-backed and asset-backed securities (securities
that are backed by pools of loans or mortgages assembled for sale to in-
vestors), municipal notes and bonds, commercial paper and certificates of
deposit.
The adviser expects to manage the fund actively, focusing on security se-
lection, sector concentration and yield curve positioning. The adviser in-
vests the assets of the fund in securities, industry sectors and maturity
ranges that it believes the market has undervalued. The adviser believes
that it can minimize volatility and generate superior returns over the
long-term by investing in high quality securities that possess above-aver-
age effective yields and the potential for capital appreciation.
The adviser does not attempt to time the market because it believes there
are too many variables to successfully forecast economic conditions con-
sistently. Therefore, the fund will maintain a conservative intermediate
maturity structure (10 years or less) and will diversify its assets along
the yield curve.
1
<PAGE>
The adviser's security selection process begins by analyzing a bond's
yield-to-maturity premium (or spread) versus the most recently issued U.S.
treasury security of similar maturity. Once it identifies bonds with an
above-average premium, it then evaluates factors that could influence the
future premium such as credit quality, security structure and
supply/demand. The objective of this process is to identify those issues
whose yield premium will compress or narrow over a wide range of potential
interest rate changes, supporting superior long term performance.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with most funds that invest in debt securities, changes in interest
rates are one of the most important factors that could affect the value of
your investment. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) and the fund's share
price to fall. Rising interest rates may also cause investors to pay off
mortgage-backed and asset-backed securities later than anticipated forcing
the fund to keep its money invested at lower rates. Falling interest
rates, however, generally cause investors to pay off mortgage-backed and
asset-backed securities earlier than expected, forcing the fund to rein-
vest the money at a lower interest rate.
The credit rating or financial condition of an issuer may also affect the
value of a debt security. Generally, the lower the quality rating of a se-
curity, the greater the risk that the issuer will fail to pay interest
fully and return principal in a timely manner. If an issuer defaults or
becomes unable to honor its financial obligations, the security may lose
some or all of its value. The issuer of an investment-grade security is
more likely to pay interest and repay principal than an issuer of a lower
rated bond. Adverse economic conditions or changing circumstances, howev-
er, may weaken the capacity of the issuer to pay interest and repay prin-
cipal.
2
<PAGE>
HOW HAS THE FUND PERFORMED?
--------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
this class of the fund. The bar chart shows how performance of the fund
has varied from year to year. The average annual return table compares the
average annual returns of the fund to those of a broad-based securities
market index. Returns are based on past results and are not an indication
of future performance.
Calendar Year Returns
[GRAPH]
1996 3.48%
1997 8.83%
1998 7.41%
1999 -2.31%
During the periods shown in the chart for the fund, the highest return for
a quarter was 3.57% (quarter ending 06/30/97) and the lowest return for a
quarter was -1.76% (quarter ending 06/30/99). For the period from January
1, 2000, through June 30, 2000, the fund returned 3.00%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 11/1/95*
------------------------------------------------------
<S> <C> <C>
BHM&S Total Return Bond Portfolio -2.31% 4.70%
------------------------------------------------------
Lehman Brothers Aggregate Bond Index -0.83% 5.97%
</TABLE>
* Beginning of operations. Index comparisons begin on October 31, 1995.
WHAT ARE THE FUND'S FEES AND EXPENSES?
--------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
3
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.35%
--------------------------------------------
Other Expenses 1.50%
--------------------------------------------
Total Annual Fund Operating Expenses 1.85%
</TABLE>
Example
This example can help you to compare the cost of investing in this class
of the fund to the cost of investing in other mutual funds. The example
assumes you invest $10,000 in the fund for the periods shown and then re-
deem all of your shares at the end of those periods. The example also as-
sumes 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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$188 $582 $1,001 $2,169
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful to
you when you contact the UAM Funds to purchase or exchange shares, check daily
net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
BHMSX 902556109 629
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an investment's fair
value according to methods established by the Board. The
8
<PAGE>
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
12
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
Portfolio Turnover
The fund may buy and sell investments relatively often. Such a strategy
often involves higher expenses, including brokerage commissions, and may
increase the amount of capital gains (and, in particular, short-term
gains) realized by the fund. Shareholders must pay tax on such capital
gains.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Barrow, Hanley, Mewhinney & Strauss, Inc., a Texas corporation located at
One McKinney Plaza, 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204,
is the investment adviser to the fund. The adviser manages and supervises
the investment of the fund's assets on a discretionary basis. The adviser,
an affiliate of United Asset Management Corporation, has specialized in
the active management of stocks, bonds and balanced portfolios for insti-
tutional and tax-exempt clients since 1979. The adviser currently provides
and offers investment management services to corporate, public and Taft-
Hartley employee benefit plans, foundations, endowments, health care and
other institutions and investors.
During its most recent fiscal year, the fund paid 0.35% of its average net
assets in advisory fees to the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
13
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate for the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
ADDITIONAL CLASSES
-------------------------------------------------------------------------------
The fund also offers Institutional Service Class shares, which pay market-
ing or shareholder servicing fees. Since Institutional Service Class
shares have higher expenses, their performance will be lower than perfor-
mance of the the Institutional Class.
14
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the periods indicated. Certain infor-
mation contained in the table reflects the financial results for a single
share. The total returns in the table represent the rate that an investor
would have earned on an investment in the fund assuming all dividends and
distributions were reinvested. PricewaterhouseCoopers LLP has audited this
information. The financial statements and the unqualified opinion of
PricewaterhouseCoopers LLP are included in the annual report of the fund,
which is available upon request by calling the UAM Funds at 1-877-826-
5465.
<TABLE>
<CAPTION>
Period Ended April 30, 2000 1999** 1998** 1997** 1996**#
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 9.68 $10.36 $ 9.96 $ 9.85 $10.00
Income from Investment
Operations:
Net Investment Income 0.42 0.56 0.58 0.60 0.28
Net Realized and
Unrealized Gain (Loss) (0.49) (0.08)@ 0.41 0.05 (0.27)
Total From Investment
Operations (0.07) 0.48 0.99 0.65 0.01
Distributions:
Net Investment Income (0.42) (0.63) (0.55) (0.54) (0.16)
Net Realized Gain (0.07) (0.53) (0.04) -- --
Total Distributions (0.49) (1.16) (0.59) (0.54) (0.16)
Net Asset Value, End of
Period $ 9.12 $ 9.68 $ 10.36 $ 9.96 $ 9.85
Total Return (0.85)% 4.61%+ 10.16%+ 6.75%+ 0.08%+++
Ratios and Supplemental
Data
Net Assets, End of Period
(Thousands) $5,263 $3,788 $19,927 $13,062 $2,445
Ratio of Expenses to
Average Net Assets 1.85% 1.07% 0.68% 0.57% 0.61%*
Ratio of Net Investment
Income to Average Net
Assets 4.77% 5.29% 5.69% 6.01% 5.53%*
Portfolio Turnover Rate 112% 196% 210% 151% 55%
</TABLE>
# For the period from November 1, 1995 (commencement of operations),
through April 30, 1996.
* Annualized
++Not annualized
+ Total return would have been different had certain fees not been waived
and certain expenses not been assumed by the adviser during the periods
indicated.
**Per share amounts are based on average outstanding shares.
@ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net losses on investments for that period be-
cause of the timing of sales and repurchases of the fund shares in rela-
tion to fluctuating market value of investments in the fund.
15
<PAGE>
BHM&S Total Return Bond Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
BHM&S Total Return Bond Portfolio
Institutional Class
Institutional Service Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the Fund dated
August 28, 2000, as supplemented from time to time. You may obtain the
Fund's prospectuses by contacting the UAM Funds at the address listed
above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial
Statements." No other portions of the annual report are incorporated by
reference.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Description of Permitted Investments...................................... 1
Borrowing............................................................... 1
Debt Securities......................................................... 1
Derivatives............................................................. 7
Equity Securities....................................................... 15
Foreign Securities...................................................... 17
Investment Companies.................................................... 21
Repurchase Agreements................................................... 21
Restricted Securities................................................... 21
Securities Lending...................................................... 22
Short Sales............................................................. 22
When Issued Transactions................................................ 23
Investment Policies of the Fund........................................... 23
Management of the Company................................................. 24
Board Members........................................................... 25
Officers................................................................ 26
Principal Shareholders.................................................... 27
Investment Advisory and Other Services.................................... 28
Investment Adviser...................................................... 28
Distributor............................................................. 29
Shareholder Servicing Arrangements...................................... 29
Service And Distribution Plans.......................................... 29
Administrative Services................................................. 32
Custodian............................................................... 33
Independent Accountants................................................. 33
Code of Ethics.......................................................... 34
Brokerage Allocation and Other Practices.................................. 34
Selection of Brokers.................................................... 34
Simultaneous Transactions............................................... 34
Brokerage Commissions................................................... 34
Capital Stock and Other Securities........................................ 35
Purchase, Redemption and Pricing of Shares................................ 37
Net Asset Value Per Share............................................... 37
Purchase of Shares...................................................... 37
Redemption of Shares.................................................... 38
Exchange Privilege...................................................... 40
Transfer Of Shares...................................................... 40
Performance Calculations.................................................. 40
Total Return............................................................ 41
Yield................................................................... 41
Comparisons............................................................. 42
Financial Statements...................................................... 42
Glossary.................................................................. 42
Bond Ratings.............................................................. 43
Moody's Investors Service, Inc.......................................... 43
Standard & Poor's Ratings Services...................................... 45
Fitch Ratings........................................................... 48
Comparative Benchmarks.................................................... 49
</TABLE>
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
BORROWING
------------------------------------------------------------------------------
The Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 33 1/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone for
temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the Fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
DEBT SECURITIES
------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
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FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
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Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the security
is of an investment quality comparable with other debt securities that
the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
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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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual Fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years --the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
DERIVATIVES
------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Fund pays the current market price for the option (known as the "option
premium"). The Fund may purchase put options to offset or hedge against a
decline in the market value of its securities ("protective puts") or to
benefit from a decline in the price of securities that it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying securities decreased below the exercise price sufficiently
to cover the premium and transaction costs. However, if the price of the
underlying instrument does not fall enough to offset the cost of purchasing
the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. The Fund would normally purchase call options in anticipation of
an increase in the market value of securities it owns or wants to buy. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying instrument exceeded the exercise price plus the premium paid
and related transaction costs. Otherwise, the Fund would realize either no
gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when the Fund
writes a put option it assumes an obligation to purchase specified securities
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The Fund may terminate its position in an
exchange-traded put option before exercise by buying an option identical to
the one it has written. Similarly, it may cancel an over-the-counter option by
entering into an offsetting transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities it
would like to acquire by writing a put option on those securities. If security
prices rise, the Fund would expect the put option to expire and the premium it
received to offset the increase in the security's value. If security prices
remain the same over time, the Fund would hope to profit by closing out the
put option at a lower price. If security prices fall, the Fund may lose an
amount of money equal to the difference between the value of the security and
the premium it received. Writing covered put options may deprive the Fund of
the opportunity to profit from a decrease in the market price of the
securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and the
premium it received to offset the decline of the security's value. However,
the Fund must be prepared to deliver the underlying instrument in return for
the strike price, which may deprive it of the opportunity to profit from an
increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a call
option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract;
or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the Fund would retain the option premium, which would offset, in part, any
decline in the value of its assets.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if the market price declines, the Fund
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the Fund could construct
a
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combined position whose risk and return characteristics are similar to selling
a futures contract by purchasing a put option and writing a call option on the
same underlying instrument. Alternatively, the Fund could write a call option
at one strike price and buy a call option at a lower price to reduce the risk
of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded only on exchanges regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
The Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security
values caused by other factors. The Fund could also hedge the position by
selling another currency expected to perform similarly to the currency in
which the Fund's investment is denominated. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost,
yield, or efficiency, but generally would not hedge currency exposure as
effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange that one can achieve at some
future point in time. Additionally, these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency and to limit any
potential gain that might result from the increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause the Fund to assume the risk of fluctuations in the value of the
currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
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It is difficult to forecast with precision the market value of certain assets
at the expiration or maturity of a forward or futures contract. Accordingly,
the Fund may have to purchase additional foreign currency on the spot market
if the market value of a security it is hedging is less than the amount of
foreign currency it is obligated to deliver. Conversely, the Fund may have to
sell on the spot market some of the foreign currency it received upon the sale
of a security if the market value of such security exceeds the amount of
foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the
cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
amount on which the cash flows are calculated is called the notional amount.
Swaps are individually negotiated and structured to include exposure to a
variety of different types of investments or market factors, such as interest
rates, foreign currency rates, mortgage securities, corporate borrowing rates,
security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund. If a swap agreement calls for payments by the Fund, the Fund
must be prepared to make such payments when due. In addition, if the counter-
party's creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the
prior written consent of the other party. The Fund may be able to eliminate
its exposure under a swap agreement either by assignment or by other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party. If the counter-party is unable to
meet its obligations under the contract, declares bankruptcy, defaults or
becomes insolvent, the Fund may not be able to recover the money it expected
to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's gains
or losses. In order to reduce the risk associated with leveraging, the Fund
will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the Fund enters into a swap agreement on
a net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of the Fund's accrued obligations under the swap agreement
over the accrued amount the Fund is entitled to receive under the agreement.
If the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in return
for a specified interest rate. By entering into an equity index swap, for
example, the index receiver can gain exposure to stocks making up the index of
securities without actually purchasing those stocks. Equity index swaps
involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the return on the interest
rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of interest
rate cash flow on specified dates in the future. Some of the different types
of interest rate swaps are "fixed-for floating rate swaps," "termed basis
swaps" and "index amortizing swaps." Fixed-for floating rate swap involve the
exchange of fixed interest rate cash flows for floating rate cash flows.
Termed basis swaps entail cash flows to both parties based on floating
interest rates, where the interest rate indices are different. Index
amortizing swaps are typically fixed-for floating swaps where the notional
amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money by
investing in an interest rate swap if interest rates change adversely. For
example, if the Fund enters into a swap where it agrees to exchange a floating
rate of interest for a fixed rate of interest, the Fund may have to pay more
money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for a
floating rate of interest, the Fund may receive less money than it has agreed
to pay.
Currency Swaps -- A currency swap is an agreement between two parties in which
one party agrees to make interest rate payments in one currency and the other
promises to make interest rate payments in another currency. The Fund may
enter into a currency swap when it has one currency and desires a different
currency. Typically the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify the Fund's gains or losses,
causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities the
Fund holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on the
degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities the Fund is hedging may not move in
the same amount, or even in the same direction as the hedging instrument. The
adviser will try to minimize this risk by investing only in those contracts
whose behavior it expects to resemble the assets the Fund it is trying to
hedge. However, if the Fund's prediction of interest and currency rates,
market value, volatility or other economic factors is incorrect, the Fund may
lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of
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securities, they are more susceptible to rapid and extreme price fluctuations
because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the Fund's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange the
contract was initially traded. Although the Fund intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist. If there is no secondary
market for the contract, or the market is illiquid, the Fund may not be able
to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, the
Fund may lose money by investing in derivatives. For example, if the Fund were
to write a call option based on its adviser's expectation that the price of
the underlying security would fall, but the price were to rise instead, the
Fund could be required to sell the security upon exercise at a price below the
current market price. Similarly, if the Fund were to write a put option based
on the adviser's expectation that the price of the underlying security would
rise, but the price were to fall instead, the Fund could be required to
purchase the security upon exercise at a price higher than the current market
price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum amount
that the price of a derivative may vary from the settlement price of that
derivative at the end of trading on the previous day. Once the price of a
derivative reaches this value, the Fund may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during a
given day and does not limit potential gains or losses. Derivative prices have
occasionally moved to the daily limit for several consecutive trading days,
preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the Fund and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if a
broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
--------------------------------------------------------------------------------
Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks usually
carry voting rights and earn dividends. Unlike preferred stocks, which are
described below, dividends on common stocks are not fixed but are declared at
the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and the
liquidation of the company. However, in all other respects, preferred stocks
are subordinated to the liabilities of the issuer. Unlike common stocks,
preferred stocks are generally not entitled to vote on corporate matters.
Types of preferred stocks include adjustable-rate preferred stock, fixed
dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the issuer's
common stock at the Fund's option during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). A
convertible security is generally a fixed income security that is senior to
common stock in an issuer's capital structure, but is usually subordinated to
similar non-convertible securities. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation. In general, the market value of
a convertible security is at least the higher of its "investment value" (i.e.,
its value as a fixed income security) or its "conversion value" (i.e., its
value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities. In addition, they are also influenced by the market value of the
security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying common
stock declines.
A synthetic convertible security is a combination investment in which the Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. Government securities and (ii) call options or warrants
on the common stock of the same or different issuer with some or all of the
anticipated interest income from the associated debt obligation that is earned
over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. A synthetic convertible position has
similar investment characteristics, but may differ with respect to credit
quality, time to maturity, trading characteristics, and other factors. Because
the Fund will create synthetic convertible positions only out of high grade
fixed income securities, the credit rating associated with the Fund's
synthetic convertible investments is generally expected to be higher than that
of the average convertible security, many of which are rated below high grade.
However, because the options used to create synthetic convertible positions
will generally have expirations between one month and three years of the time
of purchase, the maturity of these positions will generally be shorter than
average for convertible securities. Since the option component of a
convertible security or synthetic convertible position is a wasting asset (in
the sense of losing "time value" as maturity approaches), a synthetic
convertible position may lose such value more rapidly than a convertible
security of longer maturity; however, the gain in option value due to
appreciation of the underlying stock may exceed such time value loss, the
market price of the option component generally reflects these differences in
maturities, and the Adviser and applicable sub-adviser take such differences
into account when evaluating such positions. When a synthetic convertible
position "matures" because of the expiration of the associated option, the
Fund may extend the maturity by investing in a new option with longer maturity
on the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued. Rights
normally have a short life, usually two to four weeks, are freely transferable
and entitle the holder to buy the new common stock at a lower price than the
public offering price. Warrants are securities that are usually issued
together with a debt security or preferred stock and that give the holder the
right to buy proportionate amount of common stock at a specified price.
Warrants are freely transferable and are traded on major exchanges. Unlike
rights, warrants normally have a life that is measured in years and entitles
the holder to buy common stock of a company at a price that is usually higher
than the market price at the time the warrant is issued. Corporations often
issue warrants to make the accompanying debt security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the
value of the underlying securities, and they cease to have value if they are
not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the
investment as compared with investing the same amount in the underlying
securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits of
owning a company, such investors must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to
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actual or perceived changes in the company's financial condition or prospects
than its debt obligations. Stockholders of a company that fares poorly can
lose money.
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
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elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities. EDRs are similar to ADRs, except that they are
typically issued by European Banks or trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank for
Reconstruction and Development (World Bank) and the International Finance
Corporation would consider to be an emerging or developing country. Typically,
emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and traded
on their stock exchanges through investment funds that they have specifically
authorized. Investments in these investment funds are subject to the
provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
investment funds will bear not only their proportionate share of the expenses
of the UAM Fund (including operating expenses and the fees of the adviser),
but also will 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
<PAGE>
. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or
control foreign investments in its securities markets. These restrictions
could limit the Fund's ability to invest in a particular country or make it
very expensive for the Fund to invest in that country. Some countries
require prior governmental approval, limit the types or amount of
securities or companies in which a foreigner can invest. Other countries
may restrict the ability of foreign investors to repatriate their
investment income and capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign companies 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 more volatile and not as developed or efficient as 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 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;
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. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income the Fund receives from its investments. The Fund 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 Fund also anticipates pricing, trading, settling
and valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, the Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
20
<PAGE>
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by the Fund. Like other shareholders, the Fund would pay
its proportionate share of those fees. Consequently, shareholders of the Fund
would pay not only the management fees of the Fund, but also the management
fees of the investment company in which the Fund invests. The Fund may invest
up to 10% of its total assets in the securities of other investment companies,
but may not invest more than 5% of its total assets in the securities of any
one investment company or acquire more than 3% of the outstanding securities
of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of 5%
of its total assets or $2.5 million in the UAM DSI Money Market Fund, provided
that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the assets of
the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn income
on assets that are not invested.
When the Fund 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 to "mark to the market" on a daily
basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for sale
to the general public 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 the Fund's
investment limitations. The price realized from the sales of these securities
could be more or less than those originally paid by the Fund or less than what
may be considered the fair value of such securities.
21
<PAGE>
SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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 Fund
investing any cash collateral in interest bearing short-term investments);
and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements. When
the Fund lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, the
Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
--------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does not
own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the security
it borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. Likewise, the Fund can profit if the price of the security
declines between those dates.
To borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The Fund will incur transaction
costs in effecting short sales. The Fund's gains and losses will be decreased
or increased, as the case may be, by the amount of the premium, dividends,
interest, or expenses the Fund may be required to pay in connection with a
short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
22
<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a short
sale against the box, the Fund agrees to sell at a future date a security that
it either currently owns or has the right to acquire at no extra cost. The
Fund will incur transaction costs to open, maintain and close short sales
against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net assets.
. The market value of the securities of any single issuer that have been sold
short by the Fund would exceed the two percent (2%) of the value of the
Fund's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an amount
of cash or liquid securities equal to the difference between (a) the market
value of the securities sold short at the time they were sold short and (b)
any cash or U.S. Government securities the Fund is required to deposit with
the broker in connection with the short sale (not including the proceeds from
the short sale). The segregated assets are marked to market daily in an
attempt to ensure that the amount deposited in the segregated account plus the
amount deposited with the broker is at least equal to the market value of the
securities at the time they were sold short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, the
Fund 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 Fund has
committed to purchase before the securities are delivered, although the Fund
may earn income on securities it has in a segregated account. The Fund will
only enter into these types of transactions with the intention of actually
acquiring the securities, but may sell them before the settlement date.
The Fund 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 Fund 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 Fund may miss the opportunity
to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date, these
risks are in addition to the risks associated with its other investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of the Fund
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
23
<PAGE>
determine investment limitation percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of its
acquisition of such security or other asset. Accordingly, the Fund will not
consider changes in values, net assets or other circumstances when determining
whether the investment complies with its investment limitations. The Fund will
not:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in the securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any if its agencies or instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any one issuer.
. Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies.
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships, although
it may purchase and sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate.
. Make loans except (i) by purchasing debt securities in accordance with its
investment objectives, (ii) entering into repurchase agreements or (iii) by
lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as such loans are not inconsistent with the
1940 Act or the rules and regulations or interpretations of the SEC
thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the portfolio from (i) making
any permitted borrowings, mortgages or pledges, or (ii) entering into
repurchase transactions.
Management of the Company
The Board manages the business of the company. The Board elects officers to
manage the day-to-day operations of the Company and execute policies the Board
has formulated. The Company pays each Independent Director the following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events per
year.
In addition, the Company reimburses each Independent Director for travel and
other expenses incurred while attending board meetings. The $3,000 meeting fee
and expense reimbursements are aggregated for all of the Directors and
allocated proportionately among all Funds in the UAM complex. The Company does
not pay its Interested Directors or officers for their services as Directors
or officers.
24
<PAGE>
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940 Act.
Mr. English 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 Company does not believe that the relationship
is a material business relationship, and, therefore, does not consider him to
be an interested Board member. If these circumstances change, the Board will
determine whether any action is required to change the composition of the
Board.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH Company, Inc. (investment management). From 1988 to
03226 1993, Mr. Bennett was President of Bennett Management
1/26/29 Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 1999, Ms. Dunn was Vice President for Finance and
20037 Administration and Treasurer of Radcliffe College
8/14/51 (Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN since March 2000. From June 1998 to March 2000 he
46290 was Executive Vice President and Chief Administrative
4/12/42 Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison of Broventure Company, Inc., a company engaged in the
Street investment management business. He is also Chairman
Baltimore, MD of the Board of Chektec Corporation (Drugs) and Cyber
21201 Scientific, Inc. (computer mouse company). Mr.
8/5/48 English serves on the Board of each Company in the
UAM Funds Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International United Asset Management Corporation (financial
Place services); Director, Partner or Trustee of each of
Boston, MA 02110 the Investment Companies of the Eaton Vance Group of
3/21/35 Mutual Funds (mutual funds).
</TABLE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides information
regarding their present positions, date of birth, address and their principal
occupations during the past five years. The Company's officers are paid by
UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Member;
Place President
Boston, MA 02110 and
3/21/35 Chairman
----------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International President Management Corporation (financial services) since 1998.
Place
Boston, MA 02110
9/19/47
----------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
----------------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of
Signature Financial Group Europe, Ltd. (financial services) from 1995 to 2000;
Secretary of the Citigroup Family of Mutual Funds (mutual funds) from 1996 to
2000; Secretary of the 59 Wall Street Family of Mutual Funds (mutual funds)
from 1996 to 2000.
----------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
----------------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of record
or beneficially 5% or more of the shares of the Fund:
<TABLE>
<CAPTION>
Percentage of Shares
Name and Address of Shareholder Class of Portfolio Owned
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wilmington Trust CO TR FBO Cherokee Nation 401k Plan Institutional Class 99.92%
C/O Mutual Funds/UAM
P.O. Box 8971
Wilmington, DE 19899-8971
---------------------------------------------------------------------------------------------------------------------
Wilmington Trust CO FBO Mustang Employees 401K PSP Institutional Service Class 58.77%
P.O. Box 8971
Wilmington, DE 19899-8971
---------------------------------------------------------------------------------------------------------------------
UMBSC & CO. Institutional Service Class 21.12%
FBO Lillick & Charles Barrow Hanley
C/O Trust Department
P.O. Box 419175
Kansas City, MO 64141-6175
---------------------------------------------------------------------------------------------------------------------
Chicago Trust CO TR Institutional Service Class 20.10%
FBO Loews Cineplex
P/S & 401K Ret. Plan
C/O Marshall & Ilsley Trust Company
1000 N Water Street
Milwaukee WI 53202-6648
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding shares
of a portfolio may be presumed to "control" (as that term is defined in the
1940 Act) the portfolio. Shareholders controlling the portfolio could have the
ability to vote a majority of the shares of the portfolio on any matter
requiring the approval of shareholders of the portfolio. As of August 21,
2000, the directors and officers of the Company owned less than 1% of the
outstanding shares of the Fund.
27
<PAGE>
Investment Advisory and Other Services
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Barrow, Hanley, Mewhinney & Strauss, Inc., a Texas corporation located at One
McKinney Plaza, 3232 McKinney Avenue, 15/th/ Floor, Dallas, Texas 75204, is
the Fund's investment adviser. The adviser manages and supervises the
investment of the fund's assets on a discretionary basis. The adviser, an
affiliate of United Asset Management Corporation, has specialized in the
active management of stocks, bonds and balanced portfolios for institutional
and tax-exempt clients since 1979. The adviser currently provides and offers
investment management services to corporate, public and Taft-Hartley employee
benefit plans, foundations, endowments, health care and other institutions and
investors.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated in
Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to retain
control over their investment advisory decisions is necessary to allow them to
continue to provide investment management services that are intended to meet
the particular needs of their respective clients. Accordingly, after
acquisition by UAM, UAM Affiliated Firms continue to operate under their own
firm name, with their own leadership and individual investment philosophy and
approach. Each UAM Affiliated Firm manages its own business independently on a
day-to-day basis. Investment strategies employed and securities selected by
UAM Affiliated Firms are separately chosen by each of them. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment program of
the Fund; and
. Determines what portion of the Fund's assets will be invested in securities
and what portion will consist of cash.
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 Board Members who are not parties to the Investment
Advisory Agreement or interested persons of any such party; and
28
<PAGE>
. By a majority of the Board Members or by a majority of the shareholders of
the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of Board
Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately terminate
if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual rate
of 0.35% of its average daily net assets. Due to the effect of fee waivers by
the adviser, the actual percentage of average net assets that the Fund pays in
any given year may be different from the rate set forth in its contract with
the adviser. For the last three fiscal years, the Fund paid the following in
advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/00 $48,492 $ 0 $ 48,492
---------------------------------------------------------------------------------------------------------------------------
4/30/99 $80,234 $ 12,526 $ 92,760
---------------------------------------------------------------------------------------------------------------------------
4/30/98 $ 0 $107,452 $107,452
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best efforts
to sell shares of the Fund, it is not obligated to sell any particular amount
of shares. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110. UAMFDI receives no compensation for its services
as distributor of the Institutional Class Shares.
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 services performed with respect to the Company or a fund. The person
making such payments may do so out of its revenues, its profits or any other
source available to it. Such servicing arrangements, when in effect, are made
generally available to all qualified service providers. The adviser may also
compensate its affiliated companies for referring investors to the Fund.
SERVICE AND DISTRIBUTION PLANS
--------------------------------------------------------------------------------
The Company has adopted a Distribution Plan and a Shareholder Servicing Plan
(the "Plans") for their Institutional Service Class Shares pursuant to Rule
12b-1 under the 1940 Act.
Shareholder Servicing Plan
The Shareholder Servicing Plan (Service Plan) permits the Company to
compensate broker-dealers or other financial institutions (Service Agents)
that have agreed with UAMFDI to provide administrative support services to
Institutional Service Class shareholders that are their customers. Under the
Service Plan, Institutional Service Class Shares may pay service fees at the
maximum annual rate of 0.25% of the average daily net asset value of such
shares held by the Service Agent for the benefit of its customers. The Company
pays these fees out of the assets allocable to Institutional Service
29
<PAGE>
Class Shares to UAMFDI, to the Service Agent directly or through UAMFDI. Each
item for which a payment may be made under the Service Plan constitutes
personal service and/or shareholder account maintenance and may constitute an
expense of distributing Institutional Service Class Shares as the SEC
construes such term under Rule 12b-1. Services for which Institutional Service
Class Shares may compensate Service Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by
the Company and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits the Fund to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Company.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Company, including obtaining
information from the Company and providing performance and other
information about the Company.
In addition, the Institutional Service Class Shares may make payments directly
to other unaffiliated parties, who either aid in the distribution of their
shares or provide services to the Class.
30
<PAGE>
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class Shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Company's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.25% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time. During the fiscal year ended April 30, 2000, the
Institutional Services Class of the Fund paid $22,364 in expenses under the
Service Plan, for services described above.
The Company will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Company may buy or sell Fund
securities through firms that receive payments under the Plans. UAMFDI, at its
own expense, may pay dealers for aid in distribution or for aid in providing
administrative services to shareholders.
Approving, Amending and Terminating the Plans
Shareholders of the Fund have approved the Plans. The Plans also were approved
by the governing board of the Company, including a majority of the members of
the board who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Plans (Plan Members),
by votes cast in person at meetings called for the purpose of voting on these
Plans.
Continuing the Plans
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Company's board members and its Plan Members.
To continue the Plans, the board must determine whether such continuation is
in the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Company's board has determined that the Company's distribution
arrangements are likely to benefit the Company and its shareholders by
enhancing the Company's ability to efficiently service the accounts of its
Institutional Service Class shareholders.
Amending the Plans
A majority of the Company's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
Terminating the Plans
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without penalty.
In addition, the Plans will terminate automatically upon their assignment.
Miscellaneous
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Company.
The Company and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
31
<PAGE>
Additional Non-12b-1 Shareholder Servicing Arrangements
In addition to payments by the Company under the Plans, UAM and any of its
affiliates, may, at its own expense, compensate a Service Agent or other
person for marketing, shareholder servicing, record-keeping and/or other
services performed with respect to the Company, the Fund or any class of
shares of the Fund. The person making such payments may do so out of its
revenues, its profits or any other source available to it. Such services
arrangements, when in effect, are made generally available to all qualified
service providers. The adviser may also compensate its affiliated companies
for referring investors to the Fund.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees the
provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of its
services under the Fund Administration Agreement. UAMFSI may, at its own
expense, employ other people to assist it in performing its duties under the
Fund Administration Agreement. Such people may be officers and employees who
are employed by both UAMFSI and the Company. UAMFSI will pay such people for
such employment. The Company will not incur any obligations with respect to
such people. Other expenses incurred in the operation of the Company will be
borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of each portfolio of the Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
32
<PAGE>
The Fund Administration Agreement continues in effect from year to year if the
Board specifically approves such continuance every year. The Board or UAMFSI
may terminate the Fund Administration Agreement, without penalty, on not less
than ninety (90) days' written notice. The Fund Administration Agreement
automatically terminates upon its assignment by UAMFSI without the prior
written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1 . An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2 . An annual fee to UAMFSI for sub-administration and other services, which
UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM Funds
Complex.
3 . An annual fee to UAMFSI for transfer agent and dividend-disbursing
service, which UAMFSI pays to DST Systems, Inc. calculated as follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4 . An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services as
sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last three fiscal years the Fund paid the following in administration
fees:
Fiscal Year End Total Administration Fee
--------------------------------------------------------------------------------
4/30/00 $120,949
--------------------------------------------------------------------------------
4/30/99 $ 33,602
--------------------------------------------------------------------------------
4/30/98 $ 12,244
* Effective March 1, 1998, UAMFSI became the Fund's administrator. Prior to
March 1, 1998, another firm provided administrative services to the Fund.
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for each portfolio of the Company.
33
<PAGE>
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a code
of ethics under Rule 17j-1 of the 1940 Act that permits personnel subject to
their particular code of ethics to invest in securities, including securities
that may be purchased or held by the Fund.
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the Fund. The Investment Advisory Agreement also directs the adviser to
use its best efforts to obtain the best execution with respect to all
transactions for the Fund. The adviser may select brokers based on research,
statistical and pricing services they provide to the adviser. Information and
research provided by a broker will be in addition to, and not instead of, the
services the adviser is required to perform under the Investment Advisory
Agreement. In so doing, the Fund may pay higher commission rates than the
lowest rate available when the adviser believes it is reasonable to do so in
light of the value of the research, statistical, and pricing services provided
by the broker effecting the transaction. For the fiscal year ended April 30,
2000, neither the fund nor the adviser directed and of the portfolios
brokerage transactions to a broker because of research services provided.
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.
As of April 30, 2000, the BHMS Total Return Portfolio held 300,000 units of
Morgan Stanley GP, 7.125% due 01-15-03, valued at $296,892.00. In addition,
the Fund held 1500,00 units of Goldman Sachs Group Inc., 7.80% due 01-28-10,
valued at $148,780.50.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of decisions
made for its other clients. When a security is suitable for the investment
objective of more than one client, it may be prudent for the adviser to engage
in a simultaneous transaction, that is, buy or sell the same security for more
than one client. The adviser strives to allocate such transactions among its
clients, including the Fund, in a fair and reasonable manner. Although there
is no specified formula for allocating such transactions, the Company's Board
periodically reviews the various allocation methods used by the adviser.
BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a
34
<PAGE>
dealer's mark down. When the Fund executes transactions in the over-the-
counter market, it will deal with primary market makers unless prices that are
more favorable are otherwise obtainable.
Commissions Paid
For the last three fiscal years, the Fund has not paid any brokerage
commissions.
Capital Stock and Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed its
name to "UAM Funds Trust." The Company's principal executive office is located
at 211 Congress Street, Boston, MA 02110; however, shareholders should direct
all correspondence to the address listed on the cover of this SAI. The Company
is an open-end, management investment company and the Fund is diversified.
This means that with respect to 75% of its total assets, the Fund may not
invest more than 5% of its total assets in the securities of any one issuer
(other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to issue
an unlimited number of shares of beneficial interest, without par value. The
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the Company
are fully paid and non-assessable, and have no pre-emptive rights or
preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election
of Board members can elect 100% of the Board if they choose to do so. On each
matter submitted to a vote of the shareholders, a shareholder is entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in his name on the books of a portfolio. Shares of
all classes will vote together as a single class except when otherwise
required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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 portfolio. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Company will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. Not all of the portfolios issue all of the classes. The
three classes represent interests in the same assets of a portfolio and,
except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder servicing and
the distribution of such shares pursuant to a distribution plan or other
12b-1 plan;
. Institutional Service Shares bear certain expenses related to shareholder
servicing and the distribution of such shares and have exclusive voting
rights with respect to matters relating to such distribution expenditures;
and
35
<PAGE>
. Advisor Shares bear certain expenses related to shareholder servicing and
the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date). Shareholders
may change their dividend and distributions option by writing to the Fund at
least three days before the record date for income dividend or capital gain
distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code, and to distribute out its income to
shareholders each year so that it generally will be relieved of federal income
and excise taxes. If the Fund were to fail to make sufficient distributions in
a year, it would be subject to corporate income taxes and/or excise taxes. In
addition, if the shortfall were large enough, the Fund could be disqualified
as a regulated investment company. If the Fund were to fail to so qualify: (1)
it would be taxed at regular corporate rates without any deduction for
distributions to shareholder; and (2) its shareholders would be taxed as if
they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. Moreover, if the Fund were to
fail to make sufficient distributions in a year, the Fund would be subject to
corporate income taxes and/or excise taxes in respect of the shortfall or, if
the shortfall is large enough, the Fund could be disqualified as a regulated
investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year period
ending October 31 of such calendar year and 100% of any such amounts that were
not distributed in the prior year. The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December
31 of such year if such dividends are actually paid during January of the
following year.
At April 30, 2000, the Fund had a capital loss carryover of approximately
$195,352 for federal income tax purposes that will expire on April 30, 2008.
In addition, at April 30, 2000, the Fund had elected to defer $280,375 of post
36
<PAGE>
October capital losses for income tax purposes. These losses will be available
to offset realized capital gains for the fiscal year ended April 30, 2001.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
--------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its total
assets and dividing the result by the total number of shares outstanding. For
purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the Fund,
plus cash and other assets plus income accrued but not yet received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00 p.m.
The NYSE is closed on the following days: New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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 the U.S. dollar 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 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 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
37
<PAGE>
the Fund calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of all
subscription and redemption requests, investment information, documentation
and money.
Shareholders can buy full and fractional (calculated to three decimal places)
shares of the Fund. The Company will not issue certificates for fractional
shares and will only issue certificates for whole shares upon the written
request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans or
under circumstances, where certain economies can be achieved in sales of the
Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares of
the Fund with securities, instead of cash. If the Company allows a shareholder
to make an in-kind purchase, it will value such securities according to the
policies described under "How the Company Values it Assets" at the next
determination of net asset value after acceptance. The Company will issue
shares of the Fund at the NAV of the Fund determined as of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-kind
purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and that
there are no restrictions on their resale imposed by the 1933 Act or
otherwise;
. All dividends, interest, subscription, or other rights pertaining to such
securities become the property of the Fund and are delivered to the Fund by
the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all securities
of the same issuer held by the Fund cannot exceed 5% of its net assets.
This condition does not apply to U.S. government securities.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of shares or
dollar amount the shareholder wishes to redeem signed by all registered
owners of the shares in the exact names in which they are registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts, guardianships,
custodianships, corporations, pension and profit sharing plans and other
organizations.
38
<PAGE>
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to receive
redemption proceeds. To change an account in this manner, you must submit a
written request signed by each shareholder, with each signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable for
any losses if they fail to do so. These procedures include requiring the
investor to provide certain personal identification at the time an account is
opened and before effecting each transaction requested by telephone. In
addition, all telephone transaction requests will be recorded and investors
may be required to provide additional telecopied written instructions of such
transaction requests. The Company or UAMSSC may be liable for any losses due
to unauthorized or fraudulent telephone instructions if the Company or UAMSSC
does not employ the procedures described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests of
remaining shareholders of the Fund to make payment wholly or partly in cash,
the Fund may pay redemption proceeds in whole or in part by a distribution in-
kind of liquid securities held by the Fund in lieu of cash in conformity with
applicable rules of the SEC. Investors may incur brokerage charges on the sale
of securities received in payment of redemptions.
The Company 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 Board
believes that economic or market conditions exist which would make such a
practice detrimental to the best interests of the Fund. If the Fund pays
redemption proceeds with securities instead of cash, it will value such
securities as set forth under "How the Company Values its Assets." A redeeming
shareholder would normally incur brokerage expenses if these securities were
converted to cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should specify
the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your account,
the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than the
registered address; or
. Share transfer requests.
39
<PAGE>
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. You can get a complete definition of eligible guarantor
institutions by calling 1-877-826-5465. Broker-dealers guaranteeing signatures
must be a member of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will pay
your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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
Fund to dispose of securities owned by it, or to fairly determine the value
of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do not
charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible for
the authenticity of the exchange instructions received by telephone. The Board
may restrict the exchange privilege at any time. Such instructions may include
limiting the amount or frequency of exchanges and may be for the purpose of
assuring such exchanges do not disadvantage other mutual funds in the UAM
Funds Complex and their shareholders.
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the account
and number of shares you wish to transfer. All registered owners should sign
the request and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
Performance Calculations
The Fund 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 Fund calculates its current yield
and average annual total return information according to the methods required
by the SEC. The performance is calculated separately for each Class of the
Fund. Dividends paid by the Fund 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 distribution and service fees relating to Institutional
Service Class Shares will be borne exclusively by that class.
40
<PAGE>
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
or aggregate total return reflects actual performance over a stated period. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since Adviser Class Shares and
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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000 for both Institutional Class and the Institutional Service
Class.
<TABLE>
<CAPTION>
One Year Five Years Since Inception Inception Date
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Class -0.85% N/A 4.54% 11/01/95
---------------------------------------------------------------------------------------------------
Institutional Service Class -1.40% N/A 4.22% 11/01/95
</TABLE>
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all mutual funds. As this differs
from other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during the
base period. Since Adviser Class Shares and 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
41
<PAGE>
d = the maximum offering price per share on the last day of the period.
The table lists the Fund's 30-day SEC yield for period ended April 30, 2000
for both the Institutional Class and the Institutional Service Class.
One Year
================================================================================
Institutional Class 5.92%
--------------------------------------------------------------------------------
Institutional Service Class 3.81%
COMPARISONS
--------------------------------------------------------------------------------
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in this SAI. This information may also be included in sales
literature and advertising.
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements regarding the Company or the Fund
may discuss various measures of performance as reported by various financial
publications. Advertisements may also compare performance (as calculated
above) to performance as reported by other investments, indices and averages.
Please see "Comparative Benchmarks" for publications, indices and averages
that may be used.
In assessing such comparisons of performance, an investor should keep in mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its performance; and
. That shareholders cannot invest directly in such indices or averages. In
addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into this
SAI. However, no other parts of the Fund's Annual Report is incorporated by
reference herein. Shareholders may get copies of the Fund's Annual Report free
of charge by calling the UAM Funds at the telephone number appearing on the
front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
42
<PAGE>
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The Big
Board."
Fund refers to the BHM&S Total return Bond Portfolio, which is a series of the
Company.
SEC is the Securities and Exchange Commission. The SEC is the federal agency
that administers most of the federal securities laws in the United States. In
particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.
SEI is SEI Investments Mutual Funds Services, the Company's sub-administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's
sub-shareholder-servicing agent.
Bonding Ratings
MOODY'S INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
aa An issue that 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 that is rated "a" is considered to be an upper-
medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa An issue that 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 that 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.
43
<PAGE>
b An issue that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa An issue that is rated "caa" is of poor standing, such
issues may be in default or there may be other elements of
danger with respect to principal or interest.
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have other
marked shortcomings.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in each
minus (-) rating classification: the modifier 1 indicates
that the security 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 that 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 that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than the Aaa
securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds that 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 that 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 that 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 that 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 that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
44
<PAGE>
C Bonds that are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals)
Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin
when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
. Leading market positions in well-established industries.
. Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS SERVICES
--------------------------------------------------------------------------------
Long-term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
45
<PAGE>
1. Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations
are typically rated lower than senior obligations, to reflect the lower
priority in bankruptcy, as noted above. Accordingly, in the case of junior
debt, the rating may not conform exactly with the category definition.
AAA An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
Obligations rated `BB,' `B,' `CCC,' `CC' and `C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated `BB,' but the obligor currently has the
capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated 'CCC' is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C' is
CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been
filed or similar action taken, but payments on this obligation
are being continued. A 'C' will also be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.
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<PAGE>
D An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the
credit rating. Examples include: obligation linked or indexed to
equities, currencies, or commodities; obligations exposed to
severe prepayment risk - such as interest-only or principal-only
mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular obligation as a
matter of policy. Debt obligations of issues outside the United
States and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into account
currency exchange and related uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such payments
will be made during such grace period. The 'D' rating also will
be used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt
47
<PAGE>
ratings assigned to specific issues. Foreign currency issuer ratings are also
distinguished from local currency issuer ratings to identity those instances
where sovereign risks make them different for the same issuer.
FITCH RATINGS
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity
for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating
indicates that default of some kind appears probable. `C' ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
"DDD" obligations have the highest potential for recovery, around
90%-100% of outstanding amounts and accrued interest. "D"
indicates potential recoveries in the range of 50%-90%, and "D"
the lowest recovery potential, i.e., below 50%. Entities rated in
this category have defaulted on some or all of their obligations.
Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally
undergoing a formal reorganization or liquidation process; those
rated "DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D" have a poor
prospect for repaying all obligations.
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<PAGE>
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments that is highly uncertain and 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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there
is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for a potential downgrade, or "Evolving," if ratings may
be raised, lowered or maintained. RatingAlert is typically resolved over a
relatively short period.
Comparative Benchmarks
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics -- a statistical measure of change, over time in the price
of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on the
New York Stock Exchange. It has been a widely followed indicator of the stock
market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
Companies Service -- publications that rate fund performance over specified
time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
49
<PAGE>
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-weighted
index maintained by the International Finance Corporation. This index
consists of over 890 companies in 26 emerging equity markets, and is designed
to measure more precisely the returns 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 Brothers Indices:
------------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes
fixed rate issues of investment grade (BBB) or higher, with maturities of at
least one year and outstanding par values of at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly issued,
fixed-rate, nonconvertible investment grade domestic corporate debt. Also
included are yankee bonds, which are dollar-denominated SEC registered public,
nonconvertible debt issued or guaranteed by foreign sovereign governments,
municipalities, or governmental agencies, or international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued
debt of U.S. government agencies and quasi-federal corporations, and corporate
debt guaranteed by the U.S. government). In addition to the aggregate index,
sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of at
least one year and outstanding par value of at least $150 million. Any
security downgraded during the month is held in the index until month end and
then removed. All returns are market value weighted inclusive of accrued
income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar denominated,
nonconvertible, have at least one year remaining to maturity and an
outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Credit Bond
Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30 largest
mutual funds within their respective portfolio investment objectives. The
indices are currently grouped in six categories: U.S. Diversified Equity with
12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of Lipper,
Inc.'s classifications for general equity funds' investment objectives were
changed while other equity objectives remain unchanged. Changing investment
objectives include Capital Appreciation Funds, Growth Funds, Mid-Cap Funds,
Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity Income
Funds. Unchanged investment objectives include Sector Equity Funds, World
Equity Funds, Mixed Equity Funds, and certain other funds including all Fixed
Income Funds and S&P(R) Index Funds.
50
<PAGE>
Criteria for the Lipper Indices are: 1) component funds are largest in group;
2) number of component funds remains the same (30); 3) component funds are
defined annually; 4) can be linked historically; and 5) are used as a
benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers, liquidations,
etc.; and 4) will be inaccurate if historical averages are linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt
issues (BBB or higher) with dollar-weighted average maturities of one to five
years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing 60%
or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by prospectus
or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to
grow significantly faster than the earnings of the stocks represented in the
major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions, exclusive
of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an unmanaged
index composed of U.S. treasuries, agencies and corporates with maturities
from 1 to 4.99 years. Corporates are investment grade only (BBB or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market value-
weighted averages of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
----------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
51
<PAGE>
Russell 1000(R) Index - an unmanaged index which measures the performance of
the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Top 200(TM) Growth Index - measures the performance of those Russell
Top 200 companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of $1
million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and does
not reflect any transaction costs. Direct investment in the index is not
possible.
Standard & Poor's U.S. Indices:
-------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10
economic sectors aggregated from 23 industry groups, 59 industries, and 123
52
<PAGE>
sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their respective indices.
Features of the new classification include 10 economic sectors, rather than
the 11 S&P currently uses. Sector and industry gradations are less severe.
Rather than jumping from 11 sectors to 115 industries under the former S&P
system, the new system progresses from 10 sectors through 23 industry groups,
50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its market
value. It is used by over 95% of U.S. managers and pension plan sponsors. More
than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The
index is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred
benchmark for both active and passive management due to its low turnover and
greater liquidity. Approximately $8 billion is indexed to the S&P SmallCap
600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate Fund. The Index covers over 80% of the
securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including 23
electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents. Both indices provide geographic and economic diversity over 11
industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed as
the new Canadian large cap benchmark and will ultimately replace the Toronto
35 and the TSE 100.
53
<PAGE>
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries --
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and Chile
are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad
enough to provide representation of the market, but narrow enough to ensure
liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization)
of the Extended Market Index, of both developed and emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill issues.
Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available. A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used
by the institutional investment community as a broad measure of the
performance of public real estate equity for asset allocation and performance
comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.
54
<PAGE>
UAM Funds
Funds for the Informed Investor sm
BHM&S Total Return Bond Portfolio
Institutional Service Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
What are the Fund's Objectives?..............................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................2
What are the Fund's Fees and Expenses?.......................................3
Investing with the UAM Funds..................................................5
Buying Shares................................................................5
Redeeming Shares.............................................................6
Exchanging Shares............................................................8
Transaction Policies.........................................................8
Account Policies............................................................10
Additional Information About the Fund........................................12
Other Investment Practices and Strategies...................................12
Shareholder Servicing Arrangements..........................................14
Additional Classes..........................................................14
Financial Highlights.........................................................15
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks maximum long-term total return consistent with reasonable
risk to principal by investing in investment grade fixed income securities
of varying maturities. The fund may change its investment objective with-
out shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The fund invests at least 90% of its total assets in dollar-denominated
investment-grade debt securities. The fund tries to maintain an average
weighted duration comparable to the Salomon Brothers' Broad Index or
Lehman Brothers Aggregate Index, which is approximately five years. To
manage its duration, the fund may hedge its interest rate risk by purchas-
ing and selling futures.
A debt security is an interest bearing security that corporations and gov-
ernments use to borrow money from investors. The issuer of a debt security
promises to pay interest at a stated rate, which may be variable or fixed,
and to repay the amount borrowed at maturity (dates when debt securities
are due and payable). The fund may invest in a variety of types of debt
securities, including those issued by corporations and the U.S. government
and its agencies, mortgage-backed and asset-backed securities (securities
that are backed by pools of loans or mortgages assembled for sale to in-
vestors), municipal notes and bonds, commercial paper and certificates of
deposit.
The adviser expects to manage the fund actively, focusing on security se-
lection, sector concentration and yield curve positioning. The adviser in-
vests the assets of the fund in securities, industry sectors and maturity
ranges that it believes the market has undervalued. The adviser believes
that it can minimize volatility and generate superior returns over the
long-term by investing in high quality securities that possess above-
average effective yields and the potential for capital appreciation.
The adviser does not attempt to time the market because it believes there
are too many variables to successfully forecast economic conditions con-
sistently. Therefore, the fund will maintain a conservative intermediate
maturity structure (10 years or less) and will diversify its assets along
the yield curve.
The adviser's security selection process begins by analyzing a bond's
yield-to-maturity premium (or spread) versus the most recently issued
1
<PAGE>
U.S. treasury security of similar maturity. Once it identifies bonds with
an above-average premium, it then evaluates factors that could influence
the future premium such as credit quality, security structure and
supply/demand. The objective of this process is to identify those issues
whose yield premium will compress or narrow over a wide range of potential
interest rate changes, supporting superior long term performance.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated security. Ad-
verse economic conditions or changing circumstances, however, may weaken
the capacity of the issuer to pay interest and repay principal. If a secu-
rity is not rated or is rated under a different system, the adviser may
determine that it is of investment grade. The adviser may retain securi-
ties that are down graded, if it believes that keeping those securities is
warranted.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with most funds that invest in debt securities, changes in interest
rates are one of the most important factors that could affect the value of
your investment. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) and the fund's share
price to fall. Rising interest rates may also cause investors to pay off
mortgage-backed and asset-backed securities later than anticipated forcing
the fund to keep its money invested at lower rates. Falling interest
rates, however, generally cause investors to pay off mortgage-backed and
asset-backed securities earlier than expected, forcing the fund to rein-
vest the money at a lower interest rate.
The credit rating or financial condition of an issuer may also affect the
value of a debt security. Generally, the lower the quality rating of a se-
curity, the greater the risk that the issuer will fail to pay interest
fully and return principal in a timely manner. If an issuer defaults or
becomes unable to honor its financial obligations, the security may lose
some or all of its value. The issuer of an investment-grade security is
more likely to
2
<PAGE>
pay interest and repay principal than an issuer of a lower rated bond. Ad-
verse economic conditions or changing circumstances, however, may weaken
the capacity of the issuer to pay interest and repay principal.
HOW HAS THE FUND PERFORMED?
--------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
this class of the fund. The bar chart shows how performance of this class
of the fund has varied from year to year. The average annual return table
compares the average annual returns of this class of the fund to those of
a broad-based securities market index. Returns are based on past results
and are not an indication of future performance.
Calendar Year Returns
During the periods shown in the chart for the fund, the highest return for
a quarter was 3.47% (quarter ending 06/30/97) and the lowest return for a
quarter was -1.86% (quarter ending 06/30/99). For the period from January
1, 2000, through June 30, 2000, the fund returned 2.67%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 11/1/95*
------------------------------------------------------
<S> <C> <C>
BHM&S Total Return Bond Portfolio -2.58% 4.52%
------------------------------------------------------
Lehman Brothers Aggregate Bond Index -0.83% 5.97%
</TABLE>
* Beginning of operations. Index comparisons begin on October 31, 1995.
WHAT ARE THE FUND'S FEES AND EXPENSES?
--------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
3
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.35%
--------------------------------------------
Service (12b-1) Fees 0.25%
--------------------------------------------
Other Expenses** 1.48%
--------------------------------------------
Total Annual Fund Operating Expenses 2.08%
</TABLE>
Example
This example can help you to compare the cost of investing in this class
of the fund to the cost of investing in other mutual funds. The example
assumes you invest $10,000 in the fund for the periods shown and then re-
deem all of your shares at the end of those periods. The example also as-
sumes 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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$211 $652 $1,119 $2,410
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
BHYYX 902556208 630
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder 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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an
8
<PAGE>
investment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In
10
<PAGE>
this case, you would be taxed on the entire amount of the distribution re-
ceived, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
12
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
Portfolio Turnover
The fund may buy and sell investments relatively often. Such a strategy
often involves higher expenses, including brokerage commissions, and may
increase the amount of capital gains (and, in particular, short-term
gains) realized by the fund. Shareholders must pay tax on such capital
gains.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Barrow, Hanley, Mewhinney & Strauss, Inc., a Texas corporation located at
One McKinney Plaza, 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204,
is the investment adviser to the fund. The adviser manages and supervises
the investment of the fund's assets on a discretionary basis. The adviser,
an affiliate of United Asset Management Corporation, has specialized in
the active management of stocks, bonds and balanced portfolios for insti-
tutional and tax-exempt clients since 1979. The adviser currently provides
and offers investment management services to corporate, public and Taft-
Hartley employee benefit plans, foundations, endowments, health care and
other institutions and investors.
During its most recent fiscal year, the fund paid 0.35% of its average net
assets in advisory fees to the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
13
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
Distribution Plans
The fund has adopted a Distribution Plan and a Shareholder Services Plan
under Rule 12b-1 of the Investment Company Act of 1940 that permits them
to pay broker-dealers, financial institutions and other third parties for
the sale and distribution of its shares and for marketing and shareholder
services. The 12b-1 plans allow the fund to pay up to 1.00% of its average
daily net assets annually for these services. However, the fund is cur-
rently authorized to pay only 0.25% per year. Because this class of shares
pays these fees out of their assets on an ongoing basis, over time, your
shares may cost more than if you had paid another type of sales charge.
Shareholder Servicing
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, UAM Funds' board reviews these arrangements to ensure
that the fees paid are appropriate for the services performed. The fund
does not pay these service fees on shares purchased directly. In addition,
the adviser and its affiliates may, at their own expense, pay financial
representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
ADDITIONAL CLASSES
-------------------------------------------------------------------------------
The fund also offers Institutional Class shares, which do not pay market-
ing or shareholder servicing fees. Since Institutional Class shares have
lower expenses, their performance will be better than the performance of
the Institutional Service Class.
14
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the fund for the periods indicated.
Certain information contained in the table reflects the financial results
for a single share. The total returns in the table represent the rate that
an investor would have earned on an investment in this class of the
fund assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the fund, which is available upon request
by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000 1999** 1998** 1997** 1996**#
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 9.66 $ 10.34 $ 9.95 $ 9.84 $10.00
Income from Investment
Operations:
Net Investment Income 0.40 0.51 0.56 0.57 0.27
Net Realized and
Unrealized Gain (Loss) (0.52) (0.05)@ 0.40 0.05 (0.27)
Total From Investment
Operations (0.12) 0.46 0.96 0.62 --
Distributions:
Net Investment Income (0.39) (0.61) (0.53) (0.51) (0.16)
Net Realized Gain (0.07) (0.53) (0.04) -- --
Total Distributions (0.46) (1.14) (0.57) (0.51) (0.16)
Net Asset Value, End of
Period $ 9.08 $ 9.66 $ 10.34 $ 9.95 $ 9.84
Total Return (1.40)% 4.45+% 9.85+% 6.47+% (0.07)%+++
Ratios and Supplemental
Data
Net Assets, End of
Period (Thousands) $10,802 $11,095 $15,732 $4,045 $2,871
Ratio of Expenses to
Average Net Assets 2.08% 1.44% 0.95% 0.82% 0.83%*
Ratio of Net Investment
Income to Average Net
Assets 4.51% 4.79% 5.42% 5.76% 5.44%*
Portfolio Turnover Rate 112% 196% 210% 151% 55%
</TABLE>
# For the period from November 1, 1995 (commencement of operations),
through April 30, 1996.
* Annualized
++Not annualized
+ Total return would have been different had certain fees not been waived
and certain expenses not been assumed by the adviser during the periods
indicated.
** Per share amounts are based on average outstanding shares.
@ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net losses on investments for that period be-
cause of the timing of sales and repurchases of the fund shares in rela-
tion to fluctuating market value of investments in the fund.
15
<PAGE>
BHM&S Total Return Bond Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds
Funds for the Informed Investor sm
Cambiar Opportunity Portfolio
Institutional Class Shares Prospectus August 28, 2000
[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.1
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
What are the Fund's Objectives?..............................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................2
What are the Fund's Fees and Expenses?.......................................3
Investing with the UAM Funds..................................................4
Buying Shares................................................................4
Redeeming Shares.............................................................5
Exchanging Shares............................................................7
Transaction Policies.........................................................7
Account Policies.............................................................9
Additional Information About the Fund........................................11
Other Investment Practices and Strategies...................................11
Investment Management.......................................................12
Shareholder Servicing Arrangements..........................................12
Financial Highlights.........................................................14
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks capital growth and preservation by investing primarily in
common stocks. The fund seeks to provide above-average performance in both
rising and falling market periods by investing in stocks that have limited
downside risk and with positive upside potential. The fund may not change
its investment objectives without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
Normally, the fund invests at least 65% of its total assets in common
stocks of companies that are relatively large in terms of revenues and as-
sets with market capitalizations over $1 billion at the time of purchase.
The adviser's investment professionals work as a team to develop invest-
ment ideas by analyzing company and industry statements, monitoring Wall
Street and other research sources and interviewing company management. It
also evaluates economic conditions and fiscal and monetary policies. The
adviser's approach focuses first on individual stocks and then on indus-
tries or sectors. The adviser does not attempt to time the market. The ad-
viser tries to select quality companies:
. Possessing above-average financial characteristics.
. Having seasoned management.
. Enjoying product or market advantages.
. Whose stock is selling at a relatively low price based on historical
price-to-earnings, price-to-book, price-to-sales and price-to-cash
flow ratios.
. Experiencing positive developments not yet recognized by the markets,
such as positive changes in management, improved margins, corporate
restructuring or new products.
. Possessing the potential to appreciate by 50% within 12 to 18 months.
The fund may sell a stock because:
. It realizes positive developments and achieves its target price.
. Its price moves too far too fast.
. It becomes overweighted.
. The positive developments the adviser expected fail to unfold.
1
<PAGE>
WHAT ARE THE FUND'S PRINCIPAL RISKS?
--------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect a value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
This risk is greater for small and medium sized companies, which tend to
be more vulnerable to adverse developments than larger companies.
HOW HAS THE FUND PERFORMED?
--------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares the average annual
returns of the fund to those of a broad-based securities market index. Re-
turns are based on past results and are not an indication of future per-
formance.
Calendar Year Returns
During the periods shown in the chart for the fund, the highest return for
a quarter was 26.02% (quarter ending 12/31/99) and the lowest return for a
quarter was -8.85% (quarter ending 9/30/99). For the period from January
1, 2000, through June 30, 2000, the fund returned -1.82%.
2
<PAGE>
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 6/30/98*
-----------------------------------------------
<S> <C> <C>
Cambiar Opportunity Portfolio 36.84% 32.94%
-----------------------------------------------
S&P 500 Index 21.04% 20.48%
</TABLE>
* Beginning of operations. Index comparisons begin on June 30, 1998.
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 1.00%
--------------------------------------------
Other Expenses* 4.50%
--------------------------------------------
Total Annual Fund Operating Expenses 5.50%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.30%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addition "Other Expenses" do not take
into account any expense offset arrangement the fund may have that would
reduce its custodian fee based on the amount of cash the fund maintains
with its custodian. This would also have the effect of reducing the
fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$549 $1,638 $2,716 $5,364
</TABLE>
3
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
4
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
None 902555408 637
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
5
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder 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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
6
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an
7
<PAGE>
investment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
8
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
9
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
10
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
11
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Cambiar Investors, Inc., a Colorado corporation located at 2401 East Sec-
ond Avenue, Suite 400, Denver, Colorado 80206, is the investment adviser
to the fund. The advisor manages and supervises the investment of the
fund's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has provided investment management
services to corporations, foundations, endowments, pension and profit
sharing plans, trusts, estates and other institutions as well as individu-
als since 1973.
The fund has agreed to pay the adviser a fee equal to 1.00% of the fund's
average net assets. In addition, the adviser has voluntarily agreed to
limit the total expenses of the fund to 1.30%, of average net assets. To
maintain this expense limit, the adviser may waive a portion of its man-
agement fee and/or reimburse certain expenses of the fund. The adviser
intends to continue its expense limitation until further notice, but may
discontinue it at any time. During its most recent fiscal year, the ad-
viser waived its entire advisory fee.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
12
<PAGE>
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts reflects deductions for all fees and expenses on an individ-
ual account basis. All fees and expenses of the separate accounts were
less than the operating expenses of the portfolio. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolio, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
13
<PAGE>
<TABLE>
<CAPTION>
Cambiar Investors, Inc.
Composite Returns* S&P 500 Index
----------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
----------------------------------------------------------------------
1975 34.80% 37.20%
----------------------------------------------------------------------
1976 32.40% 23.80%
----------------------------------------------------------------------
1977 14.40% (7.20)%
----------------------------------------------------------------------
1978 22.50% 6.60%
----------------------------------------------------------------------
1979 24.00% 18.40%
----------------------------------------------------------------------
1980 25.50% 32.40%
----------------------------------------------------------------------
1981 9.80% (4.90)%
----------------------------------------------------------------------
1982 33.30% 21.60%
----------------------------------------------------------------------
1983 22.60% 22.40%
----------------------------------------------------------------------
1984 2.90% 6.10%
----------------------------------------------------------------------
1985 29.30% 31.57%
----------------------------------------------------------------------
1986 23.67% 18.21%
----------------------------------------------------------------------
1987 6.10% 5.17%
----------------------------------------------------------------------
1988 17.11% 16.50%
----------------------------------------------------------------------
1989 23.23% 31.43%
----------------------------------------------------------------------
1990 2.83% (3.19)%
----------------------------------------------------------------------
1991 31.51% 30.55%
----------------------------------------------------------------------
1992 9.56% 7.68%
----------------------------------------------------------------------
1993 13.66% 10.00%
----------------------------------------------------------------------
1994 1.00% 1.33%
----------------------------------------------------------------------
1995 33.54% 37.50%
----------------------------------------------------------------------
1996 23.92% 23.25%
----------------------------------------------------------------------
1997 33.69% 33.36%
----------------------------------------------------------------------
1998 13.57% 28.57%
----------------------------------------------------------------------
1999 22.10% 21.03%
----------------------------------------------------------------------
Average Annual Returns For The
Periods Ended 12/31/99
1-year 22.10% 21.03%
----------------------------------------------------------------------
5-years 25.12% 28.60%
----------------------------------------------------------------------
10-years 17.96% 18.23%
----------------------------------------------------------------------
25-year 19.82% 17.20%
----------------------------------------------------------------------
Cumulative Since Inception
(1/1/75-12/31/99) 9,081.70% 5,187.99%
</TABLE>
* During the period 1/1/75-6/30/98, fees on the adviser's individual ac-
counts ranged from 0.25% to 2.0% for the Cambiar Institutional Tax Ex-
empt Equity Composite. The advisers' composite has been audited for this
period.
14
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate for the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
15
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a
single share. The total returns in the table represent the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at 1-
877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000 1999#
-------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $12.29 $10.00
Income from Investment Operations:
Net Investment Income 0.00 0.04
Net Realized and Unrealized Gain (Loss) 2.78 2.29
Total From Investment Operations 2.78 2.33
Distributions:
Net Investment Income 0.00 (0.04)
In Excess of Net Investment Income (0.07) 0.00
Net Realized Gain (0.87) 0.00
Total Distributions (0.94) (0.04)
Net Asset Value, End of Period $14.13 $12.29
Total Return+ 23.26% 23.44%++
Ratios and Supplemental Data
Net Assets, End of Period (Thousands) $4,075 $2,389
Ratio of Expenses to Average Net Assets 1.31% 1.31%*
Ratio of Net Investment Income to Average Net Assets 0.01% 0.42%*
Portfolio Turnover Rate 95% 78%
</TABLE>
# For the period from June 30, 1998 (commencement of operations), through
April 30, 1999.
* Annualized
++Not annualized
+ Total return would have been different had certain fees not been waived
and expenses assumed by the adviser during the periods.
16
<PAGE>
Cambiar Opportunity Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
Cambiar Opportunity Portfolio
Institutional Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August 28,
2000, as supplemented from time to time. You may obtain the Fund's prospectus
by contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial Statements."
No other portions of the annual report are incorporated by reference.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
<S> <C>
Description of Permitted Investments............................................................................... 1
Borrowing....................................................................................................... 1
Debt Securities................................................................................................. 1
Derivatives..................................................................................................... 7
Equity Securities............................................................................................... 15
Foreign Securities.............................................................................................. 17
Investment Companies............................................................................................ 21
Repurchase Agreements........................................................................................... 21
Restricted Securities........................................................................................... 21
Securities Lending.............................................................................................. 22
Short Sales..................................................................................................... 22
When Issued Transactions........................................................................................ 23
Investment Policies of the Fund.................................................................................... 23
Management of the Company.......................................................................................... 24
Board Members................................................................................................... 25
Officers........................................................................................................ 26
Principal Shareholders............................................................................................. 27
Investment Advisory and Other Services............................................................................. 27
Investment Adviser.............................................................................................. 27
Distributor..................................................................................................... 29
Shareholder Servicing Arrangements.............................................................................. 29
Administrative Services......................................................................................... 29
Custodian....................................................................................................... 31
Independent Accountants......................................................................................... 31
Code of Ethics.................................................................................................. 31
Brokerage Allocation and Other Practices........................................................................... 31
Selection of Brokers............................................................................................ 31
Simultaneous Transactions....................................................................................... 31
Brokerage Commissions........................................................................................... 32
Capital Stock and Other Securities................................................................................. 32
Purchase, Redemption and Pricing of Shares......................................................................... 34
Net Asset Value Per Share....................................................................................... 34
Purchase of Shares.............................................................................................. 35
Redemption of Shares............................................................................................ 36
Exchange Privilege.............................................................................................. 37
Transfer Of Shares.............................................................................................. 38
Performance Calculations........................................................................................... 38
Total Return.................................................................................................... 38
Yield........................................................................................................... 38
Comparisons..................................................................................................... 39
Financial Statements............................................................................................... 39
Glossary........................................................................................................... 40
Bond Ratings....................................................................................................... 40
Moody's Investors Service, Inc.................................................................................. 40
Standard & Poor's Ratings Services.............................................................................. 43
Fitch Ratings................................................................................................... 45
Comparative Benchmarks............................................................................................. 46
</TABLE>
<PAGE>
Description of Permitted Investments
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
BORROWING
--------------------------------------------------------------------------------
The Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 331/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone
for temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the Fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the
security is of an investment quality comparable with other debt
securities that the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
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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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual Fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years -- the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
Derivatives
--------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Fund pays the current market price for the option (known as the "option
premium"). The Fund may purchase put options to offset or hedge against a
decline in the market value of its securities ("protective puts") or to
benefit from a decline in the price of securities that it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying securities decreased below the exercise price sufficiently
to cover the premium and transaction costs. However, if the price of the
underlying instrument does not fall enough to offset the cost of purchasing
the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. The Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. The Fund would ordinarily realize a gain if, during the option
period, the value of the underlying instrument exceeded the exercise price
plus the premium paid and related transaction costs. Otherwise, the Fund
would realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when the Fund
writes a put option it assumes an obligation to purchase specified securities
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The Fund may terminate its position in an
exchange-traded put option before exercise by buying an option identical to
the one it has written. Similarly, it may cancel an over-the-counter option
by entering into an offsetting transaction with the counter-party to the
option.
The Fund could try to hedge against an increase in the value of securities it
would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and the
premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Fund may lose an amount of money equal to the difference between the value of
the security and the premium it received. Writing covered put options may
deprive the Fund of the opportunity to profit from a decrease in the market
price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, the Fund must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate,
foreign currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than
price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased
or sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise
price, the Fund would retain the option premium, which would offset, in part,
any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if the market price declines, the Fund
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Fund could write
a call option at one strike price and buy a call option at a lower price to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder has
the unilateral right to cancel the contract at maturity by paying a specified
fee. Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed
to futures contracts which are traded only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
The Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security
values caused by other factors. The Fund could also hedge the position by
selling another currency expected to perform similarly to the currency in
which the Fund's investment is denominated. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost,
yield, or efficiency, but generally would not hedge currency exposure as
effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange that one can achieve at
some future point in time. Additionally, these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency and to
limit any potential gain that might result from the increase in value of such
currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one
foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate exposure
to the currency that is sold, and increase exposure to the currency that is
purchased. Cross-hedges protect against losses resulting from a decline in
the hedged currency, but will cause the Fund to assume the risk of
fluctuations in the value of the currency it purchases. Cross hedging
transactions also involve the risk of imperfect correlation between changes
in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain assets
at the expiration or maturity of a forward or futures contract. Accordingly,
the Fund may have to purchase additional foreign currency on the spot market
if the market value of a security it is hedging is less than the amount of
foreign currency it is obligated to deliver. Conversely, the Fund may have to
sell on the spot market some of the foreign currency it received upon the
sale of a security if the market value of such security exceeds the amount of
foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the
cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
amount on which the cash flows are calculated is called the notional amount.
Swaps are individually negotiated and structured to include exposure to a
variety of different types of investments or market factors, such as interest
rates, foreign currency rates, mortgage securities, corporate borrowing
rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund. If a swap agreement calls for payments by the Fund, the Fund
must be prepared to make such payments when due. In addition, if the counter-
party's creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity date
only under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the
prior written consent of the other party. The Fund may be able to eliminate
its exposure under a swap agreement either by assignment or by other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party. If the counter-party is unable to
meet its obligations under the contract, declares bankruptcy, defaults or
becomes insolvent, the Fund may not be able to recover the money it expected
to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging, the
Fund will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the Fund enters into a swap agreement
on a net basis, it will segregate assets with a daily value at least equal to
the excess, if any, of the Fund's accrued obligations under the swap
agreement over the accrued amount the Fund is entitled to receive under the
agreement. If the Fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of the
Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index swap,
for example, the index receiver can gain exposure to stocks making up the
index of securities without actually purchasing those stocks. Equity index
swaps involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the return on the interest
rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating rate
cash flows. Termed basis swaps entail cash flows to both parties based on
floating interest rates, where the interest rate indices are different. Index
amortizing swaps are typically fixed-for floating swaps where the notional
amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money
by investing in an interest rate swap if interest rates change adversely. For
example, if the Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the Fund may have to
pay more money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for a
floating rate of interest, the Fund may receive less money than it has agreed
to pay.
Currency Swaps -- A currency swap is an agreement between two parties in
which one party agrees to make interest rate payments in one currency and the
other promises to make interest rate payments in another currency. The Fund
may enter into a currency swap when it has one currency and desires a
different currency. Typically the interest rates that determine the currency
swap payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance of the Fund than if
it had not entered into any derivatives transactions. Derivatives may magnify
the Fund's gains or losses, causing it to make or lose substantially more
than it invested.
When used for hedging purposes, increases in the value of the securities the
Fund holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on the
degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of
poor correlation, the price of the securities the Fund is hedging may not
move in the same amount, or even in the same direction as the hedging
instrument. The adviser will try to minimize this risk by investing only in
those contracts whose behavior it expects to resemble the assets the Fund it
is trying to hedge. However, if the Fund's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the Fund may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying
instruments, even if the characteristics of the underlying instruments are
very similar to the derivative. Listed below are some of the factors that may
cause such a divergence:
. Current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the
imposition of daily price fluctuation limits or trading of an instrument
stops; and
. Differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the participation
of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of
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securities, they are more susceptible to rapid and extreme price fluctuations
because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to
the value of the Fund's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange the
contract was initially traded. Although the Fund intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist. If there is no secondary
market for the contract, or the market is illiquid, the Fund may not be able
to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time
and price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of
an exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other occurrences may disrupt normal trading
activity; or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends,
the Fund may lose money by investing in derivatives. For example, if the Fund
were to write a call option based on its adviser's expectation that the price
of the underlying security would fall, but the price were to rise instead,
the Fund could be required to sell the security upon exercise at a price
below the current market price. Similarly, if the Fund were to write a put
option based on the adviser's expectation that the price of the underlying
security would rise, but the price were to fall instead, the Fund could be
required to purchase the security upon exercise at a price higher than the
current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum
amount that the price of a derivative may vary from the settlement price of
that derivative at the end of trading on the previous day. Once the price of
a derivative reaches this value, the Fund may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during
a given day and does not limit potential gains or losses. Derivative prices
have occasionally moved to the daily limit for several consecutive trading
days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the Fund and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if a
broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and
the liquidation of the company. However, in all other respects, preferred
stocks are subordinated to the liabilities of the issuer. Unlike common
stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the Fund's option during a specified time period
(such as convertible preferred stocks, convertible debentures and warrants).
A convertible security is generally a fixed income security that is senior to
common stock in an issuer's capital structure, but is usually subordinated to
similar non-convertible securities. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation. In general, the market value of
a convertible security is at least the higher of its "investment value"
(i.e., its value as a fixed income security) or its "conversion value" (i.e.,
its value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities. In addition, they are also influenced by the market value of the
security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying
common stock declines.
A synthetic convertible security is a combination investment in which the
Fund purchases both (i) high-grade cash equivalents or a high grade debt
obligation of an issuer or U.S. Government securities and (ii) call options
or warrants on the common stock of the same or different issuer with some
or all of the anticipated interest income from the associated debt
obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. A synthetic convertible
position has similar investment characteristics, but may differ with
respect to credit quality, time to maturity, trading characteristics, and
other factors. Because the Fund will create synthetic convertible positions
only out of high grade fixed income securities, the credit rating
associated with the Fund's synthetic convertible investments is generally
expected to be higher than that of the average convertible security, many
of which are rated below high grade. However, because the options used to
create synthetic convertible positions will generally have expirations
between one month and three years of the time of purchase, the maturity of
these positions will generally be shorter than average for convertible
securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing
"time value" as maturity approaches), a synthetic convertible position may
lose such value more rapidly than a convertible security of longer
maturity; however, the gain in option value due to appreciation of the
underlying stock may exceed such time value loss, the market price of the
option component generally reflects these differences in maturities, and
the Adviser and applicable sub-adviser take such differences into account
when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, the Fund may
extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that
give the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price
that is usually higher than the market price at the time the warrant is
issued. Corporations often issue warrants to make the accompanying debt
security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets
of the issuer. In addition, their value does not necessarily change with
the value of the underlying securities, and they cease to have value if
they are not exercised on or before their expiration date. Investing in
rights and warrants increases the potential profit or loss to be realized
from the investment as compared with investing the same amount in the
underlying securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits
of owning a company, such investors must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to
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actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made
by its management or lower demand for the company's products or
services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated
to the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
Investors in small and medium-sized companies typically take on greater
risk and price volatility than they would by investing in larger, more
established companies. This increased risk may be due to the greater
business risks of their small or medium size, limited markets and financial
resources, narrow product lines and frequent lack of management depth. The
securities of small and medium companies are often traded in the over-the-
counter market and might not be traded in volumes typical of securities
traded on a national securities exchange. Thus, the securities of small and
medium capitalization companies are likely to be less liquid, and subject
to more abrupt or erratic market movements, than securities of larger, more
established companies.
Technology Companies
Stocks of technology companies have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Technology companies operate in
various industries. Since these industries frequently share common
characteristics, an event or issue affecting one industry may significantly
influence other, related industries. For example, technology companies may
be strongly affected by worldwide scientific or technological developments
and their products and services may be subject to governmental regulation
or adversely affected by governmental policies.
FOREIGN SECURITIES
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Types of Foreign Securities
Foreign securities are debt and equity securities that are traded in
markets outside of the United States. The markets in which these securities
are located can be developed or emerging. People can invest in foreign
securities in a number of ways:
. They can invest directly in foreign securities denominated in a
foreign currency;
. They can invest in American Depositary Receipts, 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
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elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
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. A foreign government may act adversely to the interests of U.S.
investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment. A
country may restrict or control foreign investments in its securities
markets. These restrictions could limit the Fund's ability to invest in
a particular country or make it very expensive for the Fund to invest
in that country. Some countries require prior governmental approval,
limit the types or amount of securities or companies in which a
foreigner can invest. Other countries may restrict the ability of
foreign investors to repatriate their investment income and capital
gains.
Information and Supervision
There is generally less publicly available information about foreign
companies than companies based in the United States. For example, there are
often no reports and ratings published about foreign companies comparable
to the ones written about United States companies. Foreign companies are
typically not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States companies. The lack of comparable information
makes investment decisions concerning foreign companies 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 more volatile and not as developed or efficient as
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 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;
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. Available quotation information is generally representative of very
large round-lot transactions in the inter-bank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-
clock market. To the extent that a market is closed while the markets
for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce
the income the Fund receives from its investments. The Fund 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 Fund also anticipates
pricing, trading, settling and valuing investments whose nominal values
remain in their existing domestic currencies in Euros. Accordingly, the
Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to
the fees currently paid by the Fund. Like other shareholders, the Fund
would pay its proportionate share of those fees. Consequently, shareholders
of the Fund would pay not only the management fees of the Fund, but also
the management fees of the investment company in which the Fund invests.
The Fund may invest up to 10% of its total assets in the securities of
other investment companies, but may not invest more than 5% of its total
assets in the securities of any one investment company or acquire more than
3% of the outstanding securities of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Fund,
provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the
assets of the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market"
on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for
sale to the general public 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 the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
Fund or less than what may be considered the fair value of such securities.
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SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When the Fund lends securities, there is a risk that the borrower will
become financially unable to honor its contractual obligations. If this
happens, the Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
--------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Likewise, the Fund can profit if the price
of the security declines between those dates.
To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The Fund will incur
transaction costs in effecting short sales. The Fund's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the Fund may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
22
<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no
extra cost. The Fund will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by the Fund would exceed the two percent (2%) of the value
of the Fund's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the Fund is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, the Fund 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 Fund has committed to purchase before the
securities are delivered, although the Fund may earn income on securities
it has in a segregated account. The Fund will only enter into these types
of transactions with the intention of actually acquiring the securities,
but may sell them before the settlement date.
The Fund 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 Fund 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
Fund may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of the Fund
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
23
<PAGE>
determine investment limitation percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of its acquisition of
such security or other asset. Accordingly, the Fund will not consider changes in
values, net assets or other circumstances when determining whether the
investment complies with its investment limitations. The Fund will not:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the U.S. government or any if its agencies or
instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any one issuer.
. Invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its
agencies.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 331/3% of
the portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal
in real estate and may purchase and sell securities which are secured
by interests in real estate.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives, (ii) entering into repurchase agreements or
(iii) by lending its portfolio securities to banks, brokers, dealers
and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the portfolio from (i)
making any permitted borrowings, mortgages or pledges, or (ii)
entering into repurchase transactions.
Management of the Company
The Board manages the business of the company. The Board elects officers to
manager the day-to-day operations of the company and to execute policies
the Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds in the UAM Complex.
The Company does not pay its Interested Directors or officers for their
services as Directors or officers.
24
<PAGE>
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and, therefore,
does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
==========================================================================================================================
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH 03226 Company, Inc. (investment management). From 1988 to
1/26/29 1993, Mr. Bennett was President of Bennett Management
Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24th St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
--------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN 46290 since March 2000. From June 1998 to March 2000 he
4/21/42 was Executive Vice President and Chief Administrative
Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
--------------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr.
English serves on the Board of each Company in the
UAM Funds Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
==========================================================================================================================
<S> <C> <C> <C>
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides
information regarding their present positions, date of birth, address and
their principal occupations during the past five years. The Company's
officers are paid by UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
============================================================================================================================
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and
Chairman
------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
-----------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
-----------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and affiliated
broker-dealers from 1991 to 2000; Director and Secretary of Signature Financial
Group Europe, Ltd. (financial services) from 1995 to 2000; Secretary of the
Citigroup Family of Mutual Funds (mutual funds) from 1996 to 2000; Secretary of
the 59 Wall Street Family of Mutual Funds (mutual funds) from 1996 to 2000.
-----------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services) since
211 Congress Street Secretary February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
-----------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Pisition
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
===============================================================================================================================
<S> <C> <C>
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Fund:
Name and Address of Shareholder Percentage of Shares Owned
==========================================================================
Charles Schwab & Co., Inc. 25.09%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
---------------------------------------------------------------------------
Wells Fargo Bank West Cust 18.19%
FBO Michael Barish Custody
1740 Broadway
Denver, CO 80274
---------------------------------------------------------------------------
Wells Fargo Bank West Cust 15.85%
FBO Waco EMP P/S-M Trotsky
1740 Broadway
Denver, CO 80274-0001
---------------------------------------------------------------------------
Leo L. Block 6.82%
1814 La Sombra Dr
San Antonio, TX 78209-3350
---------------------------------------------------------------------------
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is defined
in the 1940 Act) the portfolio. Shareholders controlling the portfolio
could have the ability to vote a majority of the shares of the portfolio on
any matter requiring the approval of shareholders of the portfolio. As of
August 21, 2000, the directors and officers of the Company owned less than
1% of the outstanding shares of the Fund.
Investment Advisory and Other Services
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Cambiar Investors, Inc., a Colorado corporation located at 2401 East Second
Avenue, Suite 400, Denver, Colorado 80206, is the investment adviser to the
Fund. The adviser manages and supervises the investment of the Fund's
assets on a discretionary basis. The adviser, an affiliate of United Asset
Management Corporation, has provided investment management services to
corporations, foundations, endowments, pension and profit sharing plans,
trusts, estates and other institutions as well as individuals since 1973.
27
<PAGE>
The adviser is a subsidiary of UAM. UAM is a holding company incorporated
in Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM Affiliated Firms are separately
chosen by each of them. Several UAM Affiliated Firms also act as investment
advisers to separate series or portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment
program of the Fund; and
. Determines what portion of the Fund's assets will be invested in
securities and what portion will consist of cash.
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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the
shareholders of the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of
Board Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
28
<PAGE>
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual
rate of 1.00% of its average daily net assets. Due to the effect of the fee
waivers by the adviser, the actual percentage of average net assets that
the Fund pays in any given year may be different from the rate set forth in
its contract with the adviser. For the last two fiscal years, the Fund paid
the following in advisory fees to the adviser:
<TABLE>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
-------------------- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C> <C>
4/30/00 $0 $31,375 $31,375
-------------------- -------------------------------- -------------------------------- --------------------------------
4/30/99 $0 $12,984 $12,984
</TABLE>
Distributor
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any
particular amount of shares. UAMFDI, an affiliate of UAM, is located at 211
Congress Street, Boston, Massachusetts 02110. UAMFDI receives no
compensation for its services as distributor of the Institutional Class
Shares.
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 services performed with respect to the Company or a fund.
The person making such payments may do so out of its revenues, its profits
or any other source available to it. Such servicing arrangements, when in
effect, are made generally available to all qualified service providers.
The adviser may also compensate its affiliated companies for referring
investors to the Fund.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
29
<PAGE>
. 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 each portfolio of the
Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM
Funds Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services
as sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last two fiscal years the Fund paid the following in administration
fees:
Fiscal Year End Total Administration Fee
---------------------------------------------------------------------------
30
<PAGE>
4/30/00 $87,167
---------------------------------------------------------------------------
4/30/99 $12,949
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction. During the fiscal year ended April 30, 2000, the adviser
directed $5,398,871 of the portfolio's brokerage transactions to Direct
Access Brokerage Services in exchange for certain research services.
Commissions paid on those transactions were $6,719.96.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the
purchase of Company shares for their clients.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's Board periodically reviews the various
allocation methods used by the adviser.
31
<PAGE>
BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last two fiscal years, the Fund has paid the following in brokerage
commissions.
Fiscal Year End Brokerage Commissions
---------------------------------------------------------------------------
4/30/00 $12,239
---------------------------------------------------------------------------
4/30/99 $6,585
CAPITAL STOCK AND OTHER SECURITIES
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company and the Fund
is diversified. This means that with respect to 75% of its total assets,
the Fund may not invest more than 5% of its total assets in the securities
of any one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
32
<PAGE>
If the Company 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 Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder servicing
and the distribution of such shares pursuant to a distribution plan or
other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to the Fund at least three days before the record date for income dividend
or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and excise taxes. If the Fund were to fail to make sufficient
distributions in a year, it would be subject to corporate income taxes
and/or excise taxes. In addition, if the shortfall were large enough, the
Fund could be disqualified as a regulated investment company. If the Fund
were to fail to so qualify: (1) it would be taxed at regular corporate
rates without any
33
<PAGE>
deduction for distributions to shareholder; and (2) its shareholders would
be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
Moreover, if the Fund were to fail to make sufficient distributions in a
year, the Fund would be subject to corporate income taxes and/or excise
taxes in respect of the shortfall or, if the shortfall is large enough, the
Fund could be disqualified as a regulated investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year
period ending October 31 of such calendar year and 100% of any such amounts
that were not distributed in the prior year. The Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
As of April 30 2000, the Fund has no capital loss carryovers.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Net Asset Value Per Share
--------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the
Fund, plus cash and other assets plus income accrued but not yet
received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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 the U.S.
dollar quoted by any major bank or by a broker.
34
<PAGE>
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 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 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 Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of
all subscription and redemption requests, investment information,
documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of the Fund at the NAV of the Fund determined as
of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. 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.
35
<PAGE>
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts, guardianships,
custodianships, corporations, pension and profit sharing plans and
other organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Fund in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of securities received in payment of
redemptions.
The Company 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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Fund. If the Fund pays redemption proceeds with securities instead of cash,
it will value such securities as set forth under "How the Company Values
its Assets." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
36
<PAGE>
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. You can get a complete definition of eligible
guarantor institutions by calling 1-877-826-5465. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
37
<PAGE>
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
PERFORMANCE CALCULATIONS
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000.
<TABLE>
One Year Five Years Since Inception Inception Date
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
23.26% N/A 25.69% 6/30/98
</TABLE>
Yield
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
38
<PAGE>
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 Adviser Class Shares and 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 Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not
be identical to the formula used by the Fund to calculate its
performance; and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
39
<PAGE>
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Fund refers to the Cambiar Opportunity Portfolio, which is a series of the
Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
the 1934 ACT.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
Bond Ratings
MOODY'S INVESTORS SERVICE, INC.
-------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
40
<PAGE>
aa An issue that 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 that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and
"aa" classification, earnings and asset protection
are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms
of the issue over any long period of time may be
small.
caa An issue that is rated "caa" is of poor standing,
such issues may be in default or there may be other
elements of danger with respect to principal or
interest.
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have
other marked shortcomings.
c This is the lowest rated class of preferred or
preference stock. Issues so rated can thus be
regarded as having extremely poor prospects of ever
attaining any real investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in
minus (-) 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 that 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best
bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or
there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa
securities.
A Bonds that are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the
future.
Baa Bonds that 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.
41
<PAGE>
Ba Bonds that 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 that 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 that 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 that are rated Ca represent obligations that
are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Con. (...) (This rating applies only to U.S. Tax-Exempt
Municipals) Bonds for which the security depends
upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in
operating experience, (c) rentals that begin when
facilities are completed, or (d) payments to which
some other limiting condition attaches.
Parenthetical rating denotes probable credit stature
upon completion of construction or elimination of
basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution)
have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the
following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
. Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
. Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-
term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to
variation. Capitalization characteristics, while
still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
42
<PAGE>
Prime-3 Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior
short-term obligation. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and
profitability may result in changes in the level of
debt protection measurements and may require
relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of
the Prime rating categories.
STANDARD & POOR'S RATINGS SERVICES
------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with the
category definition.
AAA An obligation rated 'AAA' has the highest rating
assigned by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest
rated obligations only in small degree. The
obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated 'A' is somewhat more susceptible
to the adverse effects of changes in circumstances
and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is
still strong.
BBB An obligation rated 'BBB' exhibits adequate
protection parameters. However, adverse economic
conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to
nonpayment than other speculative issues. However,
it faces major ongoing uncertainties or exposures to
adverse business, financial, or economic conditions
which could lead to the obligor's inadequate
capacity to meet its financial commitment on the
obligation.
B An obligation rated 'B' is more vulnerable to
nonpayment than obligations rated 'BB,' but the
obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse
business, financial, or economic conditions will
likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
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CCC An obligation rated 'CCC' is currently vulnerable to
non-payment, and is dependent upon favorable
business, financial, and economic conditions for the
obligor to meet its financial commitment on the
obligation. In the event of adverse business,
financial, or economic conditions, the obligor is
not likely to have the capacity to meet its
financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly
vulnerable to nonpayment.
C A subordinated debt or preferred stock obligation
rated 'C' is CURRENTLY HIGHLY VULNERABLE to non-
payment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed
or similar action taken, but payments on this
obligation are being continued. A 'C' will also be
assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is
currently paying.
D An obligation rated 'D' is in payment default. The
'D' rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless
Standard & Poor's believes that such payments will
be made during such grace period. The 'D' rating
also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if
payments on an obligation are jeopardized.
r This symbol is attached to the ratings of
instruments with significant noncredit risks. It
highlights risks to principal or volatility of
expected returns which are not addressed in the
credit rating. Examples include: obligation linked
or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such
as interest-only or principal-only mortgage
securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested,
that there is insufficient information on which to
base a rating, or that Standard & Poor's does not
rate a particular obligation as a matter of policy.
Debt obligations of issues outside the United States
and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor and do
not take into account currency exchange and related
uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the
highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is strong. Within this category, certain
obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet
its financial commitment on these obligations is
extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than
obligations in higher rating categories. However,
the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits
adequate protection parameters. However, adverse
economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the
obligation.
B A short-term obligation rated 'B' is regarded as
having significant speculative characteristics. The
obligor currently has the capacity to meet its
financial commitment on the obligation; however, it
faces major ongoing uncertainties which could lead
to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated 'C' is currently
vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic
conditions for the obligor to meet its financial
commitment on the obligation.
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D A short-term obligation rated 'D' is in payment
default. The 'D' rating category is used when
payments on an obligation are not made on the date
due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such
payments will be made during such grace period. The
'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
FITCH RATINGS
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the
lowest expectation of credit risk. They are assigned
only in case of exceptionally strong capacity for
timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected
by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very
low expectation of credit risk. They indicate very
strong capacity for timely payment of financial
commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low
expectation of credit risk. The capacity for timely
payment of financial commitments is considered
strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in
economic conditions than is the case for higher
ratings.
BBB Good credit quality. `BBB' ratings indicate that
there is currently a low expectation of credit risk.
The capacity for timely payment of financial
commitments is considered adequate, but adverse
changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a
possibility of credit risk developing, particularly
as the result of adverse economic change over time;
however, business or financial alternatives may be
available to allow financial commitments to be met.
Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that
significant credit risk is present, but a limited
margin of safety remains. Financial commitments are
currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or
economic developments. A `CC' rating indicates that
default of some kind appears probable. `C' ratings
signal imminent default.
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DDD,DD,D Default. The ratings of obligations in this category
are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation
of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any
precision, the following serve as general
guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. "D"
indicates potential recoveries in the range of 50%-
90%, and "D" the lowest recovery potential, i.e.,
below 50%.
Entities rated in this category have defaulted
on some or all of their obligations. Entities rated
"DDD" have the highest prospect for resumption of
performance or continued operation with or without a
formal reorganization process. Entities rated "DD"
and "D" are generally undergoing a formal
reorganization or liquidation process; those rated
"DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity
for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong
credit feature.
F2 Good credit quality. A satisfactory capacity for
timely payment of financial commitments, but the
margin of safety is not as great as in the case of
the higher ratings.
F3 Fair credit quality. The capacity for timely payment
of financial commitments is adequate; however, near-
term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-
term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility.
Capacity for meeting financial commitments that is
highly uncertain and 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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
Comparative Benchmarks
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.
46
<PAGE>
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
-----------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public, nonconvertible debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental agencies, or
international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Credit Bond
Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
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The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
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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.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
---------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance
of the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000(R) Value Index - measures the performance of those Russell
1000 with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
49
<PAGE>
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
Standard & Poor's U.S. Indices:
------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123 sub-industries covering almost 6,000 companies
globally. The new classification standard will be used with all of their
respective indices. Features of the new classification include 10 economic
sectors, rather than the 11 S&P currently uses. Sector and industry
gradations are less severe. Rather than jumping from 11 sectors to 115
industries under the former S&P system, the new system progresses from 10
sectors through 23 industry groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
--------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
50
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S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
--------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries -- Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan -- are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasure Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill
issues.
Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and
inflation.
Target Large Company Value Index - an index comprised of large companies
with market capitalizations currently extending down to approximately $1.9
billion that are monitored using a variety of relative value criteria in
order to capture the most attractive value opportunities available. A high
quality profile is required and companies undergoing adverse financial
pressures are eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all
treasury bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted
index of publicly traded real estate securities, including real estate
investment trusts, real estate operating companies and partnerships. The
index is used by the institutional investment community as a broad measure
of the performance of public real estate equity for asset allocation and
performance comparison.
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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.
52
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UAM Funds
Funds for the Informed Investor sm
Chicago Asset Management Portfolios
Institutional Class Shares Prospectuses August 28, 2000
Chicago Asset Management Intermediate Bond Portfolio
Chicago Asset Management Value/Contrarian Portfolio
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Intermediate Bond Portfolio...................................................1
What are the Fund's Objectives?..............................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................2
What are the Fund's Fees and Expenses?.......................................3
Value/Contrarian Portfolio....................................................5
What are the Fund's Objectives?..............................................5
What are the Fund's Principal Investment Strategies?.........................5
What are the Fund's Principal Risks?.........................................6
How Has the Fund Performed?..................................................6
What are the Fund's Fees and Expenses?.......................................7
Investing with the UAM Funds..................................................8
Buying Shares................................................................8
Redeeming Shares.............................................................9
Exchanging Shares...........................................................11
Transaction Policies........................................................11
Account Policies............................................................13
Additional Information About the Fund........................................15
Other Investment Practices and Strategies...................................15
Investment Management.......................................................16
Shareholder Servicing Arrangements..........................................17
Financial Highlights.........................................................18
Intermediate Bond Portfolio.................................................18
Value/Contrarian Portfolio..................................................19
</TABLE>
<PAGE>
Intermediate Bond Portfolio
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks a high level of current income consistent with moderate in-
terest rate exposure by investing primarily in investment-grade bonds with
an average weighted maturity between 3 and 10 years. The fund may not
change its objective without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The fund normally invests at least 65% of its total assets in investment-
grade debt securities with maturities that range from 3 to 10 years. The
fund also may invest up to 10% of its assets in debt securities rated be-
low investment-grade (junk bonds). A debt security is an interest bearing
security that corporations and governments use to borrow money from in-
vestors. The issuer of a debt security promises to pay interest at a
stated rate, which may be variable or fixed, and to repay the amount bor-
rowed at maturity (dates when debt securities are due and payable). The
fund may invest in a variety of types of debt securities, including those
issued by corporations and the U.S. government and its agencies, mortgage-
backed and asset-backed securities (securities that are backed by pools of
loans or mortgages assembled for sale to investors), municipal notes and
bonds, commercial paper and certificates of deposit. The adviser may re-
turn securities that are downgraded, if it believes that keeping those se-
curities is warranted.
The adviser manages the fund to limit the risk of investing in the bond
market and to offer some protection from changes in the prices (volatili-
ty) of debt securities. Since many different factors affect bond prices,
bond fund managers have historically found it difficult to outperform a
bond market index. The adviser believes this is particularly true of bond
fund managers that try to anticipate interest rates. To avoid wide varia-
tions in performance that tend to accompany interest rate predictions, the
adviser does not depend on interest rate forecasting.
At market tops and bottoms, market psychology tends to drive bond prices
to extremes, overshooting their long-term equilibrium levels. Consequent-
ly, "conventional wisdom" about a given security or sector's price move-
ment or relative value is often wrong. The adviser believes it can add to
the return of the fund by taking an approach that is the opposite of what
most investors are doing at a particular time (a "contrarian" approach).
1
<PAGE>
The adviser also focuses its efforts on the more traditional aspects of
managing a bond fund, such as:
. Relative value of particular securities within the major industry cat-
egories (sector valuations).
. Interest paid by particular securities (coupons).
. Call features.
. Weighting the maturities of the securities held (shape of the yield
curve).
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with most funds that invest in debt securities, changes in interest
rates are one of the most important factors that could affect the value of
your investment. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) and the fund's share
price to fall. Rising interest rates may also cause investors to pay off
mortgage-backed and asset-backed securities later than anticipated forcing
the fund to keep its money invested at lower rates. Falling interest
rates, however, generally cause investors to pay off mortgage-backed and
asset-backed securities earlier than expected, forcing the fund to rein-
vest the money at a lower interest rate.
The credit rating or financial condition of an issuer may also affect the
value of a debt security. Generally, the lower the quality rating of a se-
curity, the greater the risk that the issuer will fail to pay interest
fully and return principal in a timely manner. If an issuer defaults or
becomes unable to honor its financial obligations, the security may lose
some or all of its value. The issuer of an investment-grade security is
more likely to pay interest and repay principal than an issuer of a lower
rated bond. Adverse economic conditions or changing circumstances, howev-
er, may weaken the capacity of the issuer to pay interest and repay prin-
cipal.
2
<PAGE>
HOW HAS THE FUND PERFORMED?
--------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares average annual re-
turns the fund to those of a broad-based securities market index. Returns
are based on past results and are not an indication of future performance.
Calendar Year Returns
During the periods shown in the chart for the fund, the highest return for
a quarter was 3.89% (quarter ending 9/30/98) and the lowest return for a
quarter was -0.94% (quarter ending 03/31/96). For the period from January
1, 2000, through June 30, 2000, the fund returned 3.11%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 1/24/95*
--------------------------------------------------------------
<S> <C> <C>
Intermediate Bond -0.10% 6.26%
--------------------------------------------------------------
Lehman Brothers Intermediate Gov./Corp. Bond 0.39% 6.85%
</TABLE>
* Beginning of operations. Index comparisons begin on January 31, 1995.
3
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.48%
--------------------------------------------
Other Expenses* 1.09%
--------------------------------------------
Total Annual Fund Operating Expenses 1.57%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 0.80% of
its average daily net assets. The adviser may change or cancel its ex-
pense limitation at any time. In addtion "Other Expenses" do not take
into account any expense offset arrangement the fund may have that would
reduce its custodian fee based on the amount of cash the fund maintains
with its custodian. This would also have the effect of reducing the
fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
4
<PAGE>
Value/Contrarian Portfolio
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks capital appreciation by investing in the common stock of
large companies. The fund may not change its objective without shareholder
approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The fund invests primarily in common stocks of companies with large market
capitalizations (typically over $1 billion at the time of purchase). The
fund seeks to outperform the market by identifying attractive stocks, but
not by attempting to time the market (i.e., trying to take advantage of
shifts in the overall direction of the market). The fund seeks to
outperform the market by investing primarily in established, high-quality
companies whose stock is selling at attractive prices due to short-term
market misperceptions.
The fund generally attempts to weight each of the equity securities it
holds similarly. The adviser regularly monitors the market value of each
security the fund holds and will buy or sell shares of a particular secu-
rity depending on whether the portion of the fund represented by that se-
curity decreases or increases.
The investment philosophy and process of the adviser is qualitative rather
than quantitative. The adviser:
. Focuses on individual stocks rather than industry groups or sectors or
on trying to forecast the overall strength of the stock market. The
adviser looks for companies that are market leaders with sound balance
sheets and capable, experienced management.
. Tries to invest in stocks that the market has priced below their true
value because of a failure to recognize the potential of the stock or
value of the company. At the time of initial investment, these stocks
typically trade below the mid-point of the price range for the last 12
months.
. Looks for out-of-favor companies (typically, rated as "hold" or "sell"
by most analysts) that present strong long-term opportunities. The ad-
viser believes the market overreacts to temporary bad news. By closely
monitoring research analysts, market commentators and others and then
evaluating the impact of their opinions on stock prices, the adviser
attempts to determine whether the market has properly valued a partic-
ular stock.
The adviser generally sells a stock:
. When it reaches the price objective the adviser has set for the stock.
5
<PAGE>
. If the fundamental business operation or financial stability of the
company turns negative.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect a value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
This risk is greater for small and medium sized companies, which tend to
be more vulnerable to adverse developments than larger companies.
Since the adviser selects securities for each fund using a value oriented
approach, each fund takes on the risks that are associated with a value
oriented investment approach. Value oriented mutual funds may not perform
as well as certain other types of mutual funds using different approaches
during periods when value investing is out of favor.
6
<PAGE>
HOW HAS THE FUND PERFORMED?
--------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares average annual re-
turns the fund to those of a broad-based securities market index. Returns
are based on past results and are not an indication of future performance.
Calendar Year Returns
[GRAPH]
1996 3.22%
1997 7.19%
1998 7.34%
1999 -0.10%
During the periods shown in the chart for the fund, the highest return for
a quarter was 16.81% (quarter ending 12/31/98) and the lowest return for a
quarter was -12.94% (quarter ending 09/30/99). For the period from January
1, 2000, through June 30, 2000, the fund returned -4.92%.
Average Annual Returns For Periods Ended December 31, 2000
<TABLE>
<CAPTION>
Since
1 Year 5 Year 12/16/94*
----------------------------------------------------
<S> <C> <C> <C>
Value/Contrarian Portfolio 2.82% 15.97% 15.79%
----------------------------------------------------
S&P 500 Index 21.04% 28.55% 28.55%
</TABLE>
* Beginning of operations. Index comparisons begin on December 31, 1994.
7
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.63%
--------------------------------------------
Other Expenses* 0.71%
--------------------------------------------
Total Annual Fund Operating Expenses 1.34%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.25%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addition "Other Expenses" do not take
into account any expense offset arrangement the fund may have that would
reduce its custodian fee based on the amount of cash the fund maintains
with its custodian. This would also have the effect of reducing the
fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$136 $425 $734 $1,613
</TABLE>
8
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with a fund by sending a check or money order and
your account application to the UAM Funds. You should make your check or
money order payable to the "UAM Funds." The UAM Funds do not accept third-
party checks. You can add to an existing account by sending a check and,
if possible, the "Invest by Mail" stub that accompanied your statement to
the UAM Funds. Be sure your check identifies clearly your name, your ac-
count number and a fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
9
<PAGE>
Minimum Investments
You can open an account with either fund with a minimum initial investment
of $2000 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
Each fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Fund Name Symbol CUSIP Fund Code
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Portfolio CAMBX 902556406 635
---------------------------------------------------------------------------------------
Value/Contrarian Portfolio CAMEX 902556307 636
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
10
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
11
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an in-
12
<PAGE>
vestment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The UAM Funds will not be responsible
for any loss, liability, cost or expense for following instructions received
by telephone reasonably believed to be genuine.
13
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, each fund distributes its net investment income quarterly and
its net capital gains at least once a year. The UAM Funds will automati-
cally reinvest dividends and distributions in additional shares of a fund,
unless you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in a fund. This summary does not apply to shares held in an indi-
vidual retirement account or other tax-qualified plan, which are not sub-
ject to current tax. Transactions relating to shares held in such accounts
may, however, be taxable at some time in the future. You should always
consult your tax advisor for specific guidance regarding the tax effect of
your investment in the UAM Funds.
Taxes on Distributions Distributions of a fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time a fund held its in-
vestments, not how long you held your shares. Dividends and distributions
of short-term capital gains (capital gains relating to securities held for
twelve months or less) are generally taxable at the same rate as ordinary
income. Distributions of long-term capital gains (capital gains relating
to securities held for more than twelve months) are generally taxable as
long-term capital gains. Once a year UAM Funds will send you a statement
showing the types and total amount of distributions you received during
the previous year.
14
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
A fund's dividends that are paid to its corporate shareholders and are at-
tributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If a fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest a fund received
from sources in foreign countries. A fund may elect to treat some of those
taxes as a distribution to shareholders, which would allow shareholders to
offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in a
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 comput-
ing your tax basis, you should keep your account statements for the peri-
ods during which you held shares.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, a fund must withhold 31% of your distributions
and redemption proceeds if you fail (i) to provide complete, correct tax-
payer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in a fund.
15
<PAGE>
Additional Information about the Funds
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, each fund may use the
investment strategies described below. Each fund may also employ invest-
ment practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of a fund's investment practices and its risks, you should read
the SAI.
Derivatives
A fund may invest in derivatives, a category of investments that includes
forward foreign currency exchange contracts, futures, options and swaps to
protect its investments against changes resulting from market conditions
(a practice called "hedging"), to reduce transaction costs or to manage
cash flows. Forward foreign currency exchange contracts, futures and op-
tions are called derivatives because their value is based on an underlying
asset or economic factor. Derivatives are often more volatile than other
investments and may magnify a fund's gains or losses. There are various
factors that affect a fund's ability to achieve its objectives with deriv-
atives. Successful use of a derivative depends on the degree to which
prices of the underlying assets correlate with price movements in the de-
rivatives a fund buys or sells. A fund could be negatively affected if the
change in market value of its securities fails to correlate perfectly with
the values of the derivatives it purchased or sold.
Foreign Securities
A fund may invest in securities of companies located outside of the United
States, American Depositary Receipts, European Depositary Receipts and
other similar global instruments. When a fund invests in foreign securi-
ties, it will be subject to risks not typically associated with domestic
securities. Foreign investments, especially those of companies in emerging
markets, can be riskier and more volatile than investments in the United
States. Adverse political and economic developments or changes in the
value of foreign currency can make it harder for a fund to sell its secu-
rities and could reduce the value of your shares. Differences in tax and
accounting standards and difficulties in obtaining information about for-
eign companies can negatively affect investment decisions. Unlike more es-
tablished markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
16
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of a fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of a fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, a fund may not profit
from favorable developments that it would have otherwise profited from if
it were pursuing its normal strategies. Likewise, these strategies may
prevent a fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Chicago Asset Management Company, a Delaware corporation located at 70
West Madison Street, 56th Floor, Chicago, Illinois 60602, is the invest-
ment adviser to the funds. The adviser manages and supervises the invest-
ment of the funds' assets on a discretionary basis. The adviser, an affil-
iate of United Asset Management Corporation, has specialized in the active
management of stocks, bonds and balanced funds' for institutional and tax-
exempt clients since 1983. The adviser provides investment management
services to corporations, unions, pension and profit sharing plans, trusts
and other institutions.
The adviser has voluntarily agreed to limit the total expenses of one or
both of the funds to the amounts listed in the table below. To maintain
these expense limits, the adviser may waive a portion of its management
fee and/or reimburse certain expenses of the funds. The adviser intends to
continue its expense limitation until further notice, but may discontinue
it at any time. Set forth in the table below are percentages of average
net assets each fund paid in advisory fees to the adviser during the their
most recent fiscal year. This table also lists the amounts funds have
agreed to pay to the adviser.
<TABLE>
<CAPTION>
Contractual Advisory Fees Paid for During Most Expense
Fund Name Fee Recent Fiscal Year Limit
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Bond Port-
folio 0.48% 0.00%* 0.80%
---------------------------------------------------------------------------------
Value/Contrarian Portfo-
lio 0.63% 0.47% 1.25%
</TABLE>
* The adviser waived its entire advisory fee.
17
<PAGE>
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of each fund.
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolios. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolios. Composites of the performance of
these separate accounts are listed below. The performance data for the
managed accounts reflects deductions for the average fees and expenses of
such accounts. The average fees and expenses of the separate accounts were
less than the operating expenses of the portfolios. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolios, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folios.
18
<PAGE>
<TABLE>
<CAPTION>
Chicago Asset
Management Company
Equity composite* S&P 500 Index
----------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1985 36.10% 32.00%
1986 21.90% 18.40%
1987 4.70% 5.20%
1988 26.40% 16.80%
1989 21.50% 31.60%
1990 (8.10)% (3.20)%
1991 29.30% 30.60%
1992 14.40% 7.60%
1993 13.40% 10.10%
1994 7.60% 1.30%
1995 30.30% 37.60%
1996 15.00% 23.00%
1997 19.40% 33.40%
1998 16.80% 28.60%
1999 4.10% 21.00%
Average Annual Return For Periods Ended 6/30/00:
1 Year (15.80)% 7.30%
5 Years 11.80% 23.80%
10 Years 13.00% 17.80%
Cumulative Since Inception (1/1/85) 16.30% 18.90%
</TABLE>
* The adviser's average annual management fee over the period shown
(1/1/85-6/30/00) was 0.40%. During the period, fees on the adviser's in-
dividual accounts ranged from 0.25% to 1.00%. Net returns to investors
vary depending on the management fee. The adviser's composite has not
been audited.
19
<PAGE>
<TABLE>
<CAPTION>
Chicago Asset Lehman Brothers
Management Company Intermediate
Intermediate Bond Government/Corporate
Composite* Bond Index
-----------------------------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1985 22.00% 18.10%
1986 15.20% 13.10%
1987 0.70% 3.70%
1988 7.00% 6.70%
1989 13.0% 12.80%
1990 8.80% 9.20%
1991 17.10% 14.70%
1992 8.60% 7.20%
1993 10.20% 8.80%
1994 -2.40% -1.90%
1995 15.80% 15.30%
1996 3.90% 4.10%
1997 7.70% 7.90%
1998 8.10% 8.40%
1999 0.40% 0.40%
Average Annual Return
For Periods Ended 6/30/00:
1 Year 4.00% 4.20%
5 Years 5.60% 5.80%
10 Years 7.60% 7.30%
Cumulative Since Inception (1/1/85) 8.80% 8.40%
</TABLE>
* The adviser's average annual management fee over the period shown
(1/1/85-6/30/00) was 0.30%. During the period, fees on the adviser's in-
dividual accounts ranged from 0.26% to 0.625%. Net returns to investors
vary depending on the management fee. The adviser's composite has not
been audited.
20
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from a fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of a fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with a
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of a fund or for servicing your
account. Your financial representative should provide you with a schedule
of its fees and services.
A fund may pay all or part of the fees paid to financial representatives.
Periodically the UAM Funds' board reviews these arrangements to ensure
that the fees paid are appropriate for the services performed. A fund does
not pay these service fees on shares purchased directly. In addition, the
adviser and its affiliates may, at their own expense, pay financial repre-
sentatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to a fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to a fund.
21
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of each fund for the past five years. Certain informa-
tion contained in the table reflects the financial results for a single
share. The total returns in the table represent the rate that an investor
would have earned on an investment in each fund assuming all dividends and
distributions were reinvested. PricewaterhouseCoopers LLP has audited this
information. The financial statements and the unqualified opinion of
PricewaterhouseCoopers LLP are included in the annual report of the funds,
which is available upon request by calling the UAM Funds at
1-877-826-5465.
INTERMEDIATE BOND PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended April 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 10.51 $ 10.54 $ 10.30 $ 10.39 $10.33
Income from Investment
Operations:
Net Investment Income 0.55 0.56 0.57 0.61 0.64
Net Realized and Unrealized
Gain (Loss) (0.44) 0.04 0.24 (0.05) 0.14+
Total From Investment
Operations 0.11 0.60 0.81 0.56 0.78
Distributions:
Net Investment Income (0.56) (0.57) (0.57) (0.62) (0.64)
Net Realized Gain (0.01) (0.06) 0.00@ (0.03) (0.08)
Total Distributions (0.57) (0.63) (0.57) (0.65) (0.72)
Net Asset Value, End of Period $ 10.05 $ 10.51 $ 10.54 $ 10.30 $10.39
Total Return+ 1.16% 5.72% 8.08% 5.53% 7.62%
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $13,177 $13,542 $13,261 $10,044 $7,981
Ratio of Expenses to Average
Net Assets 0.81% 0.80% 0.80% 0.80% 0.84%
Ratio of Net Investment Income
to Average Net Assets 5.46% 5.29% 5.64% 5.88% 6.17%
Portfolio Turnover Rate 61% 48% 40% 31% 24%
</TABLE>
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the periods in-
dicated.
++The amount shown for a share outstanding throughout the year does not
accord with the aggregate net losses on investments for that period
because of the timing of sales and repurchases of the fund shares in
relation to fluctuating market value of investments of the fund.
@ Amount is less than $0.1 per share.
22
<PAGE>
VALUE/CONTRARIAN PORTFOLIO
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended April 30, 2000 1999 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 17.53 $ 15.76 $ 13.07 $ 13.67 $11.14
Income from Investment
Operations:
Net Investment Income 0.17 0.15 0.17 0.18 0.19
Net Realized and Unrealized
Gain (Loss) (2.02) 2.98 3.84 0.30 2.86
Total From Investment
Operations (1.85) 3.13 4.01 0.48 3.05
Distributions:
Net Investment Income (0.17) (0.16) (0.18) (0.24) (0.23)
In Excess of Net Investment
Income (0.01) -- -- -- --
Net Realized Gain (1.16) (1.40) (0.94) (0.84) (0.29)
Total Distributions (1.34) (1.56) (1.12) (1.08) (0.52)
Net Asset Value, End of
Period $ 14.34 $ 17.53 $ 15.96 $ 13.07 $13.67
Total Return+ (10.24)% 21.68% 31.71% 3.72% 28.00%
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $64,842 $26,852 $22,552 $13,804 $ 892
Ratio of Expenses to Average
Net Assets 1.19% 0.99% 0.95% 0.95% 1.06%
Ratio of Net Investment
Income to Average Net
Assets 1.32% 0.97% 1.16% 1.89% 1.51%
Portfolio Turnover Rate 48% 39% 55% 21% 33%
</TABLE>
+ Total return would have been different had certain fees not been waived
and certain expenses not been assumed by the adviser during the periods
indicated.
23
<PAGE>
Chicago Asset Management Portfolios
Investors who want more information about a fund should read the funds'
annual/semi-annual reports and the funds' statement of additional informa-
tion. The annual/semi-annual reports of a fund provide additional informa-
tion about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of each fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the funds' and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, 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 a fund (including the statement
of additional information) at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get information on the
operation of the Public Reference Room by calling the Securities and Ex-
change Commission at 1-202-942-8090. Reports and other information about a
fund are available on the EDGAR Database on the Securities and Exchange
Commission's Internet site at http://www.sec.gov. You may obtain copies of
this information, after paying a duplicating fee, by electronic request at
the following E-mail address: [email protected], or by writing the Secu-
rities and Exchange Commission's Public Reference Section, Washington,
D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
Chicago Asset Management Portfolios
Institutional Class
Intermediate Bond Portfolio
Value/Contrarian Portfolio
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Funds dated August
28, 2000, as supplemented from time to time. You may obtain a prospectus by
contacting the UAM Funds at the address listed above.
The audited financial statements of the Funds and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Funds, are
incorporated herein by reference in the section called "Financial Statements."
No other portions of the annual report are incorporated by reference.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
Description of Permitted Investments.................... 1
Borrowing.............................................. 1
Debt Securities........................................ 1
Derivatives............................................ 7
Equity Securities...................................... 15
Foreign Securities..................................... 17
Investment Companies................................... 21
Repurchase Agreements.................................. 21
Restricted Securities.................................. 21
Securities Lending..................................... 21
Short Sales............................................ 22
When Issued Transactions............................... 23
Investment Policies of the Funds........................ 23
Management of the Company............................... 24
Board Members.......................................... 24
Officers............................................... 26
Principal Shareholders.................................. 27
Investment Advisory and Other Services.................. 27
Investment Adviser..................................... 27
Distributor............................................ 29
Shareholder Servicing Arrangements..................... 30
Custodian.............................................. 32
Independent Accountants................................ 32
Code of Ethics......................................... 32
Brokerage Allocation and Other Practices................ 32
Selection of Brokers................................... 32
Simultaneous Transactions.............................. 32
Brokerage Commissions.................................. 33
Capital Stock and Other Securities...................... 33
Purchase, Redemption and Pricing of Shares.............. 35
Net Asset Value Per Share.............................. 35
Purchase of Shares..................................... 36
Redemption of Shares................................... 37
Exchange Privilege..................................... 38
Transfer Of Shares..................................... 39
Performance Calculations................................ 39
Total Return........................................... 39
Yield.................................................. 40
Comparisons............................................ 40
Financial Statements.................................... 41
Glossary................................................ 41
Bond Ratings............................................ 42
Moody's Investors Service, Inc......................... 42
Standard & Poor's Ratings Services..................... 44
Fitch Ratings.......................................... 46
Comparative Benchmarks.................................. 48
</TABLE>
<PAGE>
Description of Permitted Investments
As described in the Funds' prospectus, the Funds may use a variety of
investment strategies in addition to its principal investment strategies. This
SAI describes each of these investments/strategies and their risks. The Funds
may not notify shareholders before employing new strategies, unless they
expect such strategies to become principal strategies. You can find more
information concerning the limits on the ability of the Funds to use these
investments in "Investment Policies of the Funds."
BORROWING
--------------------------------------------------------------------------------
A Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 33 1/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone for
temporary purposes;
. It may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify a Fund's gain or loss. To
mitigate the risks of leverage, the Fund will limit the amount it may borrow
to not more than 33 1/3% of its total assets, taken at market value. In
addition, the Fund will only borrow from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares.
The Fund will not purchase securities while borrowings are outstanding except
to exercise prior commitments and to exercise subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities include
treasury bills, which have initial maturities of less than one year, treasury
notes, which have initial maturities of one to ten years and treasury bonds,
which have initial maturities of at least ten years and certain types of
mortgage-backed securities that are described under "Mortgage-Backed
Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
backed treasury and agency securities in detail in "Mortgage-Backed
Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the U.S.
government generally does not back agency securities. Agency securities are
typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed income
securities. However, since U.S. government securities are of the highest
quality, the credit risk is minimal. The U.S. government does not guarantee
the net asset value of the assets of a Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation by investors,
the corporation promises to pay investors interest, and repay the principal
amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part
or all of the loan balance before maturity, the effective maturity of a
mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual loan,
title, pool and hazard insurance and letters of credit. The adviser will
consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets its
investment quality standards. It is possible that the private insurers or
guarantors will not meet their obligations under the insurance policies or
guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls
within the Department of Housing and Urban Development. Securities issued by
GNMA are considered the equivalent of treasury securities and are backed by
the full faith and credit of the U.S. government. GNMA guarantees the timely
payment of principal and interest on securities issued by institutions
approved by GNMA and backed by pools of FHA-insured or VA-guaranteed
mortgages. GNMA does not guarantee the market value or yield of mortgage-
backed securities or the value of a Fund's shares. To buy GNMA securities, a
Fund may have to pay a premium over the maturity value of the underlying
mortgages, which a Fund may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the
prepayment rates increase, a Fund may have to reinvest its principal at a
rate of interest that is lower than the rate on existing mortgage-backed
securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related asset-
backed securities. Due to the quantity of vehicles involved and requirements
under state laws, asset-backed securities backed by automobile receivables
may not have a proper security interest in all of the obligations backing
such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
A Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the
underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated
with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, a Fund may invest a portion of its assets in
the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
A Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security
is of an investment quality comparable with other debt securities that a
Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of the
obligation. A Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. A Fund may invest in
commercial
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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 "Bond Ratings" for a description
of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. Slower
than anticipated prepayments of principal may adversely affect the yield to
maturity of a PO. The yields and market risk of interest only and principal
only stripped mortgage-backed securities, respectively, may be more volatile
than those of other fixed income securities, including traditional mortgage-
backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the
issuer's credit quality. The market value of zero coupon securities may
exhibit greater price volatility than ordinary debt securities because a
stripped security will have a longer duration than an ordinary debt security
with the same maturity. A Fund's investments in pay-in-kind, delayed and
zero coupon bonds may require it to sell certain of its assets 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 U. S. Treasury
sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities," a Fund can record its beneficial
ownership of the coupon or corpus directly in the book-entry record-keeping
system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely to
be called when interest rates are falling because the issuer can refinance
at a lower rate, similar to a homeowner refinancing a mortgage. The
effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the
mutual Fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years --the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the life
of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By knowing
the yield and the effective duration of a debt security, one can estimate
total return based on an expectation of how much interest rates, in general,
will change. While serving as a good estimator of prospective returns,
effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to pay
off mortgage-backed and asset-backed securities earlier than expected. A
Fund may then have to reinvest the proceeds from such prepayments at lower
interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of a Fund. If left
unattended, drifts in the average maturity of a Fund can have the unintended
effect of increasing or reducing its effective duration, which may adversely
affect its expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause a Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of a Fund to rising rates and its potential for price declines.
Extending the average life of a mortgage-backed security increases the risk
of depreciation due to future increases in market interest rates. For these
reasons, mortgage-backed securities may be less effective than other types
of U.S. government securities as a means of "locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest and
complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the risks
that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower credit
ratings usually offer their investors a higher "risk premium" in the form of
higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment
to this "risk premium." If an issuer's outstanding debt carries a fixed
coupon, adjustments to the risk premium must occur in the price, which
affects 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 a Fund to experience sudden
and substantial price declines. A lack of reliable, objective data or market
quotations may make it more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. A Fund currently use ratings compiled by Moody's Investor Services
("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff & Phelps
Rating Co. and Fitch. Credit ratings are only an agency's opinion, not an
absolute standard of quality, and they do not reflect an evaluation of
market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings. A Fund may invest in securities of any
rating.
DERIVATIVES
--------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in a Fund's prospectus, a Fund can use derivatives to gain exposure
to various markets in a cost efficient manner,
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to reduce transaction costs or to remain fully invested. A Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, a Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of a Fund to
market fluctuations, the use of derivatives may be a more effective means of
hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date
and underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a futures
commission merchant, or custodian bank when they enter into the contract.
Initial margin deposits are typically equal to a percentage of the
contract's value. After they open a futures contract, the parties to the
transaction must compare the purchase price of the contract to its daily
market value. If the value of the futures contract changes in such a way
that a party's position declines, that party must make additional "variation
margin" payments so that the margin payment is adequate. On the other hand,
the value of the contract may change in such a way that there is excess
margin on deposit, possibly entitling the party that has a gain to receive
all or a portion of this amount. This process is known as "marking to the
market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more than
the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
A Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
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Purchasing Put and Call Options
When a Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, a
Fund pays the current market price for the option (known as the "option
premium"). A Fund may purchase put options to offset or hedge against a
decline in the market value of its securities ("protective puts") or to
benefit from a decline in the price of securities that it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying securities decreased below the exercise price sufficiently
to cover the premium and transaction costs. However, if the price of the
underlying instrument does not fall enough to offset the cost of purchasing
the option, a put buyer would lose the premium and related transaction
costs.
Call options are similar to put options, except that a Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. A Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. A Fund would ordinarily realize a gain if, during the option
period, the value of the underlying instrument exceeded the exercise price
plus the premium paid and related transaction costs. Otherwise, a Fund would
realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When a Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when a Fund
writes a put option it assumes an obligation to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. A Fund may terminate its
position in an exchange-traded put option before exercise by buying an
option identical to the one it has written. Similarly, it may cancel an
over- the-counter option by entering into an offsetting transaction with the
counter-party to the option.
A Fund could try to hedge against an increase in the value of securities it
would like to acquire by writing a put option on those securities. If
security prices rise, a Fund would expect the put option to expire and the
premium it received to offset the increase in the security's value. If
security prices remain the same over time, a Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, a Fund
may lose an amount of money equal to the difference between the value of the
security and the premium it received. Writing covered put options may
deprive a Fund of the opportunity to profit from a decrease in the market
price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. A Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, a Fund would expect the option to expire and the
premium it received to offset the decline of the security's value. However,
a Fund must be prepared to deliver the underlying instrument in return for
the strike price, which may deprive it of the opportunity to profit from an
increase in the market price of the securities it holds.
A Fund is permitted only to write covered options. A Fund can cover a call
option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, a Fund of securities that corresponds to the
index.
A Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of
the option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put
option). If the option is exercised, the parties will be subject to the
futures contracts. In addition, the writer of an option on a futures
contract is subject to initial and variation margin requirements on the
option position. Options on futures contracts are traded on the same
contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
A Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. A Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
A Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts.
If the price of the futures contract at expiration were below the exercise
price, a Fund would retain the option premium, which would offset, in part,
any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if the market price
declines, a Fund would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to a Fund.
Combined Positions
A Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, a Fund could write
a call option at one strike price and buy a call option at a lower price to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed
to futures contracts which are traded only on exchanges regulated by the
CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange .
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect a Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. A Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the
specific investments.
A Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. A Fund could also hedge the
position by selling another currency expected to perform similarly to the
currency in which a Fund's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges
may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a Fund owns or intends to purchase
or sell. They simply establish a rate of exchange that one can achieve at
some future point in time. Additionally, these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency and
to limit any potential gain that might result from the increase in value of
such currency.
A Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may
include shifting exposure from U.S. dollars to a foreign currency, or from
one foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause a Fund to assume the
risk of fluctuations in the value of the currency it purchases. Cross
hedging transactions also involve the risk of imperfect correlation between
changes in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain
assets at the expiration or maturity of a forward or futures contract.
Accordingly, a Fund may have to purchase additional foreign currency on the
spot market if the market value of a security it is hedging is less than
the amount of foreign currency it is obligated to deliver. Conversely, a
Fund may have to sell on the spot market some of the foreign currency it
received upon the sale of a security if the market value of such security
exceeds the amount of foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of
cash flows between two parties on specified dates (settlement dates), where
the cash flows are based on agreed-upon prices, rates, indices, etc. The
nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors, such as interest rates, foreign currency rates, mortgage
securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of a Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to
and from a Fund. If a swap agreement calls for payments by a Fund, a Fund
must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. A Fund may be able to
eliminate its exposure under a swap agreement either by assignment or by
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party. If the counter-party is
unable to meet its obligations under the contract, declares bankruptcy,
defaults or becomes insolvent, a Fund may not be able to recover the money
it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a Fund's
gains or losses. In order to reduce the risk associated with leveraging, a
Fund will cover its current obligations under swap agreements according to
guidelines established by the SEC. If a Fund enters into a swap agreement
on a net basis, it will segregate assets with a daily value at least equal
to the excess, if any, of a Fund's accrued obligations under the swap
agreement over the accrued amount a Fund is entitled to receive under the
agreement. If a Fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of a
Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index
swap, for example, the index receiver can gain exposure to stocks making up
the index of securities without actually purchasing those stocks. Equity
index swaps involve not only the risk associated with investment in the
securities represented in the index, but also the risk that the performance
of such securities, including dividends, will not exceed the return on the
interest rate that a Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating
rate cash flows. Termed basis swaps entail cash flows to both parties based
on floating interest rates, where the interest rate indices are different.
Index amortizing swaps are typically fixed-for floating swaps where the
notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, a Fund could lose money
by investing in an interest rate swap if interest rates change adversely.
For example, if a Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, a Fund may have to
pay more money than it receives. Similarly, if a Fund enters into a swap
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where it agrees to exchange a fixed rate of interest for a floating rate of
interest, a Fund may receive less money than it has agreed to pay.
Currency Swaps -- A currency swap is an agreement between two parties in which
one party agrees to make interest rate payments in one currency and the other
promises to make interest rate payments in another currency. A Fund may enter
into a currency swap when it has one currency and desires a different
currency. Typically the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of a Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify a Fund's gains or losses,
causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
Fund holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose a Fund to greater risks.
Correlation of Prices
A Fund's ability to hedge its securities through derivatives depends on the
degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities a Fund is hedging may not move in the
same amount, or even in the same direction as the hedging instrument. The
adviser will try to minimize this risk by investing only in those contracts
whose behavior it expects to resemble the assets a Fund it is trying to hedge.
However, if a Fund's prediction of interest and currency rates, market value,
volatility or other economic factors is incorrect, a Fund may lose money, or
may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of
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securities, they are more susceptible to rapid and extreme price fluctuations
because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of a Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect a
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of a Fund's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, a Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, a Fund may close out a futures contract only on the exchange the
contract was initially traded. Although a Fund intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist. If there is no secondary
market for the contract, or the market is illiquid, a Fund may not be able to
close out its position. In an illiquid market, a Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or . Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, a
Fund may lose money by investing in derivatives. For example, if a Fund were
to write a call option based on its adviser's expectation that the price of
the underlying security would fall, but the price were to rise instead, a Fund
could be required to sell the security upon exercise at a price below the
current market price. Similarly, if a Fund were to write a put option based
on the adviser's expectation that the price of the underlying security would
rise, but the price were to fall instead, a Fund could be required to purchase
the security upon exercise at a price higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including:
. Actual and anticipated changes in interest rates;
. Fiscal and monetary policies; and
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. National and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum
amount that the price of a derivative may vary from the settlement price of
that derivative at the end of trading on the previous day. Once the price of
a derivative reaches this value, a Fund may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during
a given day and does not limit potential gains or losses. Derivative prices
have occasionally moved to the daily limit for several consecutive trading
days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to a Fund and it may lose
more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell
securities at a time when it is disadvantageous to do so to meet its minimum
daily margin requirement. A Fund may lose its margin deposits if a broker-
dealer with whom it has an open futures contract or related option becomes
insolvent or declares bankruptcy.
EQUITY SECURITIES
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and the
liquidation of the company. However, in all other respects, preferred stocks
are subordinated to the liabilities of the issuer. Unlike common stocks,
preferred stocks are generally not entitled to vote on corporate matters.
Types of preferred stocks include adjustable-rate preferred stock, fixed
dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the issuer's
common stock at a Fund's option during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). A
convertible security is generally a fixed income security that is senior to
common stock in an issuer's capital structure, but is usually subordinated to
similar non-convertible securities. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation. In general, the market value of
a convertible security is at least the higher of its "investment value" (i.e.,
its value as a fixed income security) or its "conversion value" (i.e., its
value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities. In addition, they are also influenced by the market value of the
security's underlying common stock. The price of a convertible security tends
to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying common stock declines.
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A synthetic convertible security is a combination investment in which a Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. Government securities and (ii) call options or warrants
on the common stock of the same or different issuer with some or all of the
anticipated interest income from the associated debt obligation that is earned
over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. A synthetic convertible position has
similar investment characteristics, but may differ with respect to credit
quality, time to maturity, trading characteristics, and other factors. Because
a Fund will create synthetic convertible positions only out of high grade
fixed income securities, the credit rating associated with a Fund's synthetic
convertible investments is generally expected to be higher than that of the
average convertible security, many of which are rated below high grade.
However, because the options used to create synthetic convertible positions
will generally have expirations between one month and three years of the time
of purchase, the maturity of these positions will generally be shorter than
average for convertible securities. Since the option component of a
convertible security or synthetic convertible position is a wasting asset (in
the sense of losing "time value" as maturity approaches), a synthetic
convertible position may lose such value more rapidly than a convertible
security of longer maturity; however, the gain in option value due to
appreciation of the underlying stock may exceed such time value loss, the
market price of the option component generally reflects these differences in
maturities, and the Adviser and applicable sub-adviser take such differences
into account when evaluating such positions. When a synthetic convertible
position "matures" because of the expiration of the associated option, a Fund
may extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If a Fund does not so extend
the maturity of a position, it may continue to hold the associated fixed
income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that give
the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price that
is usually higher than the market price at the time the warrant is issued.
Corporations often issue warrants to make the accompanying debt security more
attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the
value of the underlying securities, and they cease to have value if they are
not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the
investment as compared with investing the same amount in the underlying
securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits of
owning a company, such investors must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to actual or perceived changes in the company's financial
condition or prospects than its debt obligations. Stockholders of a company
that fares poorly can lose money.
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Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
Investors in small and medium-sized companies typically take on greater risk
and price volatility than they would by investing in larger, more established
companies. This increased risk may be due to the greater business risks of
their small or medium size, limited markets and financial resources, narrow
product lines and frequent lack of management depth. The securities of small
and medium companies are often traded in the over-the-counter market and might
not be traded in volumes typical of securities traded on a national securities
exchange. Thus, the securities of small and medium capitalization companies
are likely to be less liquid, and subject to more abrupt or erratic market
movements, than securities of larger, more established companies.
Technology Companies
Stocks of technology companies have tended to be subject to greater volatility
than securities of companies that are not dependent upon or associated with
technological issues. Technology companies operate in various industries.
Since these industries frequently share common characteristics, an event or
issue affecting one industry may significantly influence other, related
industries. For example, technology companies may be strongly affected by
worldwide scientific or technological developments and their products and
services may be subject to governmental regulation or adversely affected by
governmental policies.
FOREIGN SECURITIES
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Types of Foreign Securities
Foreign securities are debt and equity securities that are traded in markets
outside of the United States. The markets in which these securities are
located can be developed or emerging. People can invest in foreign securities
in a number of ways:
. They can invest directly in foreign securities denominated in a foreign
currency;
. They can invest in American Depositary Receipts, 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
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for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities. EDRs are similar to ADRs, except that they are
typically issued by European Banks or trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank for
Reconstruction and Development (World Bank) and the International Finance
Corporation would consider to be an emerging or developing country. Typically,
emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and traded
on their stock exchanges through investment funds that they have specifically
authorized. Investments in these investment funds are subject to the
provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
investment funds will bear not only their proportionate share of the expenses
of the UAM Fund (including operating expenses and the fees of the adviser),
but also will 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 a Fund's ability to invest in a
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particular country or make it very expensive for a Fund to invest in that
country. Some countries require prior governmental approval, limit the
types or amount of securities or companies in which a foreigner can invest.
Other countries may restrict the ability of foreign investors to repatriate
their investment income and capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign companies 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 more volatile and not as developed or efficient as 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 the value of a foreign currency against the
United States dollar will result in a corresponding change in value of
securities denominated in that currency. Some of the factors that may impair
the investments denominated in a foreign currency are:
. It may be expensive to convert foreign currencies into United States
dollars and vice versa;
. Complex political and economic factors may significantly affect the values
of various currencies, including United States dollars, and their exchange
rates;
. Government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces;
. There may be no systematic reporting of last sale information for foreign
currencies or regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis;
. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
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. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for a Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income a Fund receives from its investments. A Fund 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. A Fund also anticipates pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, each Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
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INVESTMENT COMPANIES
--------------------------------------------------------------------------------
A Fund may buy and sell shares of other investment companies. Such investment
companies may pay management and other fees that are similar to the fees
currently paid by a Fund. Like other shareholders, a Fund would pay its
proportionate share of those fees. Consequently, shareholders of a Fund would
pay not only the management fees of a Fund, but also the management fees of
the investment company in which the Fund invests. A Fund may invest up to 10%
of its total assets in the securities of other investment companies, but may
not invest more than 5% of its total assets in the securities of any one
investment company or acquire more than 3% of the outstanding securities of
any one investment company.
The SEC has granted an order that allows a Fund to invest the greater of 5% of
its total assets or $2.5 million in the UAM DSI Money Market Fund, provided
that the investment is:
. For cash management purposes;
. Consistent with a Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the assets of
a Fund that are invested in the UAM DSI Money Market Fund.
A Fund will bear expenses of the UAM DSI Money Market Fund 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). A Fund normally uses repurchase agreements to earn income
on assets that are not invested.
When a Fund 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 to "mark to the market" on a daily
basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, a Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before a Fund can sell it and a Fund might incur expenses in enforcing
its rights.
RESTRICTED SECURITIES
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A Fund 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 a Fund's
investment limitations. The price realized from the sales of these securities
could be more or less than those originally paid by a Fund or less than what
may be considered the fair value of such securities.
SECURITIES LENDING
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A Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When a Fund lends its
securities, it will follow the following guidelines:
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. 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 a
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When a Fund lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, a
Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
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Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
A Fund can lose money if the price of the security it sold short increases
between the date of the short sale and the date on which a Fund replaces
the borrowed security. Likewise, a Fund can profit if the price of the
security declines between those dates.
To borrow the security, a Fund also may be required to pay a premium, which
would increase the cost of the security sold. A Fund will incur transaction
costs in effecting short sales. A Fund's gains and losses will be decreased
or increased, as the case may be, by the amount of the premium, dividends,
interest, or expenses a Fund may be required to pay in connection with a
short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
Short Sales Against the Box
In addition, a Fund may engage in short sales "against the box." In a short
sale against the box, a Fund agrees to sell at a future date a security
that it either currently owns or has the right to acquire at no extra cost.
A Fund will incur transaction costs to open, maintain and close short sales
against the box.
Restrictions on Short Sales
A Fund will not short sell a security if:
22
<PAGE>
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of a Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by a Fund would exceed the two percent (2%) of the value of a
Fund's net assets.
. Such securities would constitute more than two percent (2%) of any class
of the issuer's securities.
Whenever a Fund sells a security short, its custodian segregates an amount
of cash or liquid securities equal to the difference between (a) the market
value of the securities sold short at the time they were sold short and (b)
any cash or U.S. Government securities a Fund is required to deposit with
the broker in connection with the short sale (not including the proceeds
from the short sale). The segregated assets are marked to market daily in
an attempt to ensure that the amount deposited in the segregated account
plus the amount deposited with the broker is at least equal to the market
value of the securities at the time they were sold short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, a Fund contracts to purchase securities for a fixed price at a
future date beyond customary settlement time. "Delayed delivery" refers to
securities transactions on the secondary market where settlement occurs in
the future. In each of these transactions, the parties fix the payment
obligation and the interest rate that they will receive on the securities
at the time the parties enter the commitment; however, they do not pay
money or deliver securities until a later date. Typically, no income
accrues on securities a Fund has committed to purchase before the
securities are delivered, although a Fund may earn income on securities it
has in a segregated account. A Fund will only enter into these types of
transactions with the intention of actually acquiring the securities, but
may sell them before the settlement date.
A Fund uses when-issued, delayed-delivery and forward delivery transactions
to secure what it considers an advantageous price and yield at the time of
purchase. When a Fund engages in when-issued, delayed-delivery and forward
delivery transactions, it relies on the other party to consummate the sale.
If the other party fails to complete the sale, a Fund may miss the
opportunity to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, a Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because a Fund does not pay for the security until the delivery date, these
risks are in addition to the risks associated with its other investments.
A Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. A Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of a Fund
The following investment limitations are fundamental, which means a Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. A
Fund will determine investment limitation percentages (with the exception
of a limitation relating to borrowing) immediately after and as a result of
its acquisition of such security or other asset. Accordingly, a Fund will
not consider changes in values, net assets or other circumstances when
determining whether the investment complies with its investment
limitations. Each Fund will not:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the U.S. government or any if its agencies or
instrumentalities).
23
<PAGE>
. With respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any issuer.
. Invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its
agencies.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 331/3% of the
portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in
real estate and may purchase and sell securities which are secured by
interests in real estate.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and policies, (ii) entering into repurchase
agreements or (iii) by lending its portfolio securities to banks,
brokers, dealers and other financial institutions so long as such loans
are not inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making any permitted borrowings, mortgages or pledges, or (ii) entering
into options, futures or repurchase transactions.
Management of the Company
The Board manages the business of the company. The Board elects officers to
manage the day-to-day operations of the company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds in the UAM Complex.
The Company does not pay its Interested Directors or officers for their
services as Directors or officers.
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and,
24
<PAGE>
therefore, does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH Company, Inc. (investment management). From 1988 to
03226 1993, Mr. Bennett was President of Bennett Management
1/26/29 Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24th St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 1999, Ms. Dunn was Vice President for Finance and
20037 Administration and Treasurer of Radcliffe College
8/14/51 (Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN since March 2000. From June 1998 to March 2000 he
46290 was Executive Vice President and Chief Administrative
4/21/42 Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr.
English serves on the Board of each Company in the
UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
27
<PAGE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides information
regarding their present positions, date of birth, address and their principal
occupations during the past five years. The Company's officers are paid by
UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
===============================================================================================================================
<C> <S> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Member;
Place President
Boston, MA 02110 and
3/21/35 Chairman
-------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International President Management Corporation (financial services) since 1998.
Place
Boston, MA 02110
9/19/47
-------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
-------------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of
Signature Financial Group Europe, Ltd. (financial services) from 1995 to 2000;
Secretary of the Citigroup Family of Mutual Funds (mutual funds) from 1996 to
2000; Secretary of the 59 Wall Street Family of Mutual Funds (mutual funds)
from 1996 to 2000.
-------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
-------------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
-------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
26
<PAGE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of a Fund:
<TABLE>
<CAPTION>
Fund Name Percentage of Shares
Name and Address of Shareholder Owned
=================================================================================================================
<S> <C> <C>
John D Curran Francis McCartin Tr Intermediate Bond 96.14%
FBO Pipe Fitters Pension Fund Portfolio
Local 597 U/A 01/05/55
C/O Chicago Asset Management Co
70 W Madison St. Floor 56
Chicago, IL 60602-4261
-----------------------------------------------------------------------------------------------------------------
UMB Bank NA Cust Value/Contrarian 44.12%
FBO IBC Retirement Income Plan Portfolio
928 Grand Blvd
Kansas City, MO 64106-2008
-----------------------------------------------------------------------------------------------------------------
UMBSC & Co Value/Contrarian 13.21%
FBO Interstate Brands Portfolio
Moderate Growth
PO Box 419175
Kansas City, MO 64141-6175
-----------------------------------------------------------------------------------------------------------------
UMBSC & Co Value/Contrarian 12.43%
FBO Interstate Brands Portfolio
Conservative Growth
PO Box 419175
Kansas City, MO 64141-6175
-----------------------------------------------------------------------------------------------------------------
UMBSC & Co Value/Contrarian 10.36%
FBO Interstate Brands Portfolio
Aggressive Growth
PO Box 419175
Kansas City, MO 64141-6175
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is defined
in the 1940 Act) the portfolio. Shareholders controlling the portfolio
could have the ability to vote a majority of the shares of the portfolio on
any matter requiring the approval of shareholders of the portfolio. As of
August 21, 2000, the directors and officers of the Company owned less than
1% of the outstanding shares of a Fund.
Investment Advisory and Other Services
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Chicago Asset Management Company, a Delaware corporation located at 70 West
Madison Street, 56th Floor, Chicago, Illinois 60602, is the investment
adviser to the Funds. The adviser manages and supervises the investment of
each Fund's assets on a discretionary basis. The adviser, an affiliate of
United Asset Management Corporation, has specialized in the active
management of stocks, bonds and balanced portfolios for institutional and
tax-exempt clients since 1983. The adviser provides investment management
services to corporations, unions, pension and profit sharing plans, trusts
and other institutions.
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
27
<PAGE>
acquisition in August 1983, UAM has acquired or organized more than
50 UAM Affiliated Firms. UAM believes that permitting UAM Affiliated Firms
to retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM Affiliated Firms are separately
chosen by each of them. Several UAM Affiliated Firms also act as investment
advisers to separate series or portfolios of the UAM Funds Complex.
What is the Investment Philosophy and Style of the Adviser?
Intermediate Bond Portfolio
The adviser's approach is predicated on a controlled risk strategy that
attempts to avoid dependence on interest rate anticipation while
emphasizing value added through sector rotation and yield curve analysis.
The firm seeks to add value by improving the odds in a risk/reward
equation. The adviser focuses on the more traditional aspects of active
portfolio management by scrutinizing sectors, coupons, call features, and
the shape of the yield curve. The adviser attempts to construct the Fund
for income and safety.
Value/Contrarian Portfolio
The adviser views itself as an equity manager who, by combining value
judgment and contrarian opinion, strives to outperform the market and other
money managers not by market timing, but by focusing on the selection of
individual securities. Categorized as a large cap, bottom-up,
value/contrarian strategy, the adviser's philosophy and strategy are
qualitative and have remained the same since the inception of the firm.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 each Fund's assets;
. Continuously reviews, supervises and administers the investment program
of each Fund; and
. Determines what portion of each Fund'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 a 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.
28
<PAGE>
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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the shareholders
of a Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of a Fund's shareholders vote to do so or a majority of Board
Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
Advisory Fees
Intermediate Bond Portfolio
For its services, Intermediate Bond Portfolio pays the adviser a fee
calculated at an annual rate of 0.48% of its average daily net assets. Due
to the effect of fee waivers by the adviser, the actual percentage of
average net assets that the Fund pays in any given year may be different
from the rate set forth in its contract with the adviser. For the last
three fiscal years, the Fund paid the following in advisory fees to the
adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/00 $0 $67,388 $67,388
-----------------------------------------------------------------------------------------------------------------------------
4/30/99 $0 $65,702 $65,702
-----------------------------------------------------------------------------------------------------------------------------
4/30/98 $0 $52,374 $52,374
</TABLE>
Value/Contrarian Portfolio
For its services, Intermediate Bond Portfolio pays the adviser a fee
calculated at an annual rate of 0.63% of its average daily net assets. Due
to the effect of fee waivers by the adviser, the actual percentage of
average net assets that the Fund pays in any given year may be different
from the rate set forth in its contract with the adviser. For the last
three fiscal years, the Fund paid the following in advisory fees to the
adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Paid Total Investment Advisory Fee
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/00 $172,108 $ 54,810 $226,918
---------------------------------------------------------------------------------------------------------------------------
4/30/99 $ 0 $137,651 $137,651
---------------------------------------------------------------------------------------------------------------------------
4/30/98 $ 0 $120,386 $120,386
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of a Fund, it is not obligated to sell any
particular amount of
29
<PAGE>
shares. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110. UAMFDI receives no compensation for its
services as distributor of the Institutional Class Shares.
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 services performed with respect to the Company or a fund.
The person making such payments may do so out of its revenues, its profits
or any other source available to it. Such servicing arrangements, when in
effect, are made generally available to all qualified service providers.
The adviser may also compensate its affiliated companies for referring
investors to the Fund.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of each portfolio of the Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
30
<PAGE>
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Funds pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Intermediate Bond
Portfolio and 0.063% of the aggregate net assets of the
Value/Contrarian Portfolio.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM
Funds Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services
as sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
Intermediate Bond Portfolio
For the last three fiscal years the Fund paid the following in
administration fees:
Fiscal Year End Total Administration Fee
-------------------------------------------------------------------------
4/30/00 $93,983
-------------------------------------------------------------------------
4/30/99 $19,805
-------------------------------------------------------------------------
4/30/98 $ 4,364
Value/Contrarian Portfolio
For the last three fiscal years the Fund paid the following in
administration fees:
Fiscal Year End Total Administration Fee
-------------------------------------------------------------------------
4/30/00 $118,870
-------------------------------------------------------------------------
4/30/99 $ 28,471
-------------------------------------------------------------------------
4/30/98 $ 11,576
31
<PAGE>
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of a Fund's assets pursuant to the terms of
a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by each Fund.
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 a Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for a Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, a Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction. During the fiscal year ended April 30, 2000, the adviser
directed $9,462,114.24 of the portfolio's brokerage transactions to Direct
Access Brokerage Services in exchange for certain research services.
Commissions paid on those transactions were $15,719.50.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the
purchase of Company shares for their clients.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for a Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including each Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, a Company's Board periodically reviews the various
allocation methods used by the adviser.
32
<PAGE>
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 Fund will not
pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When a Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last three fiscal years, the Intermediate Bond Portfolio paid no
brokerage commissions and the Value/Contrarian Portfolio paid the following
in brokerage commissions.
Fiscal Year End Brokerage Commissions
-------------------------------------------------------------------------
4/30/00 $164,673
-------------------------------------------------------------------------
4/30/99 $ 23,446
-------------------------------------------------------------------------
4/30/98 $ 33,412
Capital Stock and Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company and each
Fund is diversified. This means that with respect to 75% of its total
assets, each Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each
33
<PAGE>
fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder servicing
and the distribution of such shares pursuant to a distribution plan or
other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of each
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to each Fund at least three days before the record date for income dividend
or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
A Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and excise
34
<PAGE>
taxes. If a Fund were to fail to make sufficient distributions in a year,
it would be subject to corporate income taxes and/or excise taxes. In
addition, if the shortfall were large enough, a Fund could be disqualified
as a regulated investment company. If a Fund were to fail to so qualify:
(1) it would be taxed at regular corporate rates without any deduction for
distributions to shareholder; and (2) its shareholders would be taxed as if
they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. Moreover, if a Fund were to
fail to make sufficient distributions in a year, a Fund would be subject to
corporate income taxes and/or excise taxes in respect of the shortfall or,
if the shortfall is large enough, a Fund could be disqualified as a
regulated investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year
period ending October 31 of such calendar year and 100% of any such amounts
that were not distributed in the prior year. A Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by a Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
At April 30, 2000, the Intermediate Bond Portfolio had a capital loss
carryover of approximately $5,115 for federal income tax purposes that will
expire on April 30, 2008. In addition, at April 30, 2000, the Intermediate
Bond Portfolio had elected to defer $33,714 of post October capital losses
for income tax purposes. These losses will be available to offset realized
capital gains for the fiscal year ended April 30, 2001. As of April 30,
2000, the Value/Contrarian Portfolio has no capital loss carryovers.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
--------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of a Fund is equal to its
NAV. A Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by a Fund,
plus cash and other assets plus income accrued but not yet received.
Each Fund normally calculates its NAV as of the close of trading on the
NYSE every day the NYSE is open for trading. The NYSE usually closes at
4:00 p.m. The NYSE is closed on the following days: New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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
35
<PAGE>
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 the U.S.
dollar 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 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 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 a Fund
before the close of its business day to receive that day's share price. A
Fund must receive proper payment for the order by the time a Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of
all subscription and redemption requests, investment information,
documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of a Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
a Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of a Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of a Fund at the NAV of a Fund determined as of
the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for a Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of a Fund and are delivered to a
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 a Fund cannot exceed 5% of its net
assets. This condition does not apply to U.S. government securities.
36
<PAGE>
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 a Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of shares
or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts, guardianships,
custodianships, corporations, pension and profit sharing plans and other
organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of a Fund to make payment wholly or partly in
cash, a Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by a Fund in lieu of cash in
conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of securities received in payment of redemptions.
The Company 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 a
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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of a
Fund. If a Fund pays redemption proceeds
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<PAGE>
with securities instead of cash, it will value such securities as set forth
under "How the Company Values its Assets." A redeeming shareholder would
normally incur brokerage expenses if these securities were converted to
cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company 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, a Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, a Fund will pay
your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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
a Fund to dispose of securities owned by it, or to fairly determine the
value of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
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<PAGE>
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of a Fund to another person by making a
written request to a 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
Each Fund 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. Each Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in a Fund over a given
period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
A Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
Intermediate Bond Portfolio
The table lists the Fund's average annual returns for the one-year period
and the five-year period ended April 30, 2000 and the period from the
Fund's inception date through April 30, 2000.
One Year Five Years Since Inception Inception Date
-------------------------------------------------------------------------
1.16% 5.59% 6.15% 01/24/95
39
<PAGE>
Value/Contrarian Portfolio
The table lists the Fund's average annual returns for the one-year period
and the five-year period ended April 30, 2000 and the period from the
Fund's inception date through April 30, 2000.
One Year Five Years Since Inception Inception Date
-------------------------------------------------------------------------
-10.24% 13.81% 15.15% 12/16/94
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. Since Adviser Class Shares and 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.
For period ended April 30, 2000, the Intermediate Bond Portfolio's 30-day
SEC yield was ___%.
COMPARISONS
--------------------------------------------------------------------------------
Each Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in each Fund might
satisfy their investment objective, advertisements regarding the Company or
a Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in each
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not be
identical to the formula used by a Fund to calculate its performance;
and
. That shareholders cannot invest directly in such indices or averages.
40
<PAGE>
In addition, there can be no assurance that a Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in a Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of each Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of a Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of a Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of each Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of a Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Funds refer to the Chicago Asset management Intermediate Bond and
Value/Contrarian Portfolio, which is a series of the Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 Act, the 1940 Act and
the 1934 Act.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal underwriter.
UAMFSI is Uam Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
41
<PAGE>
Bond Ratings
MOODY'S INVESTORS SERVICE, INC.
---------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa An issue that 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 that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and
"aa" classification, earnings and asset protection
are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.
caa An issue that is rated "caa" is of poor standing, such
issues may be in default or there may be other
elements of danger with respect to principal or
interest.
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have other
marked shortcomings.
c This is the lowest rated class of preferred or
preference stock. Issues so rated can thus be regarded
as having extremely poor prospects of ever attaining
any real investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in
each rating classification: the modifier 1
minus (-) 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 that 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds
because margins of protection may not be as large as
in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be
other elements present that make the long-term risks
appear somewhat larger than the Aaa securities.
42
<PAGE>
A Bonds that are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds that 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 that 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 that 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 that 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 that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Con. (...) (This rating applies only to U.S. Tax-Exempt
Municipals) Bonds for which the security depends upon
the completion of some act or the fulfillment of some
condition are rated conditionally. These are bonds
secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in
operating experience, (c) rentals that begin when
facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
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<PAGE>
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
. Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Ratings Services
--------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
The issue rating definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with
the category definition.
AAA An obligation rated 'AAA' has the highest rating
assigned by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity
to meet its financial commitment on the obligation is
very strong.
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A An obligation rated 'A' is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to
nonpayment than other speculative issues. However, it
faces major ongoing uncertainties or exposures to
adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment
than obligations rated 'BB,' but the obligor currently
has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
CCC An obligation rated 'CCC' is currently vulnerable to
non-payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic
conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the
obligations.
CC An obligation rated 'CC' is currently highly vulnerable
to nonpayment.
C A subordinated debt or preferred stock obligation rated
'C' is CURRENTLY HIGHLY VULNERABLE to non-payment. The
'C' rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action
taken, but payments on this obligation are being
continued. A 'C' will also be assigned to a preferred
stock issue in arrears on dividends or sinking fund
payments, but that is currently paying.
D An obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation
are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such
grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are
jeopardized.
r This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are
not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment
risk - such as interest-only or principal-only mortgage
securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that
there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a
particular obligation as a matter of policy. Debt
obligations of issues outside the United States and its
territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into
account currency exchange and related uncertainties.
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.
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Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate
protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment
on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the
obligation.
C A short-term obligation rated 'C' is currently vulnerable
to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet
its financial commitment on the obligation.
D A short-term obligation rated 'D' is in payment default.
The 'D' rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard &
Poors' believes that such payments will be made during such
grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
FITCH RATINGS
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case
of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
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.
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A High credit quality. 'A' ratings denote a low expectation
of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity
may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a
possibility of credit risk developing, particularly as the
result of adverse economic change over time; however,
business or financial alternatives may be available to
allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. 'B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A
'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category are
based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative and
cannot be estimated with any precision, the following serve
as general guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of outstanding
amounts and accrued interest. "D" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest
recovery potential, i.e., below 50%. Entities rated in this
category have defaulted on some or all of their
obligations.
Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or
without a formal reorganization process. Entities rated
"DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are
likely to satisfy a higher portion of their outstanding
obligations, while entities rated "D" have a poor prospect
for repaying all obligations.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for
timely payment of financial commitments; may have an added
"+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety
is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-
investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity
for meeting financial commitments that is highly uncertain
and solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
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<PAGE>
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 does not rate the issuer or issue in question.
'Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
Comparative Benchmarks
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of change, over time in
the price of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
------------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public,
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<PAGE>
nonconvertible debt issued or guaranteed by foreign sovereign governments,
municipalities, or governmental agencies, or international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Credit Bond
Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
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Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign
common stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
----------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance
of the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
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Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000(R) Value Index - measures the performance of those Russell
1000 with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
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Standard & Poor's U.S. Indices:
-------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123 sub-industries covering almost 6,000 companies
globally. The new classification standard will be used with all of their
respective indices. Features of the new classification include 10 economic
sectors, rather than the 11 S&P currently uses. Sector and industry
gradations are less severe. Rather than jumping from 11 sectors to 115
industries under the former S&P system, the new system progresses from 10
sectors through 23 industry groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
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200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries -- Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan --are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill
issues.
Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and
inflation.
Target Large Company Value Index - an index comprised of large companies
with market capitalizations currently extending down to approximately $1.9
billion that are monitored using a variety of relative value criteria in
order to capture the most attractive value opportunities available. A high
quality profile is required and companies undergoing adverse financial
pressures are eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all
treasury bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted
index of publicly traded real estate securities, including real estate
investment trusts, real estate operating companies and partnerships. The
index is used by the institutional investment community as a broad measure
of the performance of public real estate equity for asset allocation and
performance comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs)
but excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment
of dividends, except as otherwise stated.
53
<PAGE>
UAM Funds
Funds for the Informed Investor sm
Clipper Focus Portfolio
Institutional Class Shares Prospectus September 1, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary.................................................................. 1
What are the Fund's Objectives?.............................................. 1
What are the Fund's Principal Investment Strategies?......................... 1
What are the Fund's Principal Risks?......................................... 2
How Has the Fund Performed?.................................................. 3
What are the Fund's Fees and Expenses?....................................... 4
Investing with the Uam Funds.................................................. 5
Buying Shares................................................................ 5
Redeeming Shares............................................................. 6
Exchanging Shares............................................................ 8
Transaction Policies......................................................... 8
Account Policies.............................................................10
Additional Information About the Fund.........................................12
Other Investment Practices and Strategies....................................12
Investment Management........................................................13
Shareholder Servicing Arrangements...........................................13
Financial Highlights..........................................................15
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks long-term capital growth. The fund may change its invest-
ment objective without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The adviser invests like a long-term business partner would invest--it
values a company's assets, projects long-term free cash flows and seeks
shareholder-oriented management. The adviser's investment process is very
research intensive and includes meeting with company management, competi-
tors and customers. Some of the major factors the adviser considers when
appraising an investment include balance sheet strength and the ability to
generate earnings and free cash flow. The adviser's analysis gives little
weight to current dividend income.
The adviser prepares valuation models for each company being researched to
identify companies that it believes the market has undervalued. The valua-
tion models attempt to calculate each company's intrinsic value based on
private market transactions and discounted cash flow. The adviser adds
companies to the fund when their share price trades below the adviser's
estimate of intrinsic value and sells companies when their share prices
reach the adviser's estimate of intrinsic value.
The adviser believes that its approach will lead to investments in domi-
nant companies that:
. Have leading market positions.
. Are in industries that are often "out-of-favor" in the investment com-
munity.
The adviser believes that it can produce superior long-term performance by
concentrating on its best investment ideas. Therefore, the fund will be
more concentrated than the average equity mutual fund. The fund, which is
a "non-diversified" mutual fund, generally contains between 15 to 35
stocks. The fund will generally hold its investment in a particular com-
pany for an extended period. The adviser expects to invest fully the as-
sets of the fund. Consequently, the adviser generally expects cash re-
serves to be less than 5% of the total assets of the fund.
Special Situations
The fund may invest in special situations. A special situation arises when
the adviser believes the securities of a particular company will appreci-
ate
1
<PAGE>
in value within a reasonable period because of unique circumstances appli-
cable to that company. Special situations are events that could change or
temporarily hamper the ongoing operations of a company, including, but not
limited to:
. Liquidations, reorganizations, recapitalizations, mergers or temporary
financial liquidity restraints.
. Material litigation, technological breakthroughs or temporary produc-
tion or product introduction problems.
. Natural disaster, sabotage or employee error and new management or
management policies.
Special situations affect companies of all sizes and generally occur re-
gardless of general business conditions or movements of the market as a
whole.
Special situations often involve much greater risk than is inherent in or-
dinary investment securities. In addition, the market price of companies
subject to special situations may never reflect any perceived intrinsic
values.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
This risk is greater for small and medium sized companies, which tend to
be more vulnerable to adverse developments than larger companies.
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.
2
<PAGE>
Diversifying a mutual fund's investment can reduce the risks of investing
by limiting the amount of money it invests in any one issuer or, on a
broader scale, in any one industry. Since the fund is not diversified, it
may invest a greater percentage of its assets in a particular issuer than
a diversified fund. Therefore, being non-diversified may cause the value
of its shares to be more sensitive to changes in the market value of a
single issuer or industry relative to diversified mutual funds.
The fund expects to remain fully invested in equity securities at all
times. In bear markets a fully invested mutual fund will generally decline
further than a portfolio with cash and or bond reserves.
HOW HAS THE FUND PERFORMED?
--------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares the average annual
returns of the fund to those of a broad-based securities market index. Re-
turns are based on past results and are not an indication of future per-
formance.
Calendar Year Returns
[CHART]
During the periods shown in the chart for the fund, the highest return for
a quarter was 10.01% (quarter ending 6/30/99) and the lowest return for a
quarter was -5.71% (quarter ending 9/30/99). For the period from January
1, 2000, through June 30, 2000, the fund returned -0.23%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 9/10/98*
-----------------------------------------
<S> <C> <C>
Clipper Focus Portfolio -1.88% 11.80%
-----------------------------------------
S&P 500 Index 21.04% 39.74%
</TABLE>
* Beginning of operations. Index comparisons begin on August 31, 1998.
3
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 1.00%
--------------------------------------------
Other Expenses* 0.46%
--------------------------------------------
Total Annual Fund Operating Expenses 1.46%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.40%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addition "Other Expenses" do not take
into account any expense offset arrangement the fund may have that would
reduce its custodian fee based on the amount of cash the fund maintains
with its custodian. This would also have the effect of reducing the
fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$149 $462 $797 $1,746
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
CLPRX 902556786 781
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capacity in
which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an in-
8
<PAGE>
vestment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
12
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Pacific Financial Research, Inc., a Massachusetts corporation located at
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210, is
the investment adviser to the fund. The adviser manages and supervises the
investment of the fund's assets on a discretionary basis. The adviser, an
affiliate of United Asset Management Corporation, has provided investment
management services to corporations, foundations, endowments, pension
funds and other institutions as well as individuals since 1981.
The fund has agreed to pay the adviser a management fee equal to 1.00% of
the fund's average net assets. In addition, the adviser has voluntarily
agreed to limit the total expenses of the funds to 1.40% of its average
net assets. To maintain this expense limit, the adviser may waive a por-
tion of its management fee and/or reimburse certain expenses of the fund.
The adviser intends to continue its expense limitation until further no-
tice, but may discontinue it at any time. During its most recent fiscal
year, the fund paid 0.93% of its average net assets in advisory fees to
the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
13
<PAGE>
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate for the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
14
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a
single share. The total returns in the table represent the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at 1-
877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000 1999#
-----------------------------------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period $12.19 $10.00
Income from Investment
Operations:
Net Investment Income 0.16 0.05
Net Realized and
Unrealized Gain (Loss) (1.18) 2.18
Total From Investment
Operations (1.02) 2.23
Distributions:
Net Investment Income (0.16) (0.04)
Net Realized Gain (0.14) --@
Total Distributions (0.30) (0.04)
Net Asset Value, End of
Period $10.87 $12.19
Total Return+ (8.39)% 22.33%++
Ratios and Supplemental
Data
Net Assets, End of
Period (Thousands) $84,226 $64,135
Ratio of Expenses to
Average Net Assets 1.40% 1.40%*
Ratio of Net Investment
Income to Average Net
Assets 1.47% 1.05%*
Portfolio Turnover Rate 54% 22%
</TABLE>
# For the period from September 10, 1998 (commencement of operations),
through April 30, 1999.
@ Amount is less than $0.01 per share.
* Annualized
++Not annualized
+ Total return would have been lower had certain fees not been waived by
the adviser during the periods indicated.
15
<PAGE>
Clipper Focus Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
Clipper Focus Portfolio
Institutional Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August
28, 2000, as supplemented from time to time. You may obtain the Fund's
prospectus by contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial
Statements." No other portions of the annual report are incorporated by
reference.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Description of Permitted Investments.................................................................................. 1
Borrowing.......................................................................................................... 1
Debt Securities.................................................................................................... 1
Derivatives........................................................................................................ 7
Equity Securities.................................................................................................. 15
Foreign Securities................................................................................................. 17
Investment Companies............................................................................................... 21
Repurchase Agreements.............................................................................................. 21
Restricted Securities.............................................................................................. 21
Securities Lending................................................................................................. 22
Short Sales........................................................................................................ 22
When Issued Transactions........................................................................................... 23
Investment Policies of the Fund....................................................................................... 23
Management of the Company............................................................................................. 24
Board Members...................................................................................................... 24
Officers........................................................................................................... 25
Principal Shareholders................................................................................................ 27
Investment Advisory and Other Services................................................................................ 27
Investment Adviser................................................................................................. 27
Distributor........................................................................................................ 29
Shareholder Servicing Arrangements................................................................................. 29
Administrative Services............................................................................................ 29
Custodian.......................................................................................................... 30
Independent Accountants............................................................................................ 31
Code of Ethics..................................................................................................... 31
Brokerage Allocation and Other Practices.............................................................................. 31
Selection of Brokers............................................................................................... 31
Simultaneous Transactions.......................................................................................... 31
Brokerage Commissions.............................................................................................. 31
Capital Stock and Other Securities.................................................................................... 32
Purchase, Redemption and Pricing of Shares............................................................................ 34
Net Asset Value Per Share.......................................................................................... 34
Purchase of Shares................................................................................................. 35
Redemption of Shares............................................................................................... 35
Exchange Privilege................................................................................................. 37
Transfer Of Shares................................................................................................. 37
Performance Calculations.............................................................................................. 37
Total Return....................................................................................................... 38
Yield.............................................................................................................. 38
Comparisons........................................................................................................ 39
Financial Statements.................................................................................................. 39
Glossary.............................................................................................................. 39
Bond Ratings.......................................................................................................... 40
Moody's Investors Service, Inc..................................................................................... 40
Standard & Poor's Ratings Services................................................................................. 42
Fitch Ratings...................................................................................................... 45
Comparative Benchmarks................................................................................................ 46
</TABLE>
<PAGE>
Description of Permitted Investments
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
BORROWING
--------------------------------------------------------------------------------
The Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 33 1/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone for
temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the Fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment
occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential
housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government
agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the security
is of an investment quality comparable with other debt securities that
the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
4
<PAGE>
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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
5
<PAGE>
Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years -- the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
6
<PAGE>
Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
DERIVATIVES
--------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
7
<PAGE>
reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for
this right, the Fund pays the current market price for the option (known as
the "option premium"). The Fund may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts")
or to benefit from a decline in the price of securities that it does not
own. The Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost
of purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. The Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. The Fund would ordinarily realize a gain if, during the
option period, the value of the underlying instrument exceeded the exercise
price plus the premium paid and related transaction costs. Otherwise, the
Fund would realize either no gain or a loss on the purchase of the call
option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. Similarly,
when the Fund writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. The Fund may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting
transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Fund may lose an amount of money equal to the difference between the value
of the security and the premium it received. Writing covered put options
may deprive the Fund of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, the Fund must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate,
foreign currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of
the option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put
option). If the option is exercised, the parties will be subject to the
futures contracts. In addition, the writer of an option on a futures
contract is subject to initial and variation margin requirements on the
option position. Options on futures contracts are traded on the same
contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts.
If the price of the futures contract at expiration were below the exercise
price, the Fund would retain the option premium, which would offset, in
part, any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if the market price
declines, the Fund would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Fund could
write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to
the contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between
currency traders (usually large commercial banks) and their customers,
as opposed to futures contracts which are traded only on exchanges
regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to
a commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the
specific investments.
The Fund may use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Fund could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the Fund's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges
may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend
to minimize the risk of loss due to a decline in the value of the hedged
currency and to limit any potential gain that might result from the
increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may
include shifting exposure from U.S. dollars to a foreign currency, or from
one foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause the Fund to assume
the risk of fluctuations in the value of the currency it purchases. Cross
hedging transactions also involve the risk of imperfect correlation between
changes in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain
assets at the expiration or maturity of a forward or futures contract.
Accordingly, the Fund may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less
than the amount of foreign currency it is obligated to deliver. Conversely,
the Fund may have to sell on the spot market some of the foreign currency
it received upon the sale of a security if the market value of such
security exceeds the amount of foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of
cash flows between two parties on specified dates (settlement dates), where
the cash flows are based on agreed-upon prices, rates, indices, etc. The
nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors, such as interest rates, foreign currency rates, mortgage
securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to
and from the Fund. If a swap agreement calls for payments by the Fund, the
Fund must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. The Fund may be able to
eliminate its exposure under a swap agreement either by assignment or by
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party. If the counter-party is
unable to meet its obligations under the contract, declares bankruptcy,
defaults or becomes insolvent, the Fund may not be able to recover the
money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging,
the Fund will cover its current obligations under swap agreements according
to guidelines established by the SEC. If the Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under
the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index
swap, for example, the index receiver can gain exposure to stocks making up
the index of securities without actually purchasing those stocks. Equity
index swaps involve not only the risk associated with investment in the
securities represented in the index, but also the risk that the performance
of such securities, including dividends, will not exceed the return on the
interest rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating
rate cash flows. Termed basis swaps entail cash flows to both parties based
on floating interest rates, where the interest rate indices are different.
Index amortizing swaps are typically fixed-for floating swaps where the
notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money
by investing in an interest rate swap if interest rates change adversely.
For example, if the Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the Fund may have
to pay more money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for
a floating rate of interest, the Fund may receive less money than it has
agreed to pay.
Currency Swaps -- A currency swap is an agreement between two parties in
which one party agrees to make interest rate payments in one currency and
the other promises to make interest rate payments in another currency. The
Fund may enter into a currency swap when it has one currency and desires a
different currency. Typically the interest rates that determine the
currency swap payments are fixed, although occasionally one or both parties
may pay a floating rate of interest. Unlike an interest rate swap, however,
the principal amounts are exchanged at the beginning of the contract and
returned at the end of the contract. Changes in foreign exchange rates and
changes in interest rates, as described above may negatively affect
currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance of the Fund than
if it had not entered into any derivatives transactions. Derivatives may
magnify the Fund's gains or losses, causing it to make or lose
substantially more than it invested.
When used for hedging purposes, increases in the value of the securities
the Fund holds or intends to acquire should offset any losses incurred with
a derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of
poor correlation, the price of the securities the Fund is hedging may not
move in the same amount, or even in the same direction as the hedging
instrument. The adviser will try to minimize this risk by investing only in
those contracts whose behavior it expects to resemble the assets the Fund
it is trying to hedge. However, if the Fund's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the Fund may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying
instruments, even if the characteristics of the underlying instruments are
very similar to the derivative. Listed below are some of the factors that
may cause such a divergence:
. Current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the
imposition of daily price fluctuation limits or trading of an
instrument stops; and
. Differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the
participation of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based
on a broad market index. Since narrower indices are made up of a smaller
number of
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securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments precisely over
time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange
the contract was initially traded. Although the Fund intends to purchase
options and futures only where there appears to be an active market, there
is no guarantee that such a liquid market will exist. If there is no
secondary market for the contract, or the market is illiquid, the Fund may
not be able to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a
time when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time
and price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives,
which sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of
an exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other occurrences may disrupt normal trading
activity; or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends,
the Fund may lose money by investing in derivatives. For example, if the
Fund were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if the Fund were to write
a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
Fund could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of
factors, including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can
change during a single trading day. Daily trading limits establish the
maximum amount that the price of a derivative may vary from the settlement
price of that derivative at the end of trading on the previous day. Once
the price of a derivative reaches this value, the Fund may not trade that
derivative at a price beyond that limit. The daily limit governs only price
movements during a given day and does not limit potential gains or losses.
Derivative prices have occasionally moved to the daily limit for several
consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a
derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative
may result in an immediate and substantial loss (as well as gain) to the
Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
------------------------------------------------------------------------------
Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and
the liquidation of the company. However, in all other respects, preferred
stocks are subordinated to the liabilities of the issuer. Unlike common
stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a
fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the Fund's option during a specified time period
(such as convertible preferred stocks, convertible debentures and
warrants). A convertible security is generally a fixed income security that
is senior to common stock in an issuer's capital structure, but is usually
subordinated to similar non-convertible securities. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation. In
general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is
more volatile during times of steady interest rates than other types of
debt securities. In addition, they are also influenced by the market value
of the security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying
common stock declines.
A synthetic convertible security is a combination investment in which the
Fund purchases both (i) high-grade cash equivalents or a high grade debt
obligation of an issuer or U.S. Government securities and (ii) call options
or warrants on the common stock of the same or different issuer with some
or all of the anticipated interest income from the associated debt
obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. A synthetic convertible
position has similar investment characteristics, but may differ with
respect to credit quality, time to maturity, trading characteristics, and
other factors. Because the Fund will create synthetic convertible positions
only out of high grade fixed income securities, the credit rating
associated with the Fund's synthetic convertible investments is generally
expected to be higher than that of the average convertible security, many
of which are rated below high grade. However, because the options used to
create synthetic convertible positions will generally have expirations
between one month and three years of the time of purchase, the maturity of
these positions will generally be shorter than average for convertible
securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing
"time value" as maturity approaches), a synthetic convertible position may
lose such value more rapidly than a convertible security of longer
maturity; however, the gain in option value due to appreciation of the
underlying stock may exceed such time value loss, the market price of the
option component generally reflects these differences in maturities, and
the Adviser and applicable sub-adviser take such differences into account
when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, the Fund may
extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that
give the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price
that is usually higher than the market price at the time the warrant is
issued. Corporations often issue warrants to make the accompanying debt
security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets
of the issuer. In addition, their value does not necessarily change with
the value of the underlying securities, and they cease to have value if
they are not exercised on or before their expiration date. Investing in
rights and warrants increases the potential profit or loss to be realized
from the investment as compared with investing the same amount in the
underlying securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits
of owning a company, such investors must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to
16
<PAGE>
actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made
by its management or lower demand for the company's products or
services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated
to the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
17
<PAGE>
elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
18
<PAGE>
. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or
control foreign investments in its securities markets. These restrictions
could limit the Fund's ability to invest in a particular country or make it
very expensive for the Fund to invest in that country. Some countries
require prior governmental approval, limit the types or amount of
securities or companies in which a foreigner can invest. Other countries
may restrict the ability of foreign investors to repatriate their
investment income and capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign companies 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 more volatile and not as developed or efficient as 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 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;
19
<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 Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce
the income the Fund receives from its investments. The Fund 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 Fund also anticipates
pricing, trading, settling and valuing investments whose nominal values
remain in their existing domestic currencies in Euros. Accordingly, the
Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than
Euro?
20
<PAGE>
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to
the fees currently paid by the Fund. Like other shareholders, the Fund
would pay its proportionate share of those fees. Consequently, shareholders
of the Fund would pay not only the management fees of the Fund, but also
the management fees of the investment company in which the Fund invests.
The Fund may invest up to 10% of its total assets in the securities of
other investment companies, but may not invest more than 5% of its total
assets in the securities of any one investment company or acquire more than
3% of the outstanding securities of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Fund,
provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the
assets of the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market"
on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for
sale to the general public 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 the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
Fund or less than what may be considered the fair value of such securities.
21
<PAGE>
SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When the Fund lends securities, there is a risk that the borrower will
become financially unable to honor its contractual obligations. If this
happens, the Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
--------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Likewise, the Fund can profit if the price
of the security declines between those dates.
To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The Fund will incur
transaction costs in effecting short sales. The Fund's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the Fund may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
22
<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no
extra cost. The Fund will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by the Fund would exceed the two percent (2%) of the value
of the Fund's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the Fund is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, the Fund 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 Fund has committed to purchase before the
securities are delivered, although the Fund may earn income on securities
it has in a segregated account. The Fund will only enter into these types
of transactions with the intention of actually acquiring the securities,
but may sell them before the settlement date.
The Fund 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 Fund 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
Fund may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of the Fund
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
23
<PAGE>
determine investment limitation percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of its
acquisition of such security or other asset. Accordingly, the Fund will not
consider changes in values, net assets or other circumstances when
determining whether the investment complies with its investment
limitations. The Fund will not:
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal
in real estate and may purchase and sell securities which are secured
by interests in real estate.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives; and (ii) by lending its portfolio
securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act, or the
rules and regulations or interpretations of the Commission thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making
any permitted borrowings, mortgages or pledges, or (ii) entering into
repurchase transactions.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 331/3% of
the Fund's gross assets valued at the lower of market or cost.
Management of the Company
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds in the UAM Complex.
The Company does not pay its Interested Directors or officers for their
services as Directors or officers.
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and, therefore,
does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
24
<PAGE>
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation from From UAM Funds
Name, Address, Company as of Complex as of
Date of Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH 03226 Company, Inc. (investment management). From 1988 to
1/26/29 1993, Mr. Bennett was President of Bennett Management
Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN 46290 since March 2000. From June 1998 to March 2000 he
4/21/42 was Executive Vice President and Chief Administrative
Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr.
English serves on the Board of each Company in the
UAM Funds Complex.
------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides
information regarding their present positions, date of birth, address and
their principal occupations during the past five years. The Company's
officers are paid by UAM, its affiliates or SEI, but not by the Company.
25
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, Date of with
Birth Company Principal Occupations During the Past 5 years
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and Chairman
------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset Management
One International Place President Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and affiliated
broker-dealers from 1991 to 2000; Director and Secretary of Signature Financial
Group Europe, Ltd. (financial services) from 1995 to 2000; Secretary of the
Citigroup Family of Mutual Funds (mutual funds) from 1996 to 2000; Secretary of
the 59 Wall Street Family of Mutual Funds (mutual funds) from 1996 to 2000.
------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Union
Boston, MA 02110 Corporation (financial services) from 1995 to 1998; Attorney with
9/15/67 Signature Financial Group, Inc. (financial services) from 1994 to 1995.
------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
26
<PAGE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Fund:
<TABLE>
<CAPTION>
Name and Address of Shareholder Percentage of Shares Owned
=================================================================================================================
<S> <C>
Charles Schwab & Co., Inc. 61.97%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
-----------------------------------------------------------------------------------------------------------------
Resources Trust Co. 11.13%
P.O.Box 3865
Englewood, CO 80155-3865
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is defined
in the 1940 Act) the portfolio. Shareholders controlling the portfolio
could have the ability to vote a majority of the shares of the portfolio on
any matter requiring the approval of shareholders of the portfolio. As of
August 21, 2000, the directors and officers of the Company owned less than
1% of the outstanding shares of the Fund.
Investment Advisory and Other Services
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Pacific Financial Research, Inc., a Massachusetts corporation located at
9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210, is the
investment adviser to the Fund. The adviser manages and supervises the
investment of the Fund's assets on a discretionary basis. The adviser, an
affiliate of United Asset Management Corporation, has provided investment
management services to corporations, foundations, endowments, pension funds
and other institutions as well as individuals since 1981.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated
in Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM Affiliated Firms are separately
chosen by each of them. Several UAM Affiliated Firms also act as investment
advisers to separate series or portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
27
<PAGE>
. Continuously reviews, supervises and administers the investment
program of the Fund; and
. Determines what portion of the Fund's assets will be invested in
securities and what portion will consist of cash.
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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the
shareholders of the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of
Board Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee equal to:
. 1.00% on the first $500 million in average daily net assets, plus
. 0.95% of the next $500 million in average daily net assets, plus
. 0.90% on average daily net assets in excess of $1 billion.
Due to the effect of fee waivers by the adviser, the actual percentage of
average net assets that the Fund pays in any given year may be different
from the rate set forth in its contract with the adviser. For the last two
fiscal years, the Fund paid the following in advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
=======================================================================================================================
<S> <C> <C> <C>
4/30/00 $797,126 $ 54,587 $851,713
-----------------------------------------------------------------------------------------------------------------------
4/30/99 $ 53,694 $113,048 $166,742
</TABLE>
28
<PAGE>
DISTRIBUTOR
------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any
particular amount of shares. UAMFDI, an affiliate of UAM, is located at 211
Congress Street, Boston, Massachusetts 02110. UAMFDI receives no
compensation for its services as distributor of the Institutional Class
Shares.
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 services performed with respect to the Company or a fund.
The person making such payments may do so out of its revenues, its profits
or any other source available to it. Such servicing arrangements, when in
effect, are made generally available to all qualified service providers.
The adviser may also compensate its affiliated companies for referring
investors to the Fund.
ADMINISTRATIVE SERVICES
------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of each portfolio of the
Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
29
<PAGE>
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM
Funds Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services
as sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last two fiscal years the Fund paid the following in administration
fees:
<TABLE>
<CAPTION>
Fiscal Year End Total Administration Fee
==================================================================================================================
<S> <C>
4/30/00 $168,745
------------------------------------------------------------------------------------------------------------------
4/30/99 $30,487
</TABLE>
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Company.
30
<PAGE>
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by the Fund.
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction. During the fiscal year ended April 30, 2000, the adviser
directed $1,907,969.00 of the portfolio's brokerage transactions to Direct
Access Brokerage Services in exchange for certain research services.
Commissions paid on those transactions were $4,180.00.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the
purchase of Company shares for their clients.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's 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.
31
<PAGE>
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last two fiscal years, the Fund has paid the following in brokerage
commissions.
<TABLE>
<CAPTION>
Fiscal Year End Brokerage Commissions
======================================================================================================================
<S> <C>
4/30/00 $153,804
----------------------------------------------------------------------------------------------------------------------
4/30/99 $77,072
</TABLE>
Capital Stock and Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company.
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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
allocatable to that class. The Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
32
<PAGE>
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder
servicing and the distribution of such shares pursuant to a
distribution plan or other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to the Fund at least three days before the record date for income dividend
or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and excise taxes. If the Fund were to fail to make sufficient
distributions in a year, it would be subject to corporate income taxes
and/or excise taxes. In addition, if the shortfall were large enough, the
Fund could be disqualified as a regulated investment company. If the Fund
were to fail to so qualify: (1) it would be taxed at regular corporate
rates without any deduction for distributions to shareholder; and (2) its
shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends
received deduction. Moreover, if the Fund were to fail to make sufficient
distributions in a year, the Fund would be subject to corporate income
taxes and/or excise taxes in respect of the shortfall or, if the shortfall
is large enough, the Fund could be disqualified as a regulated investment
company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income
33
<PAGE>
(excess of capital gains over capital losses) for the one year period
ending October 31 of such calendar year and 100% of any such amounts that
were not distributed in the prior year. The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and
any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
As of April 30, 2000, the Fund has no capital loss carryovers.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
-------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the
Fund, plus cash and other assets plus income accrued but not yet
received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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 the U.S.
dollar 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 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 Board.
34
<PAGE>
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 Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of
all subscription and redemption requests, investment information,
documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of the Fund at the NAV of the Fund determined as
of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the adviser.
REDEMPTION OF SHARES
-------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
35
<PAGE>
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts,
guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Fund in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of securities received in payment of
redemptions.
The Company 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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Fund. If the Fund pays redemption proceeds with securities instead of cash,
it will value such securities as set forth under "How the Company Values
its Assets." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than
the registered shareowner(s);
36
<PAGE>
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. You can get a complete definition of eligible
guarantor institutions by calling 1-877-826-5465. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
-------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
TRANSFER OF SHARES
-------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
Performance Calculations
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
37
<PAGE>
TOTAL RETURN
-------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000.
<TABLE>
<CAPTION>
One Year Five Years Since Inception Inception Date
======================================================================================================================
<S> <C> <C> <C>
-8.39% N/A 7.20% 9/10/98
</TABLE>
YIELD
-------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. Since Adviser Class Shares and 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.
38
<PAGE>
COMPARISONS
-------------------------------------------------------------------------------
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not
be identical to the formula used by the Fund to calculate its
performance; and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
39
<PAGE>
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Fund refers to the Clipper Focus Portfolio, which is a series of the
Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
the 1934 ACT.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
Bond Ratings
MOODY'S INVESTORS SERVICE, INC.
-------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa An issue that 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 that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and
"aa" classification, earnings and asset protection
are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms
of the issue over any long period of time may be
small.
caa An issue that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms
of the issue over any long period of time may be
small.
40
<PAGE>
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have
other marked shortcomings.
c This is the lowest rated class of preferred or
preference stock. Issues so rated can thus be
regarded as having extremely poor prospects of ever
attaining any real investment standing.
plus (+) or Moody`s applies numerical modifiers 1, 2, and 3 in
minus (-) 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 that 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best
bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or
there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa
securities.
A Bonds that are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the
future.
Baa Bonds that 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 that 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 that 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 that are rated Ca represent obligations that
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.
41
<PAGE>
Con. (...) (This rating applies only to U.S. Tax-Exempt
Municipals) Bonds for which the security depends
upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in
operating experience, (c) rentals that begin when
facilities are completed, or (d) payments to which
some other limiting condition attaches.
Parenthetical rating denotes probable credit stature
upon completion of construction or elimination of
basis of condition.
Note: Moody`s applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody`s short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody`s employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
. Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
. Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the
level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR`S RATINGS SERVICES
------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
42
<PAGE>
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors` rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with the
category definition.
AAA An obligation rated `AAA` has the highest rating assigned by
Standard & Poor`s. The obligor`s capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated `AA` differs from the highest rated
obligations only in small degree. The obligor`s capacity to meet
its financial commitment on the obligation is very strong.
A An obligation rated `A` is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However,
the obligor`s capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated `BBB` exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
Obligations rated `BB', 'B', 'CCC', 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the
capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated 'CCC' is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C' is
CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been
filed or similar action taken, but payments on this obligation
are being continued. A 'C' will also be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.
D An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
43
<PAGE>
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the
credit rating. Examples include: obligation linked or indexed to
equities, currencies, or commodities; obligations exposed to
severe prepayment risk - such as interest-only or principal-only
mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular obligation as a
matter of policy. Debt obligations of issues outside the United
States and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into account
currency exchange and related uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such payments
will be made during such grace period. The 'D' rating also will
be used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
44
<PAGE>
Fitch Ratings
--------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the
lowest expectation of credit risk. They are assigned
only in case of exceptionally strong capacity for
timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected
by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very
low expectation of credit risk. They indicate very
strong capacity for timely payment of financial
commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. 'A' ratings denote a low
expectation of credit risk. The capacity for timely
payment of financial commitments is considered
strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in
economic conditions than is the case for higher
ratings.
BBB Good credit quality. 'BBB' ratings indicate that
there is currently a low expectation of credit risk.
The capacity for timely payment of financial
commitments is considered adequate, but adverse
changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a
possibility of credit risk developing, particularly
as the result of adverse economic change over time;
however, business or financial alternatives may be
available to allow financial commitments to be met.
Securities rated in this category are not investment
grade.
B Highly speculative. 'B' ratings indicate that
significant credit risk is present, but a limited
margin of safety remains. Financial commitments are
currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or
economic developments. A 'CC' rating indicates that
default of some kind appears probable. 'C' ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category
are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation
of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any
precision, the following serve as general
guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. "D"
indicates potential recoveries in the range of 50%-
90%, and "D" the lowest recovery potential, i.e.,
below 50%.
Entities rated in this category have
defaulted on some or all of their obligations.
Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation
with or without a formal reorganization process.
Entities rated "DD" and "D" are generally undergoing
a formal reorganization or liquidation process;
those rated "DD" are likely to satisfy a higher
portion of their outstanding obligations, while
entities rated "D" have a poor prospect for repaying
all obligations.
45
<PAGE>
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity
for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong
credit feature.
F2 Good credit quality. A satisfactory capacity for
timely payment of financial commitments, but the
margin of safety is not as great as in the case of
the higher ratings.
F3 Fair credit quality. The capacity for timely payment
of financial commitments is adequate; however, near-
term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-
term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility.
Capacity for meeting financial commitments that is
highly uncertain and 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 does not rate the issuer or issue in question.
'Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
Comparative Benchmarks
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of change, over time in
the price of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
46
<PAGE>
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
-----------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public, nonconvertible debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental agencies, or
international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate
Bond Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
47
<PAGE>
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign
common stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices --capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
---------------------------
Russell 3000(R)Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
48
<PAGE>
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance
of the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000(R) Value Index - measures the performance of those Russell
1000 with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
Standard & Poor's U.S. Indices:
------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123
49
<PAGE>
sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their respective indices.
Features of the new classification include 10 economic sectors, rather than
the 11 S&P currently uses. Sector and industry gradations are less severe.
Rather than jumping from 11 sectors to 115 industries under the former S&P
system, the new system progresses from 10 sectors through 23 industry
groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
--------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
--------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
50
<PAGE>
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries--Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan --are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill
issues.
Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and
inflation.
Target Large Company Value Index - an index comprised of large companies
with market capitalizations currently extending down to approximately $1.9
billion that are monitored using a variety of relative value criteria in
order to capture the most attractive value opportunities available. A high
quality profile is required and companies undergoing adverse financial
pressures are eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all
treasury bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted
index of publicly traded real estate securities, including real estate
investment trusts, real estate operating companies and partnerships. The
index is used by the institutional investment community as a broad measure
of the performance of public real estate equity for asset allocation and
performance comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs)
but excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment
of dividends, except as otherwise stated.
51
<PAGE>
UAM Funds
Funds for the Informed Investor sm
MJI International Equity Portfolio
Institutional Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
What are the Fund's Objectives?..............................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................2
What are the Fund's Fees and Expenses?.......................................3
Investing with the UAM Funds..................................................5
Buying Shares................................................................5
Redeeming Shares.............................................................6
Exchanging Shares............................................................8
Transaction Policies.........................................................8
Account Policies............................................................10
Additional Information About the Fund........................................12
Other Investment Practices and Strategies...................................12
Investment Management.......................................................13
Shareholder Servicing Arrangements..........................................13
Additional Classes..........................................................14
Financial Highlights.........................................................15
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks to maximize total return, including both capital apprecia-
tion and current income, by investing primarily in the common stocks of
companies based outside of the United States. The fund may not change its
investment objectives without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The fund normally invests at least 65% of its total assets in common
stocks (including rights or warrants to purchase common stocks) of compa-
nies located in at least three countries outside the United States. The
fund invests primarily in securities of companies domiciled in developed
countries, but may also invest in developing countries.
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
The adviser tries to minimize specific country and currency risks by di-
versifying the investments of the fund throughout the world and within
markets. The adviser's investment process begins by determining which in-
ternational stock markets the fund should invest in and in what propor-
tion. The adviser makes its decision by evaluating the various markets
through a proprietary system called the Twenty Questions Analysis that
analyzes macro-economic factors, value factors, market performance and
trends in monetary policy.
Once the adviser decides how to allocate the assets of the fund among the
various international stock markets, it then compares the companies in
each of those markets according to:
. Quality of management;
. Market position;
. Financial strength;
. Ability to earn competitive returns on equity and assets; and
. Growth potential.
The adviser selects stocks that it believes the market has undervalued
compared to industry norms within their countries.
1
<PAGE>
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
This risk is greater for small and medium sized companies, which tend to
be more vulnerable to adverse developments than larger companies.
When the fund invests in foreign securities, it will be subject to risks
not typically associated with domestic securities. Foreign investments,
especially investments in emerging markets, can be riskier and more vola-
tile than investments in the United States. Adverse political and economic
developments or changes in the value of foreign currency can make it
harder for the fund to sell its securities and could reduce the value of
your shares. Differences in tax and accounting standards and difficulties
in obtaining information about foreign companies can negatively affect in-
vestment decisions. Unlike more established markets, emerging markets may
have governments that are less stable, markets that are less liquid and
economies that are less developed.
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
this class of the fund. The bar chart shows how performance of this class
of the fund has varied from year to year. The average annual return table
compares the average annual returns of this class of the fund to those of
a broad-based securities market index. Returns are based on past results
and are not an indication of future performance.
2
<PAGE>
Calendar Year Returns
[GRAPH]
1995 9.64%
1996 7.79%
1997 6.01%
1998 15.53%
1999 34.77%
During the periods shown in the chart for the fund, the highest return for
a quarter was 19.68% (quarter ending 12/31/99) and the lowest return for a
quarter was -13.87% (quarter ending 09/30/98). For the period from January
1, 2000, through June 30, 2000, the fund returned -7.94%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
5 Since
1 Year Years 9/16/94*
------------------------------------------------------------------------
<S> <C> <C> <C>
MJI International Equity Portfolio 34.77% 14.30% 11.31%
------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 26.96% 12.83% 11.97%
</TABLE>
* Beginning of operations. Index comparisons begin on September 30, 1994.
WHAT ARE THE FUND'S FEES AND EXPENSES?
--------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.75%
--------------------------------------------
Other Expenses* 0.95%
--------------------------------------------
Total Annual Fund Operating Expenses 1.70%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the
expenses you would actually pay as a shareholder in the fund because
the adviser has voluntarily agreed to limit the expenses of the fund to
the extent necessary to keep its total expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) from exceeding
1.50% of its average daily net assets. The adviser may change or cancel
its expense limitation at any time. In addition, "Other Expenses" do
not take into account any expense offset arrangement the fund may have
that would reduce its custodian fee based on the amount of cash the
fund maintains with its custodian. This would also have the effect of
reducing the fund's expenses.
3
<PAGE>
Example
This example can help you to compare the cost of investing in this class
of the fund to the cost of investing in other mutual funds. The example
assumes you invest $10,000 in the fund for the periods shown and then re-
deem all of your shares at the end of those periods. The example also as-
sumes 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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$173 $536 $923 $2,009
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
MJIEX 902556703 910
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an in
8
<PAGE>
vestment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income and its net capi-
tal gains at least once a year. The UAM Funds will automatically reinvest
dividends and distributions in additional shares of the fund, unless you
elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
12
<PAGE>
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Murray Johnstone International, Ltd., located at 11 West Nile Street,
Glasgow, Scotland G12PX, is the investment adviser to the fund. The ad-
viser manages and supervises the investment of the fund's assets on a dis-
cretionary basis. The adviser, an affiliate of United Asset Management
Corporation, is an international investment adviser whose origins date
back to 1907.
The fund has agreed to pay the adviser a management fee equal to 0.75% of
the fund's average net assets. In addition, the adviser has voluntarily
agreed to limit the total expenses of the fund to 1.50% of its average net
assets. To maintain this expense limit, the adviser may waive a portion of
its management fee and/or reimburse certain expenses of the fund. The ad-
viser intends to continue its expense limitation until further notice, but
may discontinue it at any time. During its most recent fiscal year, the
fund paid 0.61% of its average net assets in advisory fees to the adviser.
Portfolio Managers
Since the country decision is of first importance, the members of the
Country Allocation Team are the key decision-makers for the fund, and
their experience and judgement are critical. The team is comprised of
James Clunie (Head of Allocation) and Andrew Preston.
James Clunie is the Senior Investment Officer in charge of North American
clients and a Director of Murray Johnstone International. Mr. Cline is
also responsible for research into the performance and continued develop-
ment of the Twenty Questions analysis. Mr. Cline came to Murray Johnstone
in 1989 after receiving his BS with Honors in Mathematics and Statistics
from Edinburgh University. He has worked in the UK department and spent
time in the United States, as a product specialist. He is a Certified Fi-
nancial Analyst.
Andrew Preston is a Senior Investment Officer and a Director of Murray
Johnstone International. Among his responsibilities is oversight of ac-
counts with special guidelines. He has been with Murray Johnstone for
fourteen years, and has been a member of the UK and Japan teams. He also
played a prominent role in the establishment of a joint venture company
formed in 1986 to invest Japanese institutional funds internationally.
Earlier in his career, Andrew was a diplomat in the Australian Department
of Foreign Affairs. He is fluent in Japanese and Chinese.
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
13
<PAGE>
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, UAM Funds' board reviews these arrangements to ensure
that the fees paid are appropriate for the services performed. The fund
does not pay these service fees on shares purchased directly. In addition,
the adviser and its affiliates may, at their own expense, pay financial
representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
ADDITIONAL CLASSES
-------------------------------------------------------------------------------
The fund also offers Institutional Service Class shares, which pay market-
ing or shareholder servicing fees. Since Institutional Service Class
shares have higher expenses, their performance will be lower than the per-
formance of the Institutional Class.
14
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the fund for the past five years.
Certain information contained in the table reflects the financial results
for a single share. The total returns in the table represent the rate that
an investor would have earned on an investment in this class of the fund
assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the fund, which is available upon request
by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Years Ended April 30, 2000* 1999* 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 12.85 $ 12.29 $ 10.65 $ 10.27 $ 9.50
Income from Investment
Operations:
Net Investment Income (0.01) 0.03 0.07 0.06 0.07
Net Realized and Unrealized
Gain (Loss) 2.59 0.82 2.02 0.42 0.75
Total From Investment
Operations 2.58 0.85 2.09 0.48 0.82
Distributions:
Net Investment Income -- (0.07) (0.04) (0.01) -- @
In Excess of Net Investment
Income -- -- -- -- (0.03)
Net Realized Gain (1.20) (0.22) (0.41) (0.09) (0.02)
Total Distributions (1.20) (0.29) (0.45) (0.10) (0.05)
Net Asset Value, End of Period $ 14.23 $ 12.85 $ 12.29 $ 10.65 $10.27
Total Return+ 20.07% 7.17% 20.39% 4.67% 8.67%
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $38,270 $21,006 $32,296 $28,818 $8,592
Ratio of Expenses to Average
Net Assets 1.56% 1.50% 1.50% 1.50% 1.45%
Ratio of Net Investment
Income (Loss)
to Average Net Assets (0.11)% 0.21% 0.60% 0.68% 0.88%
Portfolio Turnover Rate 85% 48% 80% 47% 59%
</TABLE>
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the periods in-
dicated.
* Per share amounts are based on average outstanding shares.
@ Amount is less than $0.01 per share.
15
<PAGE>
MJI International Equity Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
MJI International Equity Portfolio
Institutional Class
Institutional Service Class
Statement of Additional Information
September 1, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectuses of the Fund dated
August 28, 2000, as supplemented from time to time. You may obtain the
Fund's prospectuses by contacting the UAM Funds at the address listed
above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial Statements."
No other portions of the annual report are incorporated by reference.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Description of Permitted Investments................................... 1
Borrowing............................................................. 1
Debt Securities....................................................... 1
Derivatives........................................................... 7
Equity Securities..................................................... 15
Foreign Securities.................................................... 17
Investment Companies.................................................. 21
Repurchase Agreements................................................. 21
Restricted Securities................................................. 21
Securities Lending.................................................... 22
Short Sales........................................................... 22
When Issued Transactions.............................................. 23
Investment Policies of the Fund........................................ 23
Management of the Company.............................................. 24
Board Members......................................................... 24
Officers.............................................................. 26
Principal Shareholders................................................. 27
Investment Advisory and Other Services................................. 28
Investment Adviser.................................................... 28
Distributor........................................................... 30
Shareholder Servicing Arrangements.................................... 30
Service And Distribution Plans........................................ 30
Administrative Services............................................... 32
Custodian............................................................. 34
Independent Accountants............................................... 34
Code of Ethics........................................................ 34
Brokerage Allocation and Other Practices............................... 34
Selection of Brokers.................................................. 34
Simultaneous Transactions............................................. 35
Brokerage Commissions................................................. 35
Capital Stock and Other Securities..................................... 36
Purchase, Redemption and Pricing of Shares............................. 38
Net Asset Value Per Share............................................. 38
Purchase of Shares.................................................... 38
Redemption of Shares.................................................. 39
Exchange Privilege.................................................... 41
Transfer Of Shares.................................................... 41
Performance Calculations............................................... 41
Total Return.......................................................... 42
Yield................................................................. 42
Comparisons........................................................... 43
Financial Statements................................................... 43
Glossary............................................................... 43
Bond Ratings........................................................... 44
Moody's Investors Service, Inc........................................ 44
Standard & Poor's Ratings Services.................................... 46
Fitch Ratings......................................................... 49
Comparative Benchmarks................................................. 50
</TABLE>
<PAGE>
Description of Permitted Investments
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies. This
SAI describes each of these investments/strategies and their risks. The Fund
may not notify shareholders before employing new strategies, unless it expects
such strategies to become principal strategies. You can find more information
concerning the limits on the ability of the Fund to use these investments in
"Investment Policies of the Fund."
BORROWING
--------------------------------------------------------------------------------
The Fund may not borrow money, except if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into reverse
repurchase agreements, in amounts up to 33 1/3% of its total assets
(including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone for
temporary purposes;
. It may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss. To
mitigate the risks of leverage, the Fund will limit the amount it may borrow
to not more than 33 1/3% of its total assets, taken at market value. In
addition, the Fund will only borrow from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares.
The Fund will not purchase securities while borrowings are outstanding except
to exercise prior commitments and to exercise subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities include
treasury bills, which have initial maturities of less than one year, treasury
notes, which have initial maturities of one to ten years and treasury bonds,
which have initial maturities of at least ten years and certain types of
mortgage-backed securities that are described under "Mortgage-Backed
Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
backed treasury and agency securities in detail in "Mortgage-Backed
Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities.
Unlike treasury securities, the full faith and credit of the U.S. government
generally does not back agency securities. Agency securities are typically
supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation by investors,
the corporation promises to pay investors interest, and repay the principal
amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a mortgage-
backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. The adviser will consider
such insurance and guarantees and the creditworthiness of the issuers thereof
in determining whether a mortgage-related security meets its investment
quality standards. It is possible that the private insurers or guarantors will
not meet their obligations under the insurance policies or guarantee
arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls within
the Department of Housing and Urban Development. Securities issued by GNMA are
considered the equivalent of treasury securities and are backed by the full
faith and credit of the U.S. government. GNMA guarantees the timely payment
of principal and interest on securities issued by institutions approved by
GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages. GNMA does
not guarantee the market value or yield of mortgage-backed securities or the
value of the Fund's shares. To buy GNMA securities, the Fund may have to pay a
premium over the maturity value of the underlying mortgages, which the Fund
may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Securities issued by FNMA are agency securities,
which means FNMA, but not the U.S. government, guarantees their timely payment
of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their interest
rates are sometimes adjustable. In addition, a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, the Fund may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed
securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other than
mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. Due
to the quantity of vehicles involved and requirements under state laws, asset-
backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have a
more focused range of principal payment dates than pass-through securities.
While whole mortgage loans may collateralize CMOs, mortgage-backed securities
guaranteed by GNMA, FHLMC, or FNMA and their income streams more typically
collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets in
the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the
Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The Fund may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1 to
270 days issued by banks, corporations and other borrowers. Such investments
are unsecured and usually discounted. The Fund may invest in commercial
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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 "Bond Ratings" for a description
of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of the interest and the remaining principal. In extreme cases,
one class will receive all of the interest ("interest only" or "IO" class)
while the other class will receive the entire principal sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. The Fund's investments in pay-in-kind, delayed and zero coupon bonds
may require it to sell certain of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," the Fund can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay the
amount it borrowed (principal) from investors. Some debt securities, however,
are callable, meaning the issuer can repay the principal earlier, on or after
specified dates (call dates). Debt securities are most likely to be called
when interest rates are falling because the issuer can refinance at a lower
rate, similar to a homeowner refinancing a mortgage. The effective maturity
of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of the
assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to changes
in interest rates. It measures sensitivity more accurately than maturity
because it takes into account the time value of cash flows generated over the
life of a debt security. Future interest payments and principal payments are
discounted to reflect their present value and then are multiplied by the
number of years they will be received to produce a value expressed in years --
the duration. Effective duration takes into account call features and sinking
fund prepayments that may shorten the life of a debt security.
An effective duration of 4 years, for example, would suggest that for each 1%
reduction in interest rates at all maturity levels, the price of a security is
estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities, which
may cause your share price to fall. Lower rates motivate people to pay off
mortgage-backed and asset-backed securities earlier than expected. The Fund
may then have to reinvest the proceeds from such prepayments at lower interest
rates, which can reduce its yield. The unexpected timing of mortgage and
asset-backed prepayments caused by the variations in interest rates may also
shorten or lengthen the average maturity of the Fund. If left unattended,
drifts in the average maturity of the Fund can have the unintended effect of
increasing or reducing its effective duration, which may adversely affect its
expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price declines.
Extending the average life of a mortgage-backed security increases the risk of
depreciation due to future increases in market interest rates. For these
reasons, mortgage-backed securities may be less effective than other types of
U.S. government securities as a means of "locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer higher
yields than Treasury securities because their payment of interest and complete
repayment of principal is less certain. The credit rating or financial
condition of an issuer may affect the value of a debt security. Generally,
the lower the quality rating of a security, the greater the risks that the
issuer will fail to pay interest and return principal. To compensate investors
for taking on increased risk, issuers with lower credit ratings usually offer
their investors a higher "risk premium" in the form of higher interest rates
above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment
to this "risk premium." If an issuer's outstanding debt carries a fixed
coupon, adjustments to the risk premium must occur in the price, which affects
the yield to maturity of the bond. If an issuer defaults or becomes unable to
honor its financial obligations, the bond may lose some or all of its
value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause the Fund to experience sudden and substantial price
declines. A lack of reliable, objective data or market quotations may make it
more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion, not
an absolute standard of quality, and they do not reflect an evaluation of
market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings. The Fund may invest in securities of any
rating.
DERIVATIVES
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Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain exposure
to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also invest
in derivatives to protect it from broad fluctuations in market prices,
interest rates or foreign currency exchange rates (a practice known as
"hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and purchase
of derivatives could be used to control the exposure of the Fund to market
fluctuations, the use of derivatives may be a more effective means of hedging
this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party sells
and the other party agrees to buy a specified amount of a financial instrument
at an agreed upon price and time. The financial instrument underlying the
contract may be a stock, stock index, bond, bond index, interest rate, foreign
exchange rate or other similar instrument. Agreeing to buy the underlying
financial information is called buying a futures contract or taking a long
position in the contract. Likewise, agreeing to sell the underlying financial
instrument is called selling a futures contract or taking a short position in
the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to pay
for or deliver the underlying financial instrument until some future date (the
delivery date). Contract markets require both the purchaser and seller to
deposit "initial margin" with a futures broker, known as a futures commission
merchant, or custodian bank when they enter into the contract. Initial margin
deposits are typically equal to a percentage of the contract's value. After
they open a futures contract, the parties to the transaction must compare the
purchase price of the contract to its daily market value. If the value of the
futures contract changes in such a way that a party's position declines, that
party must make additional "variation margin" payments so that the margin
payment is adequate. On the other hand, the value of the contract may change
in such a way that there is excess margin on deposit, possibly entitling the
party that has a gain to receive all or a portion of this amount. This
process is known as "marking to the market."
Although the actual terms of a futures contract calls for the actual delivery
of and payment for the underlying security, in many cases the parties may
close the contract early by taking an opposite position in an identical
contract. If the sale price upon closing out the contract is less than the
original purchase price, the person closing out the contract will realize a
loss. If the sale price upon closing out the contract is more than the
original purchase price, the person closing out the contract will realize a
gain. The opposite is also true. If the purchase price upon closing out the
contract is more than the original sale price, the person closing out the
contract will realize a loss. If the purchase price upon closing out the
contract is less than the original sale price, the person closing out the
contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Fund pays the current market price for the option (known as the "option
premium"). The Fund may purchase put options to offset or hedge against a
decline in the market value of its securities ("protective puts") or to
benefit from a decline in the price of securities that it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying securities decreased below the exercise price sufficiently
to cover the premium and transaction costs. However, if the price of the
underlying instrument does not fall enough to offset the cost of purchasing
the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. The Fund would normally purchase call options in anticipation of
an increase in the market value of securities it owns or wants to buy. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying instrument exceeded the exercise price plus the premium paid
and related transaction costs. Otherwise, the Fund would realize either no
gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when the Fund
writes a put option it assumes an obligation to purchase specified securities
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The Fund may terminate its position in an
exchange-traded put option before exercise by buying an option identical to
the one it has written. Similarly, it may cancel an over-the-counter option
by entering into an offsetting transaction with the counter-party to the
option.
The Fund could try to hedge against an increase in the value of securities it
would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and the
premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the Fund
may lose an amount of money equal to the difference between the value of the
security and the premium it received. Writing covered put options may deprive
the Fund of the opportunity to profit from a decrease in the market price of
the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and the
premium it received to offset the decline of the security's value. However,
the Fund must be prepared to deliver the underlying instrument in return for
the strike price, which may deprive it of the opportunity to profit from an
increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract;
or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the Fund would retain the option premium, which would offset, in part, any
decline in the value of its assets.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if the market price declines, the Fund
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the Fund could construct
a
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combined position whose risk and return characteristics are similar to selling
a futures contract by purchasing a put option and writing a call option on the
same underlying instrument. Alternatively, the Fund could write a call option
at one strike price and buy a call option at a lower price to reduce the risk
of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded only on exchanges regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
The Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security
values caused by other factors. The Fund could also hedge the position by
selling another currency expected to perform similarly to the currency in
which the Fund's investment is denominated. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost,
yield, or efficiency, but generally would not hedge currency exposure as
effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange that one can achieve at some
future point in time. Additionally, these techniques tend to minimize the
risk of loss due to a decline in the value of the hedged currency and to limit
any potential gain that might result from the increase in value of such
currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause the Fund to assume the risk of fluctuations in the value of the
currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
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It is difficult to forecast with precision the market value of certain assets
at the expiration or maturity of a forward or futures contract. Accordingly,
the Fund may have to purchase additional foreign currency on the spot market
if the market value of a security it is hedging is less than the amount of
foreign currency it is obligated to deliver. Conversely, the Fund may have to
sell on the spot market some of the foreign currency it received upon the sale
of a security if the market value of such security exceeds the amount of
foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the
cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
amount on which the cash flows are calculated is called the notional amount.
Swaps are individually negotiated and structured to include exposure to a
variety of different types of investments or market factors, such as interest
rates, foreign currency rates, mortgage securities, corporate borrowing rates,
security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund. If a swap agreement calls for payments by the Fund, the Fund
must be prepared to make such payments when due. In addition, if the counter-
party's creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the
prior written consent of the other party. The Fund may be able to eliminate
its exposure under a swap agreement either by assignment or by other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party. If the counter-party is unable to
meet its obligations under the contract, declares bankruptcy, defaults or
becomes insolvent, the Fund may not be able to recover the money it expected
to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's gains
or losses. In order to reduce the risk associated with leveraging, the Fund
will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the Fund enters into a swap agreement on
a net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of the Fund's accrued obligations under the swap agreement
over the accrued amount the Fund is entitled to receive under the agreement.
If the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in return
for a specified interest rate. By entering into an equity index swap, for
example, the index receiver can gain exposure to stocks making up the index of
securities without actually purchasing those stocks. Equity index swaps
involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the return on the interest
rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of interest
rate cash flow on specified dates in the future. Some of the different types
of interest rate swaps are "fixed-for floating rate swaps," "termed basis
swaps" and "index amortizing swaps." Fixed-for floating rate swap involve the
exchange of fixed interest rate cash flows for floating rate cash flows.
Termed basis swaps entail cash flows to both parties based on floating
interest rates, where the interest rate indices are different. Index
amortizing swaps are typically fixed-for floating swaps where the notional
amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money by
investing in an interest rate swap if interest rates change adversely. For
example, if the Fund enters into a swap where it agrees to exchange a floating
rate of interest for a fixed rate of interest, the Fund may have to pay more
money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for a
floating rate of interest, the Fund may receive less money than it has agreed
to pay.
Currency Swaps -- A currency swap is an agreement between two parties in which
one party agrees to make interest rate payments in one currency and the other
promises to make interest rate payments in another currency. The Fund may
enter into a currency swap when it has one currency and desires a different
currency. Typically the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify the Fund's gains or losses,
causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities the
Fund holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on the
degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities the Fund is hedging may not move in
the same amount, or even in the same direction as the hedging instrument. The
adviser will try to minimize this risk by investing only in those contracts
whose behavior it expects to resemble the assets the Fund it is trying to
hedge. However, if the Fund's prediction of interest and currency rates,
market value, volatility or other economic factors is incorrect, the Fund may
lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of
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securities, they are more susceptible to rapid and extreme price fluctuations
because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the Fund's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange the
contract was initially traded. Although the Fund intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist. If there is no secondary
market for the contract, or the market is illiquid, the Fund may not be able
to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, the
Fund may lose money by investing in derivatives. For example, if the Fund were
to write a call option based on its adviser's expectation that the price of
the underlying security would fall, but the price were to rise instead, the
Fund could be required to sell the security upon exercise at a price below the
current market price. Similarly, if the Fund were to write a put option based
on the adviser's expectation that the price of the underlying security would
rise, but the price were to fall instead, the Fund could be required to
purchase the security upon exercise at a price higher than the current market
price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum
amount that the price of a derivative may vary from the settlement price of
that derivative at the end of trading on the previous day. Once the price of
a derivative reaches this value, the Fund may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during
a given day and does not limit potential gains or losses. Derivative prices
have occasionally moved to the daily limit for several consecutive trading
days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the Fund and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if a
broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
--------------------------------------------------------------------------------
Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and the
liquidation of the company. However, in all other respects, preferred stocks
are subordinated to the liabilities of the issuer. Unlike common stocks,
preferred stocks are generally not entitled to vote on corporate matters.
Types of preferred stocks include adjustable-rate preferred stock, fixed
dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the issuer's
common stock at the Fund's option during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). A
convertible security is generally a fixed income security that is senior to
common stock in an issuer's capital structure, but is usually subordinated to
similar non-convertible securities. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation. In general, the market value of
a convertible security is at least the higher of its "investment value" (i.e.,
its value as a fixed income security) or its "conversion value" (i.e., its
value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities. In addition, they are also influenced by the market value of the
security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying common
stock declines.
A synthetic convertible security is a combination investment in which the Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. Government securities and (ii) call options or warrants
on the common stock of the same or different issuer with some or all of the
anticipated interest income from the associated debt obligation that is earned
over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. A synthetic convertible position has
similar investment characteristics, but may differ with respect to credit
quality, time to maturity, trading characteristics, and other factors. Because
the Fund will create synthetic convertible positions only out of high grade
fixed income securities, the credit rating associated with the Fund's
synthetic convertible investments is generally expected to be higher than that
of the average convertible security, many of which are rated below high grade.
However, because the options used to create synthetic convertible positions
will generally have expirations between one month and three years of the time
of purchase, the maturity of these positions will generally be shorter than
average for convertible securities. Since the option component of a
convertible security or synthetic convertible position is a wasting asset (in
the sense of losing "time value" as maturity approaches), a synthetic
convertible position may lose such value more rapidly than a convertible
security of longer maturity; however, the gain in option value due to
appreciation of the underlying stock may exceed such time value loss, the
market price of the option component generally reflects these differences in
maturities, and the Adviser and applicable sub-adviser take such differences
into account when evaluating such positions. When a synthetic convertible
position "matures" because of the expiration of the associated option, the
Fund may extend the maturity by investing in a new option with longer maturity
on the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that give
the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price that
is usually higher than the market price at the time the warrant is issued.
Corporations often issue warrants to make the accompanying debt security more
attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the
value of the underlying securities, and they cease to have value if they are
not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the
investment as compared with investing the same amount in the underlying
securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits of
owning a company, such investors must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to
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actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made
by its management or lower demand for the company's products or
services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated
to the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
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elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
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. A foreign government may act adversely to the interests of U.S.
investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment. A
country may restrict or control foreign investments in its securities
markets. These restrictions could limit the Fund's ability to invest
in a particular country or make it very expensive for the Fund to
invest in that country. Some countries require prior governmental
approval, limit the types or amount of securities or companies in
which a foreigner can invest. Other countries may restrict the ability
of foreign investors to repatriate their investment income and capital
gains.
Information and Supervision
There is generally less publicly available information about foreign
companies than companies based in the United States. For example, there are
often no reports and ratings published about foreign companies comparable
to the ones written about United States companies. Foreign companies are
typically not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States companies. The lack of comparable information
makes investment decisions concerning foreign companies 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 more volatile and not as developed or efficient as
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 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;
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. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income the Fund receives from its investments. The Fund 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 Fund also anticipates pricing, trading, settling
and valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, the Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than
Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by the Fund. Like other shareholders, the Fund would pay
its proportionate share of those fees. Consequently, shareholders of the Fund
would pay not only the management fees of the Fund, but also the management
fees of the investment company in which the Fund invests. The Fund may invest
up to 10% of its total assets in the securities of other investment companies,
but may not invest more than 5% of its total assets in the securities of any
one investment company or acquire more than 3% of the outstanding securities
of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of 5%
of its total assets or $2.5 million in the UAM DSI Money Market Fund, provided
that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the assets of
the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market" on a daily
basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for sale
to the general public 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 the Fund's
investment limitations. The price realized from the sales of these securities
could be more or less than those originally paid by the Fund or less than what
may be considered the fair value of such securities.
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SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker-dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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 Fund
investing any cash collateral in interest bearing short-term investments);
and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements. When
the Fund lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, the
Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
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Description of Short Sales
Selling a security short involves an investor sale of a security it does not
own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the security
it borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. Likewise, the Fund can profit if the price of the security
declines between those dates.
To borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The Fund will incur transaction
costs in effecting short sales. The Fund's gains and losses will be decreased
or increased, as the case may be, by the amount of the premium, dividends,
interest, or expenses the Fund may be required to pay in connection with a
short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
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Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a short
sale against the box, the Fund agrees to sell at a future date a security that
it either currently owns or has the right to acquire at no extra cost. The
Fund will incur transaction costs to open, maintain and close short sales
against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net assets.
. The market value of the securities of any single issuer that have been sold
short by the Fund would exceed the two percent (2%) of the value of the
Fund's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an amount
of cash or liquid securities equal to the difference between (a) the market
value of the securities sold short at the time they were sold short and (b)
any cash or U.S. Government securities the Fund is required to deposit with
the broker in connection with the short sale (not including the proceeds from
the short sale). The segregated assets are marked to market daily in an
attempt to ensure that the amount deposited in the segregated account plus the
amount deposited with the broker is at least equal to the market value of the
securities at the time they were sold short.
WHEN ISSUED TRANSACTIONS
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, the
Fund 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 Fund has
committed to purchase before the securities are delivered, although the Fund
may earn income on securities it has in a segregated account. The Fund will
only enter into these types of transactions with the intention of actually
acquiring the securities, but may sell them before the settlement date.
The Fund 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 Fund 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 Fund may miss the
opportunity to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date, these
risks are in addition to the risks associated with its other investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of the Fund
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
23
<PAGE>
determine investment limitation percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of its
acquisition of such security or other asset. Accordingly, the Fund will not
consider changes in values, net assets or other circumstances when determining
whether the investment complies with its investment limitations. The Fund
will not:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the of
U.S. government or any if its agencies or instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer.
. Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government, and its agencies when a portfolio
adopts a temporary defensive position.
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 33 1/3% of the
Fund's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships, although
it may purchase and sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate.
. Make loans except (i) by purchasing debt securities in accordance with its
investment objectives and (ii) by lending its portfolio securities to
banks, brokers, dealers and other financial institutions so long as such
loans are not inconsistent with the 1940 Act, or the rules and regulations
or interpretations of the SEC thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings mortgages or pledges or (ii) entering into option,
futures or repurchase transactions.
Management of the Company
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events per
year.
In addition, the Company reimburses each Independent Director for travel and
other expenses incurred while attending board meetings. The $3,000 meeting
fee and expense reimbursements are aggregated for all of the Directors and
allocated proportionately among all Funds in the UAM Complex.. The Company
does not pay its Interested Directors or officers for their services as
Directors or officers.
24
<PAGE>
BOARD MEMBERS
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940 Act.
Mr. English 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 Company does not believe that the
relationship is a material business relationship, and, therefore, does not
consider him to be an interested Board member. If these circumstances change,
the Board will determine whether any action is required to change the
composition of the Board.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH 03226 Company, Inc. (investment management). From 1988 to
1/26/29 1993, Mr. Bennett was President of Bennett Management
Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN 46290 since March 2000. From June 1998 to March 2000 he
4/21/42 was Executive Vice President and Chief Administrative
Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr.
English serves on the Board of each Company in the
UAM Funds Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Date of Company as of Complex as of
Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International United Asset Management Corporation (financial
Place services); Director, Partner or Trustee of each of
Boston, MA 02110 the Investment Companies of the Eaton Vance Group of
3/21/35 Mutual Funds (mutual funds).
</TABLE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides information
regarding their present positions, date of birth, address and their principal
occupations during the past five years. The Company's officers are paid by
UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Name, Address, Position
Date of Birth with Company Principal Occupations During the Past 5 years
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and Chairman
--------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
--------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
--------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of
Signature Financial Group Europe, Ltd. (financial services) from 1995 to 2000;
Secretary of the Citigroup Family of Mutual Funds (mutual funds) from 1996 to
2000; Secretary of the 59 Wall Street Family of Mutual Funds (mutual funds)
from 1996 to 2000.
--------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
--------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name, Address, Position
Date of Birth with Company Principal Occupations During the Past 5 years
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of record
or beneficially 5% or more of the shares of the Fund:
<TABLE>
<CAPTION>
Name and Address of Shareholder Class of Portfolio Percentage of Shares Owned
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Freya Fanning & Compny Institutional Class 31.14%
400 Essex St Box 5600
Beverly Farms, MA 01915-1957
--------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional Class 29.05%
FBO Interstate Brands
Aggressive Growth
PO Box 419175
Kansas City, MO 64141-6175
--------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional Class 9.14%
FBO IBC Savings Invest-AGG GR
PO Box 419692
Kansas City, MO 64141-6692
--------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional Class 8.89%
FBO Interstate Brands
Interstate Brands
Moderate Growth
PO Box 419175
Kansas City, MO 64141-6175
--------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co. Tr Institutional Class 6.15%
FBO IBT 401k
Profit Sharing Plan
C/o Mutual Funds UAM
P.O Box 8971
Wilmington, DE 19899-8971
--------------------------------------------------------------------------------------------------------------------
UMBSC & Co Institutional 58.43%
FBO Lillick & Charles MJI Service
C/o Trust Department Class
PO Box 419175
Kansas City, MO 64141-6175
--------------------------------------------------------------------------------------------------------------------
Wilmington Trust Company Institutional 25.28%
FBO Catholic Healthcare West Service
Deferred Compensation Class
C/o Mutual Funds/UAM
PO Box 8971
Wilmington, DE 19899-8971
--------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Shareholder Class of Portfolio Percentage of Shares Owned
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chicago Trust Co Tr Institutional Service 16.29%
FBO Loews Cineplex
P/S & 401K Ret Plan
C/o Marshall & IIsley Trust Company
1000 N Water Street
Milwaukee, WI 53202-6648
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding shares
of a portfolio may be presumed to "control" (as that term is defined in the
1940 Act) the portfolio. Shareholders controlling the portfolio could have the
ability to vote a majority of the shares of the portfolio on any matter
requiring the approval of shareholders of the portfolio. As of August 21,
2000, the directors and officers of the Company owned less than 1% of the
outstanding shares of the Fund.
Investment Advisory and Other Services
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Murray Johnstone International, Ltd., located at 11 West Nile Street, Glasgow,
Scotland G12PX, is the investment adviser to the fund. The adviser
manages and supervises the investment of the fund's assets on a
discretionary basis. The adviser, an affiliate of UAM, is an international
investment adviser whose origins date back to 1907.
The adviser has been a wholly-owned subsidiary of UAM since 1993. UAM is a
holding company incorporated in Delaware in December 1980 for the purpose of
acquiring and owning firms engaged primarily in institutional investment
management. Since its first acquisition in August 1983, UAM has acquired or
organized more than 50 UAM Affiliated Firms. UAM believes that permitting UAM
Affiliated Firms to retain control over their investment advisory decisions is
necessary to allow them to continue to provide investment management services
that are intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its own
business independently on a day-to-day basis. Investment strategies employed
and securities selected by UAM Affiliated Firms are separately chosen by each
of them. Several UAM Affiliated Firms also act as investment advisers to
separate series or portfolios of the UAM Funds Complex.
What is the Investment Philosophy and Style of the Adviser?
A value orientation for country, currency and stock selection is key to the
adviser's investment philosophy. The adviser's management structure centers
around regional research teams which are specialized by geography. The
individuals within each team are responsible for conducting research within
each region as well as identifying particular stocks for possible inclusion
within portfolios. On-site, fundamental research is a primary component of the
evaluation process.
Who Are Some Representative Institutional Clients Of The Adviser?
As of the date of this SAI, the adviser's representative institutional clients
included: Ace Hardware, American Cancer Society, Royal Caribbean Cruises,
Siemens, Levitz, Franciscan Sisters, Rhode Island School of Design, Government
of Guam, City of Albany and Arkansas Police & Fire Retirement Systems.
In compiling this client list, the Adviser used objective criteria such as
account size, geographic location and client classification. The adviser did
not use any performance based criteria. The fund does not know whether these
clients approve or disapprove of the adviser or the advisory services
provided.
28
<PAGE>
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment program of
the Fund; and
. Determines what portion of the Fund's assets will be invested in securities
and what portion will consist of cash.
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 Board Members who are not parties to the Investment
Advisory Agreement or interested persons of any such party; and
. By a majority of the Board Members or by a majority of the shareholders of
the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of Board
Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately terminate
if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual rate
of 0.75% of its average daily net assets. Due to the effect of fee waivers by
the adviser, the actual percentage of average net assets that the Fund pays in
any given year may be different from the rate set forth in its contract with
the adviser. For the last three fiscal years, the Fund paid the following in
advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
========================================================================================================================
<S> <C> <C> <C>
4/30/00 $205,888 $47,760 $253,648
------------------------------------------------------------------------------------------------------------------------
4/30/99 $220,570 $40,503 $180,067
------------------------------------------------------------------------------------------------------------------------
4/30/98 $284,464 $0 $284,464
</TABLE>
29
<PAGE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best efforts
to sell shares of the Fund, it is not obligated to sell any particular amount
of shares. UAMFDI, an affiliate of UAM, is located at 211 Congress Street,
Boston, Massachusetts 02110. UAMFDI receives no compensation for its services
as distributor of the Institutional Class Shares.
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 services performed with respect to the Company or a fund. The person
making such payments may do so out of its revenues, its profits or any other
source available to it. Such servicing arrangements, when in effect, are made
generally available to all qualified service providers. The adviser may also
compensate its affiliated companies for referring investors to the Fund.
SERVICE AND DISTRIBUTION PLANS
--------------------------------------------------------------------------------
The Company has adopted a Distribution Plan and a Shareholder Servicing Plan
(the "Plans") for their Institutional Service Class Shares pursuant to Rule
12b-1 under the 1940 Act.
Shareholder Servicing Plan
The Shareholder Servicing Plan (Service Plan) permits the Company to
compensate broker-dealers or other financial institutions (Service Agents)
that have agreed with UAMFDI to provide administrative support services to
Institutional Service Class shareholders that are their customers. Under the
Service Plan, Institutional Service Class Shares may pay service fees at the
maximum annual rate of 0.25% of the average daily net asset value of such
shares held by the Service Agent for the benefit of its customers. The Company
pays these fees out of the assets allocable to Institutional Service Class
Shares to UAMFDI, to the Service Agent directly or through UAMFDI. Each item
for which a payment may be made under the Service Plan constitutes personal
service and/or shareholder account maintenance and may constitute an expense
of distributing Institutional Service Class Shares as the SEC construes such
term under Rule 12b-1. Services for which Institutional Service Class Shares
may compensate Service Agents include:
. Acting as the sole shareholder of record and nominee for beneficial owners.
. Maintaining account records for such beneficial owners of the Fund's shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders about
their accounts.
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting dividend and
other account options and opening any necessary custody accounts.
. Providing account maintenance and accounting support for all transactions.
. Performing such additional shareholder services as may be agreed upon by the
Company and the Service Agent, provided that any such additional shareholder
services must constitute a permissible non-banking activity in
30
<PAGE>
accordance with the then current regulations of, and interpretations thereof
by, the Board of Governors of the Federal Reserve System, if applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits the Fund to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan, Institutional
Service Class Shares may pay distribution fees at the maximum annual rate of
0.75% of the average daily net asset value of such shares held by the Service
Agent for the benefit of its customers. These expenses include, among other
things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Company.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Company, including obtaining
information from the Company and providing performance and other
information about the Company.
In addition, the Institutional Service Class Shares may make payments directly
to other unaffiliated parties, who either aid in the distribution of their
shares or provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class Shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average daily
net assets for the year. The Company's governing board has limited the amount
the Institutional Service Class may pay under the Plans to 0.25% of the class'
average daily net assets for the year, and may increase such amount to the
plan maximum at any time. During the fiscal year ended April 30, 2000, the
Institutional Services Class of the Fund paid $18,096 in expenses under the
Service Plan, for services described above.
The Company will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Company may buy or sell Fund
securities through firms that receive payments under the Plans. UAMFDI, at its
own expense, may pay dealers for aid in distribution or for aid in providing
administrative services to shareholders.
Approving, Amending and Terminating the Plans
Shareholders of the Fund have approved the Plans. The Plans also were approved
by the governing board of the Company, including a majority of the members of
the board who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Plans (Plan Members),
by votes cast in person at meetings called for the purpose of voting on these
Plans.
Continuing the Plans
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Company's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is
31
<PAGE>
in the best interest of the Institutional Service Class shareholders
and that there is a reasonable likelihood of the Plans providing a
benefit to the Class. The Company's board has determined that the
Company's distribution arrangements are likely to benefit the Company
and its shareholders by enhancing the Company's ability to efficiently
service the accounts of its Institutional Service Class shareholders.
Amending the Plans
A majority of the Company's governing board and a majority of its the
Plan Members must approve any material amendment to the Plans.
Likewise, any amendment materially increasing the maximum percentage
payable under the Plans must be approved by a majority of the
outstanding voting securities of the Class, as well as by a majority
of the Plan Members.
Terminating the Plans
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without
penalty. In addition, the Plans will terminate automatically upon
their assignment.
Miscellaneous
So long as the Plans are in effect, the non-interested board members
will select and nominate the Plan Members of the Company.
The Company and UAMFDI intend to comply with the Conduct Rules of the
National Association of Securities Dealers relating to investment
company sales charges.
Pursuant to the Plans, the board reviews, at least quarterly, a
written report of the amounts expended under each agreement with
Service Agents and the purposes for which the expenditures were made.
Additional Non-12b-1 Shareholder Servicing Arrangements
In addition to payments by the Company under the Plans, UAM and any of
its affiliates, may, at its own expense, compensate a Service Agent or
other person for marketing, shareholder servicing, record-keeping
and/or other services performed with respect to the Company, the Fund
or any class of shares of the Fund. The person making such payments
may do so out of its revenues, its profits or any other source
available to it. Such services arrangements, when in effect, are made
generally available to all qualified service providers. The adviser
may also compensate its affiliated companies for referring investors
to the Fund.
ADMINISTRATIVE SERVICES
-------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of
the Company. As a part of its responsibilities, UAMFSI provides and
oversees the provision by various third parties of administrative,
fund accounting, dividend disbursing and transfer agent services for
the Company. UAMFSI, an affiliate of UAM, has its principal office at
211 Congress Street, Boston, Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance
of its services under the Fund Administration Agreement. UAMFSI may,
at its own expense, employ other people to assist it in performing its
duties under the Fund Administration Agreement. Such people may be
officers and employees who are employed by both UAMFSI and the
Company. UAMFSI will pay such people for such employment. The Company
will not incur any obligations with respect to such people. Other
expenses incurred in the operation of the Company will be borne by the
Company or other parties, including:
32
<PAGE>
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not
officers, directors, shareholders or employees of an affiliate of
UAM, including UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent
public accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes
and for distribution to current shareholders of each portfolio of
the Company;
. Printing and production costs of shareholders' reports and
corporate meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to
year if the Board specifically approves such continuance every year.
The Board or UAMFSI may terminate the Fund Administration Agreement,
without penalty, on not less than ninety (90) days' written notice.
The Fund Administration Agreement automatically terminates upon its
assignment by UAMFSI without the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.063% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM
Funds Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
33
<PAGE>
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its
services as sub-shareholder-servicing agent, calculated as
follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last three fiscal years the Fund paid the following in
administration fees:
Fiscal Year End Total Administration Fee
======================================================================
4/30/00 $143,476
----------------------------------------------------------------------
4/30/99 $ 45,751
----------------------------------------------------------------------
4/30/98 $ 22,754
* Effective March 1, 1998, UAMFSI became the Fund's administrator.
Prior March 1, 1998, another firm provided administrative services
CUSTODIAN
-------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the
terms of a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the
Company.
CODE OF ETHICS
-------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted
a code of ethics under Rule 17j-1 of the 1940 Act that permits
personnel subject to their particular code of ethics to invest in
securities, including securities that may be purchased or held by the
Fund.
Brokerage Allocation And Other Practices
SELECTION OF BROKERS
-------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of
investment securities for the Fund. The Investment Advisory Agreement
also directs the adviser to use its best efforts to obtain the best
execution with respect to all transactions for the Fund. The adviser
may select brokers based on research, statistical and pricing services
they provide to the adviser. Information and research provided by a
broker will be in addition to, and not instead of, the services the
adviser is required to perform under the Investment Advisory
Agreement. In so doing, the Fund may pay higher commission rates than
the lowest rate available when the adviser believes it is reasonable
to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
During the fiscal year ended April 30, 2000, the adviser directed
$8,780,247.11 of the portfolio's brokerage transactions to Direct
Access Brokerage Services in exchange for certain research services.
Commissions paid of those transactions were $23,348.16.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a
broker-dealer firm makes. However, the Company may place trades with
qualified broker-dealers who recommend the Company or who act as
agents in the purchase of Company shares for their clients.
34
<PAGE>
SIMULTANEOUS TRANSACTIONS
---------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for
the investment objective of more than one client, it may be prudent for
the adviser to engage in a simultaneous transaction, that is, buy or
sell the same security for more than one client. The adviser strives to
allocate such transactions among its clients, including the Fund, in a
fair and reasonable manner. Although there is no specified formula for
allocating such transactions, the Company's Board periodically reviews
the various allocation methods used by the adviser.
BROKERAGE COMMISSIONS
---------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's
mark-up or reflect a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or
an underwriter or market maker for the securities. Generally, the Fund
will not pay brokerage commissions for such purchases. When a debt
security is bought from an underwriter, the purchase price will usually
include an underwriting commission or concession. The purchase price for
securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the
Fund executes transactions in the over-the-counter market, it will deal
with primary market makers unless prices that are more favorable are
otherwise obtainable.
35
<PAGE>
Commissions Paid
For the last three fiscal years, the Fund paid the following in
brokerage commissions.
Fiscal Year End Brokerage Commissions
========================================================================
4/30/00 $187.474
------------------------------------------------------------------------
4/30/99 $120,104
------------------------------------------------------------------------
4/30/98 $173,063
Capital Stock And Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a
Delaware business trust on May 18, 1994. On October 31, 1995, the
Company changed its name to "UAM Funds Trust." The Company's principal
executive office is located at 211 Congress Street, Boston, MA 02110;
however, shareholders should direct all correspondence to the address
listed on the cover of this SAI. The Company is an open-end, management
investment company and the Fund is diversified. This means that with
respect to 75% of its total assets, the Fund may not invest more than 5%
of its total assets in the securities of any one issuer (other than U.
S. government securities).
Description of Shares and Voting Lights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series
(portfolios) or classes of shares of beneficial interest without
shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive
rights or preference as to conversion, exchange, dividends, retirement
or other features. The shares of the Company have non-cumulative voting
rights, which means that the holders of more than 50% of the shares
voting for the election of Board members can elect 100% of the Board if
they choose to do so. On each matter submitted to a vote of the
shareholders, a shareholder is entitled to one vote for each full share
held (and a fractional vote for each fractional share held), then
standing in his name on the books of a portfolio. Shares of all classes
will vote together as a single class except when otherwise required by
law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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
portfolio. A majority of the Board may authorize the liquidation of any
portfolio or class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all
of the classes. The three classes represent interests in the same assets
of a portfolio and, except as discussed below, are identical in all
respects.
. Institutional Shares do not bear any expenses for shareholder
servicing and the distribution of such shares pursuant to a
distribution plan or other 12b-1 plan;
36
<PAGE>
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of
the Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by
writing to the Fund at least three days before the record date for
income dividend or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays
an income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its
income to shareholders each year so that it generally will be relieved
of federal income and excise taxes. If the Fund were to fail to make
sufficient distributions in a year, it would be subject to corporate
income taxes and/or excise taxes. In addition, if the shortfall were
large enough, the Fund could be disqualified as a regulated investment
company. If the Fund were to fail to so qualify: (1) it would be taxed
at regular corporate rates without any deduction for distributions to
shareholder; and (2) its shareholders would be taxed as if they received
ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction. Moreover, if the Fund were to fail
to make sufficient distributions in a year, the Fund would be subject to
corporate income taxes and/or excise taxes in respect of the shortfall
or, if the shortfall is large enough, the Fund could be disqualified as
a regulated investment company.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute with respect to each calendar year at
least 98% of their ordinary taxable income for the calendar year and
capital gain net income (excess of capital gains over capital losses)
for the one year period ending October 31 of such calendar year and 100%
of any such amounts that were not distributed in the prior year. The
Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and any capital gain net income prior to the
end of each calendar year to avoid liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the
Fund on December 31 of such year if such dividends are actually paid
during January of the following year.
37
<PAGE>
As of April 30, 2000, the Fund had no capital loss carryovers.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
-----------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to
its NAV. The Fund calculates its NAV by subtracting its liabilities from
its total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the
Fund, plus cash and other assets plus income accrued but not yet
received.
The Fund normally calculates its NAV as of the close of trading on the
NYSE every day the NYSE is open for trading. The NYSE usually closes at
4:00 p.m. The NYSE is closed on the following days: New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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 the U.S. dollar 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 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 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 Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the
38
<PAGE>
Company for timely transmission of all subscription and redemption
requests, investment information, documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales
of the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance.
The Company will issue shares of the Fund at the NAV of the Fund
determined as of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the adviser.
REDEMPTION OF SHARES
-----------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts,
guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
39
<PAGE>
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be
recorded and investors may be required to provide additional telecopied
written instructions of such transaction requests. The Company or UAMSSC
may be liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Fund in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of securities received in payment of
redemptions.
The Company 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 Board believes that economic or
market conditions exist which would make such a practice detrimental to
the best interests of the Fund. If the Fund pays redemption proceeds with
securities instead of cash, it will value such securities as set forth
under "How the Company Values its Assets." A redeeming shareholder would
normally incur brokerage expenses if these securities were converted to
cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the
person who has authorized a redemption from your account and to protect
your account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than
the registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
40
<PAGE>
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. You can get a complete definition of eligible
guarantor institutions by calling 1-877-826-5465. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
Performance Calculations
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC. The performance is calculated separately for
each class of the Fund. Dividends paid by the Fund 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 distribution and service
fees relating to Institutional Service Class Shares will be borne
exclusively by that class.
41
<PAGE>
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
for the Institutional Class and the Institutional Service Class, and the
five-year period ended April 30, 2000 of the Institutional Class, and the
period from the Fund's inception date through April 30, 2000 for both
classes.
<TABLE>
<CAPTION>
One Year Five Years Since Inception Inception Date
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Class 20.07% 12.00% 9.59% 09/16/94
-------------------------------------------------------------------------------------------------------------------------
Institutional Service Class 19.81% N/A 14.19% 12/31/96
</TABLE>
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. Since Adviser Class Shares and 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
42
<PAGE>
d = the maximum offering price per share on the last day of the
period.
COMPARISONS
--------------------------------------------------------------------------------
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its performance;
and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
43
<PAGE>
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The Big
Board."
Fund refers to the MJI International Equity Portfolio, which is a series of
the Company.
SEC is the Securities and Exchange Commission. The SEC is the federal agency
that administers most of the federal securities laws in the United States. In
particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.
SEI is SEI Investments Mutual Funds Services, the Company's sub-administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's underwriter.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's
sub-shareholder-servicing agent.
Bonding Ratings
MOODY'S INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa An issue that 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 that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and
"aa" classification, earnings and asset protection
are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.
44
<PAGE>
caa An issue that is rated "caa" is of poor standing. Such
issues may be in default or there may be other
elements of danger with respect to principal or
interest.
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have other
marked shortcomings.
c This is the lowest rated class of preferred or
preference stock. Issues so rated can thus be regarded
as having extremely poor prospects of ever attaining
any real investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in
minus (-) each rating classification: the modifier 1 indicates
that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating
category.
Debt Ratings - Taxable Debt & Deposits Globally
<TABLE>
<S> <C>
Aaa Bonds that 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 that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that make the long-term
risks appear somewhat larger than the Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds that 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 that 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 that 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 that 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 that are rated Ca represent obligations that are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
</TABLE>
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Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating experience, (c)
rentals that begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
<TABLE>
<S> <C>
Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior
ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
. Leading market positions in well-established industries.
. Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
</TABLE>
STANDARD & POOR'S RATINGS SERVICES
----------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
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2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations
are typically rated lower than senior obligations, to reflect the lower
priority in bankruptcy, as noted above. Accordingly, in the case of junior
debt, the rating may not conform exactly with the category definition.
AAA An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB," but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC An obligation rated 'CCC' is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C' is
CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been
filed or similar action taken, but payments on this obligation are
being continued. A 'C' will also be assigned to a preferred stock
issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
47
<PAGE>
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the
credit rating. Examples include: obligation linked or indexed to
equities, currencies, or commodities; obligations exposed to
severe prepayment risk - such as interest-only or principal-only
mortgage securities; and obligations with unusually risky interest
terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular obligation as a
matter of policy. Debt obligations of issues outside the United
States and its territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into account
currency exchange and related uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such payments
will be made during such grace period. The 'D' rating also will
be used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign
currency issuer ratings are also distinguished from local currency issuer
ratings to identity those instances where sovereign risks make them different
for the same issuer.
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FITCH RATINGS
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
BBB Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.
B Highly speculative. 'B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity
for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A 'CC' rating
indicates that default of some kind appears probable. 'C' ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
"DDD" obligations have the highest potential for recovery, around
90%-100% of outstanding amounts and accrued interest. "D"
indicates potential recoveries in the range of 50%-90%, and "D"
the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or
all of their obligations. Entities rated "DDD" have the highest
prospect for resumption of performance or continued operation
with or without a formal reorganization process. Entities rated
"DD" and "D" are generally undergoing a formal reorganization or
liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated "D" have a poor prospect for repaying all obligations.
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International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments that is highly uncertain and 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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there
is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for a potential downgrade, or "Evolving," if ratings may
be raised, lowered or maintained. RatingAlert is typically resolved over a
relatively short period.
Comparative Benchmarks
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics -- a statistical measure of change, over time in the price
of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on the
New York Stock Exchange. It has been a widely followed indicator of the stock
market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
Companies Service -- publications that rate fund performance over specified
time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
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<PAGE>
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-weighted
index maintained by the International Finance Corporation. This index
consists of over 890 companies in 26 emerging equity markets, and is designed
to measure more precisely the returns 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 Brothers Indices:
------------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes
fixed rate issues of investment grade (BBB) or higher, with maturities of at
least one year and outstanding par values of at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly issued,
fixed-rate, nonconvertible investment grade domestic corporate debt. Also
included are yankee bonds, which are dollar-denominated SEC registered public,
nonconvertible debt issued or guaranteed by foreign sovereign governments,
municipalities, or governmental agencies, or international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued
debt of U.S. government agencies and quasi-federal corporations, and corporate
debt guaranteed by the U.S. government). In addition to the aggregate index,
sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of
at least one year and outstanding par value of at least $150 million. Any
security downgraded during the month is held in the index until month end and
then removed. All returns are market value weighted inclusive of accrued
income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity and
an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate Bond
Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30 largest
mutual funds within their respective portfolio investment objectives. The
indices are currently grouped in six categories: U.S. Diversified Equity with
12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment objectives
were changed while other equity objectives remain unchanged. Changing
investment objectives include Capital Appreciation Funds, Growth Funds, Mid-
Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity
Income Funds. Unchanged investment objectives include Sector Equity Funds,
World Equity Funds, Mixed Equity Funds, and certain other funds including all
Fixed Income Funds and S&P(R) Index Funds.
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Criteria for the Lipper Indices are: 1) component funds are largest in group;
2) number of component funds remains the same (30); 3) component funds are
defined annually; 4) can be linked historically; and 5) are used as a
benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers, liquidations,
etc.; and 4) will be inaccurate if historical averages are linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt
issues (BBB or higher) with dollar-weighted average maturities of one to five
years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing 60%
or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by prospectus
or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to
grow significantly faster than the earnings of the stocks represented in the
major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions, exclusive
of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an unmanaged
index composed of U.S. treasuries, agencies and corporates with maturities
from 1 to 4.99 years. Corporates are investment grade only (BBB or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market value-
weighted averages of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
----------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
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Russell 1000(R) Index - an unmanaged index which measures the performance of
the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Top 200(TM) Growth Index - measures the performance of those Russell
Top 200 companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of $1
million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and does
not reflect any transaction costs. Direct investment in the index is not
possible.
Standard & Poor's U.S. Indices:
-------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10
economic sectors aggregated from 23 industry groups, 59 industries, and 123
53
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sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their respective indices.
Features of the new classification include 10 economic sectors, rather than
the 11 S&P currently uses. Sector and industry gradations are less severe.
Rather than jumping from 11 sectors to 115 industries under the former S&P
system, the new system progresses from 10 sectors through 23 industry groups,
50 industries and 123 sub-industries.
S&P 500 Index -- an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its market
value. It is used by over 95% of U.S. managers and pension plan sponsors. More
than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index -- an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The
index is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred
benchmark for both active and passive management due to its low turnover and
greater liquidity. Approximately $8 billion is indexed to the S&P SmallCap
600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate Fund. The Index covers over 80% of the
securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including 23
electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents. Both indices provide geographic and economic diversity over 11
industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed as
the new Canadian large cap benchmark and will ultimately replace the Toronto
35 and the TSE 100.
54
<PAGE>
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each major
sector of the Tokyo market. It is designed specifically to give portfolio
managers and derivative traders an index that is broad enough to provide
representation of the market, but narrow enough to ensure liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries --
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and Chile
are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad
enough to provide representation of the market, but narrow enough to ensure
liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization)
of the Extended Market Index, of both developed and emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index -- a return
equivalent yield average based on the last three 3-month Treasury bill issues.
Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available. A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used
by the institutional investment community as a broad measure of the
performance of public real estate equity for asset allocation and performance
comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.
55
<PAGE>
UAM Funds
Funds for the Informed Investor sm
MJI International Equity Portfolio
Institutional Service Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary................................................................1
What are the Fund's Objectives?............................................1
What are the Fund's Principal Investment Strategies?.......................1
What are the Fund's Principal Risks?.......................................2
How Has the Fund Performed?................................................2
What are the Fund's Fees and Expenses?.....................................4
Investing with the UAM Funds................................................5
Buying Shares..............................................................5
Exchanging Shares..........................................................8
Account Policies..........................................................10
Additional Information About the Fund......................................12
Other Investment Practices and Strategies.................................12
Investment Management.....................................................13
Shareholder Servicing Arrangements........................................13
Additional Classes........................................................14
Financial Highlights.......................................................15
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks to maximize total return, including both capital apprecia-
tion and current income, by investing primarily in the common stocks of
companies based outside of the United States. The fund may not change its
investment objective without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The fund normally invests at least 65% of its total assets in common
stocks (including rights or warrants to purchase common stocks) of compa-
nies located in at least three countries outside the United States. The
fund invests primarily in securities of companies domiciled in developed
countries, but may also invest in developing countries.
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
The adviser tries to minimize specific country and currency risks by di-
versifying the investments of the fund throughout the world and within
markets. The adviser's investment process begins by determining which in-
ternational stock markets the fund should invest in and in what propor-
tion. The adviser makes its decision by evaluating the various markets
through a proprietary system called the Twenty Questions Analysis that
analyzes macro-economic factors, value factors, market performance and
trends in monetary policy.
Once the adviser decides how to allocate the assets of the fund among the
various international stock markets, it then compares the companies in
each of those markets according to:
. Quality of management;
. Market position;
. Financial strength;
. Ability to earn competitive returns on equity and assets; and
. Growth potential.
The adviser selects stocks that it believes the market has undervalued
compared to industry norms within their countries.
1
<PAGE>
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
This risk is greater for small and medium sized companies, which tend to
be more vulnerable to adverse developments than larger companies.
When the fund invests in foreign securities, it will be subject to risks
not typically associated with domestic securities. Foreign investments,
especially investments in emerging markets, can be riskier and more vola-
tile than investments in the United States. Adverse political and economic
developments or changes in the value of foreign currency can make it
harder for the fund to sell its securities and could reduce the value of
your shares. Differences in tax and accounting standards and difficulties
in obtaining information about foreign companies can negatively affect in-
vestment decisions. Unlike more established markets, emerging markets may
have governments that are less stable, markets that are less liquid and
economies that are less developed.
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
this class of the fund. The bar chart shows how performance of this class
of the fund has varied from year to year. The average annual return table
compares the average annual returns of this class of the fund to those of
a broad-based securities market index. Returns are based on past results
and are not an indication of future performance.
2
<PAGE>
Calendar Year Returns
[CHART]
During the periods shown in the chart for the fund, the highest return for
a quarter was 19.61% (quarter ending 12/31/99) and the lowest return for a
quarter was -13.99% (quarter ending 09/30/98). For the period from January
1, 2000, through June 30, 2000, the fund returned -8.11%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 12/31/96*
------------------------------------------------------------------
<S> <C> <C>
MJI International Equity Portfolio 34.52% 17.94%
------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 26.96% 16.06%
</TABLE>
* Beginning of operations. Index comparisons begin on January 1, 1997.
3
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.75%
--------------------------------------------
Service (12b-1) Fees 0.25%
--------------------------------------------
Other Expenses* 0.97%
--------------------------------------------
Total Annual Fund Operating Expenses 1.97%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the
expenses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.75%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addition, "Other Expenses" do not
take into account any expense offset arrangement the fund may have that
would reduce its custodian fee based on the amount of cash the fund
maintains with its custodian. This would also have the effect of
reducing the fund's expenses.
Example
This example can help you to compare the cost of investing in this class
of the fund to the cost of investing in other mutual funds. The example
assumes you invest $10,000 in the fund for the periods shown and then re-
deem all of your shares at the end of those periods. The example also as-
sumes 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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$200 $618 $1,062 $2,296
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mail-
5
<PAGE>
ing a completed application to the UAM Funds. To cancel or change a plan,
write to the UAM Funds. Allow up to 15 days to create the plan and 3 days
to cancel or change it.
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
MJIFX 902556836 911
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
6
<PAGE>
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
7
<PAGE>
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
8
<PAGE>
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an investment's fair
value according to methods established by the Board. The UAM Funds value
debt securities that are purchased with remaining maturities of 60 days or
less at amortized cost, which approximates market value. The UAM Funds may
use a pricing service to value some of their assets, such as debt securi-
ties or foreign securities.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income and its net capi-
tal gains at least once a year. The UAM Funds will automatically reinvest
dividends and distributions in additional shares of the fund, unless you
elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
12
<PAGE>
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Murray Johnstone International, Ltd., located at 11 West Nile Street,
Glasgow, Scotland G12PX, is the investment adviser to the fund. The ad-
viser manages and supervises the investment of the fund's assets on a dis-
cretionary basis. The adviser, an affiliate of United Asset Management
Corporation, is an international investment adviser whose origins date
back to 1907.
The fund has agreed to pay the adviser a management fee equal to 0.75% of
the fund's average net assets. In addition, the adviser has voluntarily
agreed to limit the total expenses of the fund to 1.75% of its average net
assets. To maintain this expense limit, the adviser may waive a portion of
its management fee and/or reimburse certain expenses of the fund. The ad-
viser intends to continue its expense limitation until further notice, but
may discontinue it at any time. During its most recent fiscal year, the
fund paid 0.61% of its average net assets in advisory fees to the adviser.
Portfolio Managers
Since the country decision is of first importance, the members of the
Country Allocation Team are the key decision-makers for the fund, and
their experience and judgement are critical. The team is comprised of
James Clunie (Head of Allocation) and Andrew Preston.
James Clunie is the Senior Investment Officer in charge of North American
clients and a Director of Murray Johnstone International. Mr. Clunie is
also responsible for research into the performance and continued develop-
ment of the Twenty Questions analysis. Mr. Clunie came to Murray Johnstone
in 1989 after receiving his BS with Honors in Mathematics and Statistics
from Edinburgh University. He has worked in the UK department and spent
time in the United States, as a product specialist. He is a Certified Fi-
nancial Analyst.
Andrew Preston is a Senior Investment Officer and a Director of Murray
Johnstone International. Among his responsibilities is oversight of ac-
counts with special guidelines. He has been with Murray Johnstone for
fourteen years, and has been a member of the UK and Japan teams. He also
played a prominent role in the establishment of a joint venture company
formed in 1986 to invest Japanese institutional funds internationally.
Earlier in his career, Andrew was a diplomat in the Australian Department
of Foreign Affairs. He is fluent in Japanese and Chinese.
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
13
<PAGE>
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
Distribution Plans
The fund has adopted a Distribution Plan and a Shareholder Services Plan
under Rule 12b-1 of the Investment Company Act of 1940 that permits them
to pay broker-dealers, financial institutions and other third parties for
the sale and distribution of its shares and for marketing and shareholder
services. The 12b-1 plans allow the fund to pay up to 1.00% of its average
daily net assets annually for these services. However, the fund is cur-
rently authorized to pay only 0.25% per year. Because this class of shares
pays these fees out of their assets on an ongoing basis, over time, your
shares may cost more than if you had paid another type of sales charge.
Shareholder Servicing
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate for the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
ADDITIONAL CLASSES
-------------------------------------------------------------------------------
The fund also offers Institutional Class shares, which do not pay market-
ing or shareholder servicing fees. Since Institutional Class shares have
lower expenses, their performance will be better than the performance of
the Institutional Service Class.
14
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of this class of the fund for the fiscal periods indi-
cated. Certain information contained in the table reflects the financial
results for a single share. The total returns in the table represent the
rate that an investor would have earned on an investment in this class
of the fund assuming all dividends and distributions were reinvested.
PricewaterhouseCoopers LLP has audited this information. The financial
statements and the unqualified opinion of PricewaterhouseCoopers LLP are
included in the annual report of the fund, which is available upon request
by calling the UAM Funds at 1-877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000** 1999** 1998 1997#
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.81 $ 12.26 $10.65 $10.53
Income from Investment Operations:
Net Investment Income (0.07) (0.01) 0.04 0.01
Net Realized and Unrealized Gain
(Loss) 2.61 0.82 2.02 0.11
Total From Investment Operations 2.54 0.81 2.06 0.12
Distributions:
Net Investment Income -- (0.04) (0.04) --
Net Realized Gain (1.20) (0.22) (0.41) --
Total Distributions (1.20) (0.26) (0.45) --
Net Asset Value, End of Period $14.15 $ 12.81 $12.26 $10.65
Total Return 19.81%+ 6.90%+ 20.11%+ 1.14%++
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $2,767 $10,391 $7,251 $3,920
Ratio of Expenses to Average Net
Assets 1.83% 1.75% 1.75% 1.76%*
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.48)% (0.12)% 0.29% 0.59%*
Portfolio Turnover Rate 85% 48% 80% 47%
</TABLE>
# For the period from December 31, 1996 (inception of Institutional
Service Class Shares), through April 30, 1997.
* Annualized
++ Not annualized
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the periods
indicated.
** Per share amounts are based on average outstanding shares.
15
<PAGE>
MJI International Equity Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds
Funds for the Informed Investor sm
Pell Rudman Mid-Cap Growth Portfolio
Institutional Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
What is the Fund's Objective?................................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................2
What are the Fund's Fees and Expenses?.......................................4
Investing with the UAM Funds..................................................5
Buying Shares................................................................5
Redeeming Shares.............................................................6
Exchanging Shares............................................................8
Transaction Policies.........................................................8
Account Policies............................................................10
Additional Information About the Fund........................................12
Other Investment Practices and Strategies...................................12
Investment Management.......................................................13
Shareholder Servicing Arrangements..........................................16
Financial Highlights.........................................................17
</TABLE>
<PAGE>
Fund Summary
WHAT IS THE FUND'S OBJECTIVE?
-------------------------------------------------------------------------------
The fund seeks long-term capital appreciation. The fund may change its in-
vestment objective without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The primary focus of the fund is on quality growth companies with medium
market capitalizations. The fund normally invests at least 65% of its to-
tal assets in common stocks of companies with market capitalizations be-
tween $200 million and $10 billion at the time of purchase.
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
The adviser emphasizes bottom-up (i.e., it focuses on individual stocks
rather than industries or sectors) fundamental stock selection that con-
centrates on companies that can deliver consistently strong earnings
growth, cash flow growth, and return on equity. The adviser looks for a
proven history of growth because it believes that such a history is indic-
ative of the value of the underlying franchise or market position. These
companies typically have a proprietary product or business approach that
allows them to be leaders within their respective industries. The adviser
also looks for strong management that is shareholder-oriented and is pur-
suing a clear, profit-oriented business strategy.
The adviser narrows potential candidates by looking for companies that may
outperform in the future and/or possess a catalyst that may allow the
stock to recognize its potential. Typical catalysts include:
. New products.
. Acceleration in revenues.
. Expanding profit margins.
. Companies with strong growth-oriented fundamentals that have experi-
enced a recent and/or significant correction in valuation.
. Companies with positive earnings momentum.
The adviser also emphasizes diversification in terms of sector exposure as
well as the number of securities held, and normally expects low turnover
of holdings.
1
<PAGE>
Companies are constantly evaluated in terms of growth characteristics rel-
ative to valuations by comparing the price-to-earnings growth rate of cur-
rent fund holdings to potential purchase candidates. Securities are con-
sidered candidates for sale based on their performance relative to certain
benchmarks. The adviser may also sell a security at any time because of
deteriorating fundamentals, valuations or relative performance.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
Investing in stocks of smaller companies can be riskier than investing in
larger, more mature companies. Smaller companies may be more vulnerable to
adverse developments than larger companies because they tend to have nar-
rower product lines and more limited financial resources. Their stocks may
trade less frequently and in limited volume.
Growth funds may not perform as well as other types of mutual funds when
growth investing is out of favor. The values of growth stocks may be more
sensitive to changes in current or expected earnings than the value of
other stocks.
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares average
2
<PAGE>
annual returns of the fund to those of a broad-based securities market in-
dex. Returns are based on past results and are not an indication of future
performance.
Calendar Year Returns
[GRAPH]
1999 35.69%
During the periods shown in the chart for the fund, the highest return for
a quarter was 26.15% (quarter ending 12/31/99) and the lowest return for a
quarter was -4.25% (quarter ending 06/30/00). For the period from January
1, 2000, through June 30, 2000, the fund returned 15.02%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 9/10/98*
-----------------------------------------------------
<S> <C> <C>
Pell Rudman Mid-Cap Growth Portfolio 35.69% 49.18%
-----------------------------------------------------
Russell Mid-Cap Growth index 51.30% 68.06%
</TABLE>
* Beginning of operations. Index comparisons begin on September 30, 1998.
3
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 1.00%
-------------------------------------------
Other Expenses* 1.31%
-------------------------------------------
Total Annual Fund Operating Expenses 2.31%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.30%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addition, "Other Expenses" do not
take into account any expense offset arrangement the fund may have that
would reduce its custodian fee based on the amount of cash the fund
maintains with its custodian. This would also have the effect of reduc-
ing the fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$234 $721 $1,235 $2,646
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
----------------------------------------------------------------------------------------------------
<S> <C> <C>
PRMIX 902556760 920
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock ex-
8
<PAGE>
change closing prices) unreliable. The UAM Funds will determine an invest-
ment's fair value according to methods established by the Board. The UAM
Funds value debt securities that are purchased with remaining maturities
of 60 days or less at amortized cost, which approximates market value. The
UAM Funds may use a pricing service to value some of their assets, such as
debt securities or foreign securities.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information about the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
12
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Pell Rudman Trust Company, N.A., a nationally chartered trust company lo-
cated at 100 Federal Street, Boston, Massachusetts 02110, is the invest-
ment adviser to the fund. The adviser manages and supervises the invest-
ment of the fund's assets on a discretionary basis. The adviser, an affil-
iate of United Asset Management Corporation, has provided comprehensive
and integrated financial services to individuals and selected institu-
tional clients since 1980.
The fund has agreed to pay the adviser a management fee equal to 1.00% of
the fund's average net assets. In addition, the adviser has voluntarily
agreed to limit the total expenses of the fund to 1.30% of its average net
assets. To maintain this expense limit, the adviser may waive a portion of
its management fee and/or reimburse certain expenses of the fund. The ad-
viser intends to continue its expense limitation until further notice, but
may discontinue it at any time. During its most recent fiscal year, the
fund paid 0.00% of its average net assets in advisory fees to the adviser.
13
<PAGE>
Portfolio Managers
A team of investment professionals manages the fund; however, Jeffrey S.
Thomas has overall responsibility for the day-to-day management of the
fund. Listed below are the investment professionals that comprise that
team and a brief description of their business experience.
<TABLE>
<CAPTION>
Manager Experience
-----------------------------------------------------------------------------
<C> <S>
Jeffrey S. Thomas, CFA Mr. Thomas joined the adviser in 1986 and he is
currently Chief Investment Officer. Mr. Thomas
heads the Investment Committee and oversees the
portfolio management of all client portfolios of
the adviser. Before joining the adviser, he was
Vice President, Scudder Stevens & Clark, 1981-1986;
Senior Investment Officer, Bank of New England,
1979-1981; and Investment Officer, The Northern
Trust Company, 1973-1979. Mr. Thomas is a member of
the Boston Security Analysts Society, Bank Analysts
Association of Boston and President of Boston Media
Analysts Group. He earned his BS in Finance and
Economics from Miami University (Ohio) and his MBA
in Finance from the University of Chicago. He is a
Chartered Financial Analyst and Chartered
Investment Counselor.
-----------------------------------------------------------------------------
Frederick L. Weiss, CFA Mr. Weiss is Director of Research and heads the
research efforts of the investment team. Before
joining the adviser in 1989, he was Vice President
and Senior Analyst, Adams, Harkness & Hill, 1989;
Vice President State Street Research and
Management, 1983-1988; and Analyst, State Street
Research and Management, 1979-1983. Mr. Weiss is a
member of the Boston Security Analyst Society and
Healthcare, Technology and Chemicals Analysts
Society. He earned his AB from Harvard College,
Magna Cum Laude, and his MBA from Harvard Business
School, with honors. He is a Chartered Financial
Analyst.
-----------------------------------------------------------------------------
Jay Pearlstein, CFA, CPA Mr. Pearlstein is a Senior Research Analyst and
Portfolio Manager providing equity research on a
number of industries. Before joining the adviser in
1996, he was a Vice President of the Equity
Research Department and on the Investment Policy
Committee, Loomis Sayles & Co., 1981-1996; Staff
Analyst, Gulf Oil Corporation, 1980; and Senior
Auditor at Coopers & Lybrand, 1977-1979. Mr.
Pearlstein earned his BA in Accounting from
Michigan State University, Summa Cum Laude. He
received the Board of Trustees Award for graduating
first in his class and was the recipient of a
National Merit Scholarship, Financial Executives
Institute Award and Alpha Kappa Psi Scholarship
Key. He also earned his MBA, with distinction, from
Harvard University Graduate School of Business
Administration where he received First-Year Honors.
He is a Chartered Financial Analyst and a Certified
Public Accountant.
</TABLE>
14
<PAGE>
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts reflects deductions for the average fees and expenses of
such accounts. The average fees and expenses of the separate accounts were
less than the operating expenses of the portfolio. If the performance of
the managed accounts was adjusted to reflect the fees and expenses of the
portfolio, the composite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
<TABLE>
<CAPTION>
Pell Rudman Trust Russell
Company, N.A. Mid-Cap
Composite* Growth Index
-----------------------------------------------------------
<S> <C> <C>
Calendar Years Ended:
1992 35.93% 14.09%
-----------------------------------------------------------
1993 28.44% 11.19%
-----------------------------------------------------------
1994 2.12% (2.16)%
-----------------------------------------------------------
1995 36.26% 33.98%
-----------------------------------------------------------
1996 18.64% 17.48%
-----------------------------------------------------------
1997 22.52% 22.54%
-----------------------------------------------------------
1998 23.95% 17.86%
-----------------------------------------------------------
1999 34.90% 51.29%
-----------------------------------------------------------
Average Annual Returns For Periods Ended 6/30/00
1-year 42.69% 48.60%
-----------------------------------------------------------
3-years 29.09% 30.40%
-----------------------------------------------------------
5-years 27.72% 26.37%
-----------------------------------------------------------
Since Inception (6/1/92) 27.54% 21.38%
</TABLE>
* The adviser's returns presented above are net of an average annual fee
of 0.70%. During the period shown (6/1/92-6/30/00), fees on the
adviser's individual accounts ranged from 0.50% to 1.00%. The adviser's
composite has not been audited.
15
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representatives
may receive compensation from the fund or its service providers for providing
a variety of services. This section briefly describes how the financial repre-
sentatives may get paid.
For providing certain services to their clients, financial representatives may
be paid a fee based on the assets of the fund that are attributable to the fi-
nancial representative. These services may include record keeping, transaction
processing for shareholders' accounts and certain shareholder services not
currently offered to shareholders that deal directly with the fund. In addi-
tion, your financial representatives may charge you other account fees for
buying or redeeming shares of the fund or for servicing your account. Your fi-
nancial representative should provide you with a schedule of its fees and
services.
The fund may pay all or part of the fees paid to financial representatives.
Periodically, the UAM Funds' board reviews these arrangements to ensure that
the fees paid are appropriate for the services performed. The fund does not
pay these service fees on shares purchased directly. In addition, the adviser
and its affiliates may, at their own expense, pay financial representatives
for these services.
The adviser and its affiliates may, at their own expense, pay financial repre-
sentatives for distribution and marketing services performed with respect to
the fund. The adviser may also pay its affiliated companies for distribution
and marketing services performed with respect to the fund.
16
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a
single share. The total returns in the table represent the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at 1-
877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000 1999#
------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.76 $10.00
Income from Investment Operations:
Net Investment Income (0.12) (0.02)
Net Realized and Unrealized Gain (Loss) 6.41 2.78
Total From Investment Operations 6.29 2.76
Distributions:
Net Realized Gain (0.02) --
Net Asset Value, End of Period $ 19.03 $12.76
Total Return+ 49.49% 27.50%++
Ratios and Supplemental Data
Net Assets, End of Period (Thousands) $17,703 $6,185
Ratio of Expenses to Average Net Assets 1.31% 1.30%*
Ratio of Net Investment Income to Average Net Assets (0.95)% (0.68)%*
Portfolio Turnover Rate 42% 24%
</TABLE>
# For the period from September 10, 1998 (commencement of operations),
through April 30, 1999.
* Annualized
++Not annualized
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the periods in-
dicated.
17
<PAGE>
Pell Rudman Mid-Cap Growth Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
Pell Rudman Mid-Cap Growth Portfolio
Institutional Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August 28,
2000, as supplemented from time to time. You may obtain the Fund's prospectus
by contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial Statements."
No other portions of the annual report are incorporated by reference.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
Description of Permitted Investments.................................................... 1
Borrowing.............................................................................. 1
Debt Securities........................................................................ 1
Derivatives............................................................................ 7
Equity Securities...................................................................... 15
Foreign Securities..................................................................... 17
Investment Companies................................................................... 21
Repurchase Agreements.................................................................. 21
Restricted Securities.................................................................. 21
Securities Lending..................................................................... 22
Short Sales............................................................................ 22
When Issued Transactions............................................................... 23
Investment Policies of the Fund......................................................... 23
Management of the Company............................................................... 24
Board Members.......................................................................... 24
Officers............................................................................... 26
Principal Shareholders.................................................................. 27
Investment Advisory and Other Services.................................................. 28
Investment Adviser..................................................................... 28
Distributor............................................................................ 29
Shareholder Servicing Arrangements..................................................... 29
Administrative Services................................................................ 29
Custodian.............................................................................. 31
Independent Accountants................................................................ 31
Code of Ethics......................................................................... 31
Brokerage Allocation and Other Practices................................................ 31
Selection of Brokers................................................................... 31
Simultaneous Transactions.............................................................. 31
Brokerage Commissions.................................................................. 32
Capital Stock and Other Securities...................................................... 32
Purchase, Redemption and Pricing of Shares.............................................. 34
Net Asset Value Per Share.............................................................. 34
Purchase of Shares..................................................................... 35
Redemption of Shares................................................................... 36
Exchange Privilege..................................................................... 37
Transfer Of Shares..................................................................... 38
Performance Calculations................................................................ 38
Total Return........................................................................... 38
Yield.................................................................................. 38
Comparisons............................................................................ 39
Financial Statements.................................................................... 39
Glossary................................................................................ 40
Bond Ratings............................................................................ 40
Moody's Investors Service, Inc......................................................... 40
Standard & Poor's Ratings Services..................................................... 43
Fitch IBCA Ratings..................................................................... 45
Comparative Benchmarks.................................................................. 46
</TABLE>
<PAGE>
Description of Permitted Investments
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies. This
SAI describes each of these investments/strategies and their risks. The Fund
may not notify shareholders before employing new strategies, unless it expects
such strategies to become principal strategies. You can find more information
concerning the limits on the ability of the Fund to use these investments in
"Investment Policies of the Fund."
BORROWING
--------------------------------------------------------------------------------
The Fund may not borrow money, except if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into reverse
repurchase agreements, in amounts up to 331/3% of its total assets
(including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone for
temporary purposes;
. It may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the extent
permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss. To
mitigate the risks of leverage, the fund will limit the amount it may borrow
to not more than 33 1/3% of its total assets, taken at market value. In
addition, the Fund will only borrow from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares.
The Fund will not purchase securities while borrowings are outstanding except
to exercise prior commitments and to exercise subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities, such
as zero-coupon bonds, do not pay current interest and are purchased at a
discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities include
treasury bills, which have initial maturities of less than one year, treasury
notes, which have initial maturities of one to ten years and treasury bonds,
which have initial maturities of at least ten years and certain types of
mortgage-backed securities that are described under "Mortgage-Backed
Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-
backed treasury and agency securities in detail in "Mortgage-Backed
Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities.
Unlike treasury securities, the full faith and credit of the U.S. government
generally does not back agency securities. Agency securities are typically
supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the obligations
of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject
to the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the
credit risk is minimal. The U.S. government does not guarantee the net asset
value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation by investors,
the corporation promises to pay investors interest, and repay the principal
amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a mortgage-
backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. The adviser will consider
such insurance and guarantees and the creditworthiness of the issuers thereof
in determining whether a mortgage-related security meets its investment
quality standards. It is possible that the private insurers or guarantors will
not meet their obligations under the insurance policies or guarantee
arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related securities.
GNMA is a wholly owned corporation of the U.S. government and it falls within
the Department of Housing and Urban Development. Securities issued by GNMA are
considered the equivalent of treasury securities and are backed by the full
faith and credit of the U.S. government. GNMA guarantees the timely payment
of principal and interest on securities issued by institutions approved by
GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages. GNMA does
not guarantee the market value or yield of mortgage-backed securities or the
value of the Fund's shares. To buy GNMA securities, the Fund may have to pay a
premium over the maturity value of the underlying mortgages, which the Fund
may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Securities issued by FNMA are agency securities,
which means FNMA, but not the U.S. government, guarantees their timely payment
of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these issuers
generally offer a higher rate of interest than pools created by GNMA, FNMA &
FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their interest
rates are sometimes adjustable. In addition, a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, the Fund may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other than
mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which allow debtors
to reduce their balances by offsetting certain amounts owed on the credit
cards. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. Due
to the quantity of vehicles involved and requirements under state laws, asset-
backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have a
more focused range of principal payment dates than pass-through securities.
While whole mortgage loans may collateralize CMOs, mortgage-backed securities
guaranteed by GNMA, FHLMC, or FNMA and their income streams more typically
collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets in
the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. Is a foreign branch of a U.S. bank and the adviser believes the security is
of an investment quality comparable with other debt securities that the Fund
may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the institution. However, there may be early withdrawal penalties
depending upon market conditions and the remaining maturity of the obligation.
The Fund may only purchase time deposits maturing from two business days
through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1 to
270 days issued by banks, corporations and other borrowers. Such investments
are unsecured and usually discounted. The Fund may invest in commercial
4
<PAGE>
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 "Bond Ratings" for a description
of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal, while the other class will
receive most of the interest and the remaining principal. In extreme cases,
one class will receive all of the interest ("interest only" or "IO" class)
while the other class will receive the entire principal sensitive to the rate
of principal payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments may
adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO.
The yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed
securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States by
foreign entities. Investment in these securities involve certain risks which
are not typically associated with investing in domestic securities. See
"FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are sold
at a discount from their face value. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. The amount of the
discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security
will have a longer duration than an ordinary debt security with the same
maturity. The Fund's investments in pay-in-kind, delayed and zero coupon bonds
may require it to sell certain of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," the Fund can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay the
amount it borrowed (principal) from investors. Some debt securities, however,
are callable, meaning the issuer can repay the principal earlier, on or after
specified dates (call dates). Debt securities are most likely to be called
when interest rates are falling because the issuer can refinance at a lower
rate, similar to a homeowner refinancing a mortgage. The effective maturity
of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
Fund, with the maturity of each security weighted by the percentage of the
assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to changes
in interest rates. It measures sensitivity more accurately than maturity
because it takes into account the time value of cash flows generated over the
life of a debt security. Future interest payments and principal payments are
discounted to reflect their present value and then are multiplied by the
number of years they will be received to produce a value expressed in years --
the duration. Effective duration takes into account call features and sinking
fund prepayments that may shorten the life of a debt security.
An effective duration of 4 years, for example, would suggest that for each 1%
reduction in interest rates at all maturity levels, the price of a security is
estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities, which
may cause your share price to fall. Lower rates motivate people to pay off
mortgage-backed and asset-backed securities earlier than expected. The Fund
may then have to reinvest the proceeds from such prepayments at lower interest
rates, which can reduce its yield. The unexpected timing of mortgage and
asset-backed prepayments caused by the variations in interest rates may also
shorten or lengthen the average maturity of the Fund. If left unattended,
drifts in the average maturity of the Fund can have the unintended effect of
increasing or reducing its effective duration, which may adversely affect its
expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price declines.
Extending the average life of a mortgage-backed security increases the risk of
depreciation due to future increases in market interest rates. For these
reasons, mortgage-backed securities may be less effective than other types of
U.S. government securities as a means of "locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer higher
yields than Treasury securities because their payment of interest and complete
repayment of principal is less certain. The credit rating or financial
condition of an issuer may affect the value of a debt security. Generally,
the lower the quality rating of a security, the greater the risks that the
issuer will fail to pay interest and return principal. To compensate investors
for taking on increased risk, issuers with lower credit ratings usually offer
their investors a higher "risk premium" in the form of higher interest rates
above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment
to this "risk premium." If an issuer's outstanding debt carries a fixed
coupon, adjustments to the risk premium must occur in the price, which affects
the yield to maturity of the bond. If an issuer defaults or becomes unable to
honor its financial obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if
it believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause the Fund to experience sudden and substantial price
declines. A lack of reliable, objective data or market quotations may make it
more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation of
market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings. The Fund may invest in securities of any
rating.
DERIVATIVES
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain exposure
to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also invest
in derivatives to protect it from broad fluctuations in market prices,
interest rates or foreign currency exchange rates (a practice known as
"hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and purchase
of derivatives could be used to control the exposure of the Fund to market
fluctuations, the use of derivatives may be a more effective means of hedging
this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party sells
and the other party agrees to buy a specified amount of a financial instrument
at an agreed upon price and time. The financial instrument underlying the
contract may be a stock, stock index, bond, bond index, interest rate, foreign
exchange rate or other similar instrument. Agreeing to buy the underlying
financial information is called buying a futures contract or taking a long
position in the contract. Likewise, agreeing to sell the underlying financial
instrument is called selling a futures contract or taking a short position in
the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal agency.
These contract markets standardize the terms, including the maturity date and
underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to pay
for or deliver the underlying financial instrument until some future date (the
delivery date). Contract markets require both the purchaser and seller to
deposit "initial margin" with a futures broker, known as a futures commission
merchant, or custodian bank when they enter into the contract. Initial margin
deposits are typically equal to a percentage of the contract's value. After
they open a futures contract, the parties to the transaction must compare the
purchase price of the contract to its daily market value. If the value of the
futures contract changes in such a way that a party's position declines, that
party must make additional "variation margin" payments so that the margin
payment is adequate. On the other hand, the value of the contract may change
in such a way that there is excess margin on deposit, possibly entitling the
party that has a gain to receive all or a portion of this amount. This
process is known as "marking to the market."
Although the actual terms of a futures contract calls for the actual delivery
of and payment for the underlying security, in many cases the parties may
close the contract early by taking an opposite position in an identical
contract. If the sale price upon closing out the contract is less than the
original purchase price, the person closing out the contract will realize a
loss. If the sale price upon closing out the contract is more than the
original purchase price, the person closing out the contract will realize a
gain. The opposite is also true. If the purchase price upon closing out the
contract is more than the original sale price, the person closing out the
contract will realize a loss. If the purchase price upon closing out the
contract is less than the original sale price, the person closing out the
contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Fund pays the current market price for the option (known as the "option
premium"). The Fund may purchase put options to offset or hedge against a
decline in the market value of its securities ("protective puts") or to
benefit from a decline in the price of securities that it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying securities decreased below the exercise price sufficiently
to cover the premium and transaction costs. However, if the price of the
underlying instrument does not fall enough to offset the cost of purchasing
the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. The Fund would normally purchase call options in anticipation of
an increase in the market value of securities it owns or wants to buy. The
Fund would ordinarily realize a gain if, during the option period, the value
of the underlying instrument exceeded the exercise price plus the premium paid
and related transaction costs. Otherwise, the Fund would realize either no
gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when the Fund
writes a put option it assumes an obligation to purchase specified securities
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The Fund may terminate its position in an
exchange-traded put option before exercise by buying an option identical to
the one it has written. Similarly, it may cancel an over-the-counter option
by entering into an offsetting transaction with the counter-party to the
option.
The Fund could try to hedge against an increase in the value of securities it
would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and the
premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the Fund
may lose an amount of money equal to the difference between the value of the
security and the premium it received. Writing covered put options may deprive
the Fund of the opportunity to profit from a decrease in the market price of
the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and the
premium it received to offset the decline of the security's value. However,
the Fund must be prepared to deliver the underlying instrument in return for
the strike price, which may deprive it of the opportunity to profit from an
increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract;
or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations
in a group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option).
If the option is exercised, the parties will be subject to the futures
contracts. In addition, the writer of an option on a futures contract is
subject to initial and variation margin requirements on the option position.
Options on futures contracts are traded on the same contract market as the
underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e., the
same exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If
the price of the futures contract at expiration were below the exercise price,
the Fund would retain the option premium, which would offset, in part, any
decline in the value of its assets.
The writing of a put option on a futures contract is similar to the purchase
of the futures contracts, except that, if the market price declines, the Fund
would pay more than the market price for the underlying instrument. The
premium received on the sale of the put option, less any transaction costs,
would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the Fund could construct
a
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combined position whose risk and return characteristics are similar to selling
a futures contract by purchasing a put option and writing a call option on the
same underlying instrument. Alternatively, the Fund could write a call option
at one strike price and buy a call option at a lower price to reduce the risk
of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or sell
a specific amount of currency at a future date or date range at a specific
price. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. Unlike futures contracts, forward
contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts which are traded only on exchanges regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction for
a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the specific
investments.
The Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security
values caused by other factors. The Fund could also hedge the position by
selling another currency expected to perform similarly to the currency in
which the Fund's investment is denominated. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost,
yield, or efficiency, but generally would not hedge currency exposure as
effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange that one can achieve at some
future point in time. Additionally, these techniques tend to minimize the
risk of loss due to a decline in the value of the hedged currency and to limit
any potential gain that might result from the increase in value of such
currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known
as a "cross-hedge," will tend to reduce or eliminate exposure to the currency
that is sold, and increase exposure to the currency that is purchased. Cross-
hedges protect against losses resulting from a decline in the hedged currency,
but will cause the Fund to assume the risk of fluctuations in the value of the
currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
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It is difficult to forecast with precision the market value of certain assets
at the expiration or maturity of a forward or futures contract. Accordingly,
the Fund may have to purchase additional foreign currency on the spot market
if the market value of a security it is hedging is less than the amount of
foreign currency it is obligated to deliver. Conversely, the Fund may have to
sell on the spot market some of the foreign currency it received upon the sale
of a security if the market value of such security exceeds the amount of
foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the
cash flows are based on agreed-upon prices, rates, indices, etc. The nominal
amount on which the cash flows are calculated is called the notional amount.
Swaps are individually negotiated and structured to include exposure to a
variety of different types of investments or market factors, such as interest
rates, foreign currency rates, mortgage securities, corporate borrowing rates,
security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund. If a swap agreement calls for payments by the Fund, the Fund
must be prepared to make such payments when due. In addition, if the counter-
party's creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the
prior written consent of the other party. The Fund may be able to eliminate
its exposure under a swap agreement either by assignment or by other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party. If the counter-party is unable to
meet its obligations under the contract, declares bankruptcy, defaults or
becomes insolvent, the Fund may not be able to recover the money it expected
to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's gains
or losses. In order to reduce the risk associated with leveraging, the Fund
will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the Fund enters into a swap agreement on
a net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of the Fund's accrued obligations under the swap agreement
over the accrued amount the Fund is entitled to receive under the agreement.
If the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in return
for a specified interest rate. By entering into an equity index swap, for
example, the index receiver can gain exposure to stocks making up the index of
securities without actually purchasing those stocks. Equity index swaps
involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the return on the interest
rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of interest
rate cash flow on specified dates in the future. Some of the different types
of interest rate swaps are "fixed-for floating rate swaps," "termed basis
swaps" and "index amortizing swaps." Fixed-for floating rate swap involve the
exchange of fixed interest rate cash flows for floating rate cash flows.
Termed basis swaps entail cash flows to both parties based on floating
interest rates, where the interest rate indices are different. Index
amortizing swaps are typically fixed-for floating swaps where the notional
amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money by
investing in an interest rate swap if interest rates change adversely. For
example, if the Fund enters into a swap where it agrees to exchange a floating
rate of interest for a fixed rate of interest, the Fund may have to pay more
money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for a
floating rate of interest, the Fund may receive less money than it has agreed
to pay.
Currency Swaps -- A currency swap is an agreement between two parties in which
one party agrees to make interest rate payments in one currency and the other
promises to make interest rate payments in another currency. The Fund may
enter into a currency swap when it has one currency and desires a different
currency. Typically the interest rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a
floating rate of interest. Unlike an interest rate swap, however, the
principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. Changes in foreign exchange rates and changes in
interest rates, as described above may negatively affect currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level. The seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify the Fund's gains or losses,
causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities the
Fund holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on the
degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities the Fund is hedging may not move in
the same amount, or even in the same direction as the hedging instrument. The
adviser will try to minimize this risk by investing only in those contracts
whose behavior it expects to resemble the assets the Fund it is trying to
hedge. However, if the Fund's prediction of interest and currency rates,
market value, volatility or other economic factors is incorrect, the Fund may
lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. Current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. Differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on
a broad market index. Since narrower indices are made up of a smaller number
of
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securities, they are more susceptible to rapid and extreme price fluctuations
because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the Fund's investments precisely over time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange the
contract was initially traded. Although the Fund intends to purchase options
and futures only where there appears to be an active market, there is no
guarantee that such a liquid market will exist. If there is no secondary
market for the contract, or the market is illiquid, the Fund may not be able
to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends, the
Fund may lose money by investing in derivatives. For example, if the Fund were
to write a call option based on its adviser's expectation that the price of
the underlying security would fall, but the price were to rise instead, the
Fund could be required to sell the security upon exercise at a price below the
current market price. Similarly, if the Fund were to write a put option based
on the adviser's expectation that the price of the underlying security would
rise, but the price were to fall instead, the Fund could be required to
purchase the security upon exercise at a price higher than the current market
price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum
amount that the price of a derivative may vary from the settlement price of
that derivative at the end of trading on the previous day. Once the price of
a derivative reaches this value, the Fund may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during
a given day and does not limit potential gains or losses. Derivative prices
have occasionally moved to the daily limit for several consecutive trading
days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to the Fund and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if a
broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and the
liquidation of the company. However, in all other respects, preferred stocks
are subordinated to the liabilities of the issuer. Unlike common stocks,
preferred stocks are generally not entitled to vote on corporate matters.
Types of preferred stocks include adjustable-rate preferred stock, fixed
dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the issuer's
common stock at the Fund's option during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). A
convertible security is generally a fixed income security that is senior to
common stock in an issuer's capital structure, but is usually subordinated to
similar non-convertible securities. In exchange for the conversion feature,
many corporations will pay a lower rate of interest on convertible securities
than debt securities of the same corporation. In general, the market value of
a convertible security is at least the higher of its "investment value" (i.e.,
its value as a fixed income security) or its "conversion value" (i.e., its
value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities. In addition, they are also influenced by the market value of the
security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying common
stock declines.
A synthetic convertible security is a combination investment in which the Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. Government securities and (ii) call options or warrants
on the common stock of the same or different issuer with some or all of the
anticipated interest income from the associated debt obligation that is earned
over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. A synthetic convertible position has
similar investment characteristics, but may differ with respect to credit
quality, time to maturity, trading characteristics, and other factors. Because
the Fund will create synthetic convertible positions only out of high grade
fixed income securities, the credit rating associated with the Fund's
synthetic convertible investments is generally expected to be higher than that
of the average convertible security, many of which are rated below high grade.
However, because the options used to create synthetic convertible positions
will generally have expirations between one month and three years of the time
of purchase, the maturity of these positions will generally be shorter than
average for convertible securities. Since the option component of a
convertible security or synthetic convertible position is a wasting asset (in
the sense of losing "time value" as maturity approaches), a synthetic
convertible position may lose such value more rapidly than a convertible
security of longer maturity; however, the gain in option value due to
appreciation of the underlying stock may exceed such time value loss, the
market price of the option component generally reflects these differences in
maturities, and the Adviser and applicable sub-adviser take such differences
into account when evaluating such positions. When a synthetic convertible
position "matures" because of the expiration of the associated option, the
Fund may extend the maturity by investing in a new option with longer maturity
on the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that give
the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price that
is usually higher than the market price at the time the warrant is issued.
Corporations often issue warrants to make the accompanying debt security more
attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the
value of the underlying securities, and they cease to have value if they are
not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the
investment as compared with investing the same amount in the underlying
securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits of
owning a company, such investors must accept the risks of ownership. Unlike
bondholders, who have preference to a company's earnings and cash flow,
preferred stockholders, followed by common stockholders in order of priority,
are entitled only to the residual amount after a company meets its other
obligations. For this reason, the value of a company's stock will usually
react more strongly to
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actual or perceived changes in the company's financial condition or prospects
than its debt obligations. Stockholders of a company that fares poorly can
lose money.
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
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elsewhere. A custodian bank or similar financial institution in the issuer's
home country holds the underlying shares in trust. The depository bank may not
have physical custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, ADRs
continue to be subject to many of the risks associated with investing directly
in foreign securities. EDRs are similar to ADRs, except that they are
typically issued by European Banks or trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank for
Reconstruction and Development (World Bank) and the International Finance
Corporation would consider to be an emerging or developing country. Typically,
emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and traded
on their stock exchanges through investment funds that they have specifically
authorized. Investments in these investment funds are subject to the
provisions of the 1940 Act. Shareholders of a UAM Fund that invests in such
investment funds will bear not only their proportionate share of the expenses
of the UAM Fund (including operating expenses and the fees of the adviser),
but also will 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
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. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or
control foreign investments in its securities markets. These restrictions
could limit the Fund's ability to invest in a particular country or make it
very expensive for the Fund to invest in that country. Some countries
require prior governmental approval, limit the types or amount of
securities or companies in which a foreigner can invest. Other countries
may restrict the ability of foreign investors to repatriate their
investment income and capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign companies 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 more volatile and not as developed or efficient as 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 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;
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. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income the Fund receives from its investments. The Fund 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 Fund also anticipates pricing, trading, settling
and valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, the Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by the Fund. Like other shareholders, the Fund would pay
its proportionate share of those fees. Consequently, shareholders of the Fund
would pay not only the management fees of the Fund, but also the management
fees of the investment company in which the Fund invests. The Fund may invest
up to 10% of its total assets in the securities of other investment companies,
but may not invest more than 5% of its total assets in the securities of any
one investment company or acquire more than 3% of the outstanding securities
of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of 5%
of its total assets or $2.5 million in the UAM DSI Money Market Fund, provided
that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the assets of
the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for sale
to the general public 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 the Fund's
investment limitations. The price realized from the sales of these securities
could be more or less than those originally paid by the Fund or less than what
may be considered the fair value of such securities.
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SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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 Fund
investing any cash collateral in interest bearing short-term investments);
and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements. When
the Fund lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, the
Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
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Description of Short Sales
Selling a security short involves an investor sale of a security it does not
own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the security
it borrowed by purchasing it at the market price at or before the time of
replacement. Until it replaces the security, the investor repays the person
that lent it the security for any interest or dividends that may have accrued
during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. Likewise, the Fund can profit if the price of the security
declines between those dates.
To borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The Fund will incur transaction
costs in effecting short sales. The Fund's gains and losses will be decreased
or increased, as the case may be, by the amount of the premium, dividends,
interest, or expenses the Fund may be required to pay in connection with a
short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed out.
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Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no extra
cost. The Fund will incur transaction costs to open, maintain and close short
sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net assets.
. The market value of the securities of any single issuer that have been sold
short by the Fund would exceed the two percent (2%) of the value of the
Fund's net assets.
. Such securities would constitute more than two percent (2%) of any class of
the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an amount
of cash or liquid securities equal to the difference between (a) the market
value of the securities sold short at the time they were sold short and (b)
any cash or U.S. Government securities the Fund is required to deposit with
the broker in connection with the short sale (not including the proceeds from
the short sale). The segregated assets are marked to market daily in an
attempt to ensure that the amount deposited in the segregated account plus the
amount deposited with the broker is at least equal to the market value of the
securities at the time they were sold short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction,
the Fund 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 Fund has
committed to purchase before the securities are delivered, although the Fund
may earn income on securities it has in a segregated account. The Fund will
only enter into these types of transactions with the intention of actually
acquiring the securities, but may sell them before the settlement date.
The Fund 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 Fund 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 Fund may miss the
opportunity to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date, these
risks are in addition to the risks associated with its other investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of the Fund
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
23
<PAGE>
determine investment limitation percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of its
acquisition of such security or other asset. Accordingly, the Fund will not
consider changes in values, net assets or other circumstances when determining
whether the investment complies with its investment limitations. The Fund
will not:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the of the
U.S. government or any if its agencies or instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer.
. Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government, and its agencies when a portfolio
adopts a temporary defensive position.
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 331/3% of the Fund's
gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships, although
it may purchase and sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into
repurchase transactions.
. Make loans except (i) by purchasing bonds, debentures or other similar
obligations which are publicly distributed (including repurchase agreements
provided however, that repurchase agreements maturing in more than seven
days, together with securities which are not readily marketable, will not
exceed 15% of the Fund's total assets) and (ii) by lending its portfolio
securities to banks, brokers, dealers and other financial institutions so
long as such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder.
Management of the Company
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events per
year.
In addition, the Company reimburses each Independent Director for travel and
other expenses incurred while attending board meetings. The $3,000 meeting
fee and expense reimbursements are aggregated for all of the Directors and
allocated proportionately among all Funds in the UAM Funds Complex. The
Company does not pay its Interested Directors or officers for their services
as Directors or officers.
24
<PAGE>
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940 Act.
Mr. English 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 Company does not believe that the
relationship is a material business relationship, and, therefore, does not
consider him to be an interested Board member. If these circumstances change,
the Board will determine whether any action is required to change the
composition of the Board.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH 03226 Company, Inc. (investment management). From 1988 to
1/26/29 1993, Mr. Bennett was President of Bennett Management
Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN 46290 since March 2000. From June 1998 to March 2000 he
4/21/42 was Executive Vice President and Chief Administrative
Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
----------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr.
English serves on the Board of each Company in the
UAM Funds Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
OFFICERS
The following table lists the officers of the Company and provides information
regarding their present positions, date of birth, address and their principal
occupations during the past five years. The Company's officers are paid by
UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Name, Address, Position
Date of Birth with Company Principal Occupations During the Past 5 years
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and Chairman
-----------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
-----------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
-----------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of
Signature Financial Group Europe, Ltd. (financial services) from 1995 to 2000;
Secretary of the Citigroup Family of Mutual Funds (mutual funds) from 1996 to
2000; Secretary of the 59 Wall Street Family of Mutual Funds (mutual funds)
from 1996 to 2000.
-----------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
-----------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name, Address, Position Principal Occupations During the Past 5 years
Date of Birth with Company
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of record
or beneficially 5% or more of the shares of the Fund:
Name and Address of Shareholder Percentage of Shares Owned
----------------------------------------------------------------------------
Charles Schwab & Co., Inc. 36.24%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
----------------------------------------------------------------------------
Pell Rudman Trust Company N.A. 24.07%
100 Federal Street FL 37
Boston, MA 02110-1802
----------------------------------------------------------------------------
United Asset Management 9.40%
1 International Place
Boston, MA 02110-2602
----------------------------------------------------------------------------
Fox & Co. 9.37%
P.O. Box 976
New York, NY 10268-0976
----------------------------------------------------------------------------
Southtrust Bank NA TTEE 8.51%
FBO Goodwin Investments LP
PO Box 830804
Birmingham, AL 35283-0804
----------------------------------------------------------------------------
Hunter & Co. 5.83%
FBO William S. Edgerly
C/o State Street Bank & Trust
P.O. Box 9242
Boston, MA 02209-9242
----------------------------------------------------------------------------
Any shareholder listed above as owning 25% or more of the outstanding shares
of a portfolio may be presumed to "control" (as that term is defined in the
1940 Act) the portfolio. Shareholders controlling the portfolio could have the
ability to vote a majority of the shares of the portfolio on any matter
requiring the approval of shareholders of the portfolio. As of August 21,
2000, the directors and officers of the Company owned less than 1% of the
outstanding shares of the Fund.
27
<PAGE>
Investment Advisory and Other Services
INVESTMENT ADVISER
Pell Rudman Trust Company, N.A., a nationally chartered trust company located
at 100 Federal Street, Boston, Massachusetts 02110, is the investment adviser
to the Fund. The adviser manages and supervises the investment of the Fund's
assets on a discretionary basis. The adviser, an affiliate of United Asset
Management Corporation, has provided comprehensive and integrated financial
services to individuals and selected institutional clients since 1980.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated in
Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to retain
control over their investment advisory decisions is necessary to allow them to
continue to provide investment management services that are intended to meet
the particular needs of their respective clients. Accordingly, after
acquisition by UAM, UAM Affiliated Firms continue to operate under their own
firm name, with their own leadership and individual investment philosophy and
approach. Each UAM Affiliated Firm manages its own business independently on a
day-to-day basis. Investment strategies employed and securities selected by
UAM Affiliated Firms are separately chosen by each of them. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment program of
the Fund; and
. Determines what portion of the Fund's assets will be invested in securities
and what portion will consist of cash.
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 Board Members who are not parties to the Investment
Advisory Agreement or interested persons of any such party; and
. By a majority of the Board Members or by a majority of the shareholders of
the Fund.
28
<PAGE>
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of Board
Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately terminate
if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual rate
of 1.00% of its average daily net assets. Due to the effect of the fee
waivers by the adviser, the actual percentage of average net assets that the
Fund pays in any given year may be different from the rate set for the in its
contract with the adviser. For the last two fiscal years, the Fund paid the
following in advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/00 $0 $113,575 $113,575
---------------------------------------------------------------------------------------------------------------------------
4/30/99 $0 $ 16,812 $ 16,812
</TABLE>
DISTRIBUTOR
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any particular
amount of shares. UAMFDI, an affiliate of UAM, is located at 211 Congress
Street, Boston, Massachusetts 02110. UAMFDI receives no compensation for its
services as distributor of the Institutional Class Shares.
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 services performed with respect to the Company or a fund. The person
making such payments may do so out of its revenues, its profits or any other
source available to it. Such servicing arrangements, when in effect, are made
generally available to all qualified service providers. The adviser may also
compensate its affiliated companies for referring investors to the Fund.
ADMINISTRATIVE SERVICES
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees the
provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of its
services under the Fund Administration Agreement. UAMFSI may, at its own
expense, employ other people to assist it in performing its duties under the
Fund Administration Agreement. Such people may be officers and employees who
are employed by both UAMFSI and the Company. UAMFSI will pay such people for
such employment. The Company will not incur any obligations with respect to
such people. Other expenses incurred in the operation of the Company will be
borne by the Company or other parties, including:
29
<PAGE>
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of each portfolio of the Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if the
Board specifically approves such continuance every year. The Board or UAMFSI
may terminate the Fund Administration Agreement, without penalty, on not less
than ninety (90) days' written notice. The Fund Administration Agreement
automatically terminates upon its assignment by UAMFSI without the prior
written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services, which
UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM Funds
Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as follows:
. $10,500 for the first operational class; and
30
<PAGE>
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services as
sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last two fiscal years the Fund paid the following in administration
fees:
Fiscal Year End Total Administration Fee
-------------------------------------------------------------------------
4/30/00 $92,612
-------------------------------------------------------------------------
4/30/99 $13,726
-------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
The Company, its distributor and its investment advisers have adopted a code
of ethics under Rule 17j-1 of the 1940 Act that permits personnel subject to
their particular code of ethics to invest in securities, including securities
that may be purchased or held by the Fund.
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
The Investment Advisory Agreement authorizes the adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the Fund. The Investment Advisory Agreement also directs the adviser to
use its best efforts to obtain the best execution with respect to all
transactions for the Fund. The adviser may select brokers based on research,
statistical and pricing services they provide to the adviser. Information and
research provided by a broker will be in addition to, and not instead of, the
services the adviser is required to perform under the Investment Advisory
Agreement. In so doing, the Fund may pay higher commission rates than the
lowest rate available when the adviser believes it is reasonable to do so in
light of the value of the research, statistical, and pricing services provided
by the broker effecting the transaction. For the fiscal year ended April 30,
2000, neither the Fund nor the adviser directed and of the portfolio brokerage
transactions to a broker because of research services provided.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the purchase
of Company shares for their clients.
SIMULTANEOUS TRANSACTIONS
The adviser makes investment decisions for the Fund independently of decisions
made for its other clients. When a security is suitable for the investment
objective of more than one client, it may be prudent for the adviser to engage
in a
31
<PAGE>
simultaneous transaction, that is, buy or sell the same security for more
than one client. The adviser strives to allocate such transactions among its
clients, including the Fund, in a fair and reasonable manner. Although there
is no specified formula for allocating such transactions, the Company's Board
periodically reviews the various allocation methods used by the adviser.
BROKERAGE COMMISSIONS
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect a
dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from
dealers serving as market makers will similarly include the dealer's mark up
or reflect a dealer's mark down. When the Fund executes transactions in the
over-the-counter market, it will deal with primary market makers unless prices
that are more favorable are otherwise obtainable.
Commissions Paid
For the last two fiscal years, the Fund has paid the following in brokerage
commissions.
Fiscal Year End Brokerage Commissions
----------------------------------------------------------------------
4/30/00 $22,206
----------------------------------------------------------------------
4/30/99 $ 8,855
Capital Stock and Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed its
name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company and the Fund
is diversified. This means that with respect to 75% of its total assets, the
Fund may not invest more than 5% of its total assets in the securities of any
one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to issue
an unlimited number of shares of beneficial interest, without par value. The
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the Company
are fully paid and non-assessable, and have no pre-emptive rights or
preference as to conversion, exchange, dividends, retirement or other
features. The shares
32
<PAGE>
of the Company have non-cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Board members can
elect 100% of the Board if they choose to do so. On each matter submitted to a
vote of the shareholders, a shareholder is entitled to one vote for each full
share held (and a fractional vote for each fractional share held), then
standing in his name on the books of a portfolio. Shares of all classes will
vote together as a single class except when otherwise required by law or as
determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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 portfolio. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
The Company will not hold annual meetings except when required to by the 1940
Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. Not all of the portfolios issue all of the classes. The
three classes represent interests in the same assets of a portfolio and,
except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder servicing and
the distribution of such shares pursuant to a distribution plan or other
12b-1 plan;
. Institutional Service Shares bear certain expenses related to shareholder
servicing and the distribution of such shares and have exclusive voting
rights with respect to matters relating to such distribution expenditures;
and
. Advisor Shares bear certain expenses related to shareholder servicing and
the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date). Shareholders
may change their dividend and distributions option by writing to the Fund at
least three days before the record date for income dividend or capital gain
distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
33
<PAGE>
Federal Taxes
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code, and to distribute out its income to
shareholders each year so that it generally will be relieved of federal income
and excise taxes. If the Fund were to fail to make sufficient distributions in
a year, it would be subject to corporate income taxes and/or excise taxes. In
addition, if the shortfall were large enough, the Fund could be disqualified
as a regulated investment company. If the Fund were to fail to so qualify: (1)
it would be taxed at regular corporate rates without any deduction for
distributions to shareholder; and (2) its shareholders would be taxed as if
they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. Moreover, if the Fund were to
fail to make sufficient distributions in a year, the Fund would be subject to
corporate income taxes and/or excise taxes in respect of the shortfall or, if
the shortfall is large enough, the Fund could be disqualified as a regulated
investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year period
ending October 31 of such calendar year and 100% of any such amounts that were
not distributed in the prior year. The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December
31 of such year if such dividends are actually paid during January of the
following year.
As of April 30, 2000, the Fund has no capital loss carryovers.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the Fund,
plus cash and other assets plus income accrued but not yet received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00 p.m.
The NYSE is closed on the following days: New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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
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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 the U.S. dollar 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 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 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 Fund calculates
its NAV on the following business day. Service Agents are responsible to their
customers and the Company for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
Shareholders can buy full and fractional (calculated to three decimal places)
shares of the Fund. The Company will not issue certificates for fractional
shares and will only issue certificates for whole shares upon the written
request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans or
under circumstances, where certain economies can be achieved in sales of the
Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares of
the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it Assets"
at the next determination of net asset value after acceptance. The Company
will issue shares of the Fund at the NAV of the Fund determined as of the same
time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-kind
purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and that
there are no restrictions on their resale imposed by the 1933 Act or
otherwise;
. All dividends, interest, subscription, or other rights pertaining to such
securities become the property of the Fund and are delivered to the Fund by
the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all securities
of the same issuer held by the Fund cannot exceed 5% of its net assets.
This condition does not apply to U.S. government securities.
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<PAGE>
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of shares or
dollar amount the shareholder wishes to redeem signed by all registered
owners of the shares in the exact names in which they are registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts, guardianships,
custodianships, corporations, pension and profit sharing plans and other
organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to receive
redemption proceeds. To change an account in this manner, you must submit a
written request signed by each shareholder, with each signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable for
any losses if they fail to do so. These procedures include requiring the
investor to provide certain personal identification at the time an account is
opened and before effecting each transaction requested by telephone. In
addition, all telephone transaction requests will be recorded and investors
may be required to provide additional telecopied written instructions of such
transaction requests. The Company or UAMSSC may be liable for any losses due
to unauthorized or fraudulent telephone instructions if the Company or UAMSSC
does not employ the procedures described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests of
remaining shareholders of the Fund to make payment wholly or partly in cash,
the Fund may pay redemption proceeds in whole or in part by a distribution in-
kind of liquid securities held by the Fund in lieu of cash in conformity with
applicable rules of the SEC. Investors may incur brokerage charges on the sale
of securities received in payment of redemptions.
The Company 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 Board
believes that economic or market conditions exist which would make such a
practice detrimental to the best interests of the Fund. If the Fund pays
redemption
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<PAGE>
proceeds with securities instead of cash, it will value such securities as set
forth under "How the Company Values its Assets." A redeeming shareholder would
normally incur brokerage expenses if these securities were converted to cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should specify
the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your account,
the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than the
registered address; or
. Share transfer requests.
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. You can get a complete definition of eligible guarantor
institutions by calling 1-877-826-5465. Broker-dealers guaranteeing
signatures must be a member of a clearing corporation or maintain net capital
of at least $100,000. Credit unions must be authorized to issue signature
guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will pay
your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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
Fund to dispose of securities owned by it, or to fairly determine the value
of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do not
charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible for
the authenticity of the exchange instructions received by telephone. The
Board may restrict the exchange privilege at any time. Such instructions may
include limiting the amount or frequency of exchanges and may be for the
purpose of assuring such exchanges do not disadvantage other mutual funds in
the UAM Funds Complex and their shareholders.
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<PAGE>
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the account
and number of shares you wish to transfer. All registered owners should sign
the request and all stock certificates, if any, which are subject to the
transfer. The signature on the letter of request, the stock certificate or any
stock power must be guaranteed in the same manner as described under
"Signature Guarantees." As in the case of redemptions, the written request
must be received in good order before any transfer can be made.
Performance Calculations
The Fund 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 Fund calculates its current yield
and average annual total return information according to the methods required
by the SEC.
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
or aggregate total return reflects actual performance over a stated period. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since Adviser Class Shares and
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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000.
One Year Five Years Since Inception Inception Date
---------------------------------------------------------------------------
49.49% N/A 48.24% 9/10/98
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all mutual funds. As this differs
from other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
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<PAGE>
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 Adviser Class Shares and 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 Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in this SAI. This information may also be included in sales
literature and advertising.
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements regarding the Company or the Fund
may discuss various measures of performance as reported by various financial
publications. Advertisements may also compare performance (as calculated
above) to performance as reported by other investments, indices and averages.
Please see "Comparative Benchmarks" for publications, indices and averages
that may be used.
In assessing such comparisons of performance, an investor should keep in mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its performance; and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
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<PAGE>
Each of the above-referenced documents is incorporated by reference into this
SAI. However, no other parts of the Fund's Annual Report is incorporated by
reference herein. Shareholders may get copies of the Fund's Annual Report
free of charge by calling the UAM Funds at the telephone number appearing on
the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The Big
Board."
Fund refers to the Pell Rudman Mid-Cap Growth Portfolio, which is a series of
the Company.
SEC is the Securities and Exchange Commission. The SEC is the federal agency
that administers most of the federal securities laws in the United States. In
particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.
SEI is SEI Investments Mutual Funds Services, the Company's sub-administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
Bond Ratings
MOODY'S INVESTORS SERVICE, INC.
--------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
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<PAGE>
aa An issue that 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 that is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classification, earnings and
asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
caa An issue that is rated "caa" if of poor standing. Such issues may
be in default or there may be other elements of danger with
respect to principal or interest.
ca An issue that is rated "ca" is speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
plus(+) or Moody's applies numerical modifiers 1, 2, and 3 in each rating
minus(-) classification: the modifier 1indicates 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 that 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 that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than the Aaa
securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds that 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.
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<PAGE>
Ba Bonds that 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 that 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 that 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 that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals) Bonds
for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating experience, (c)
rentals that begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior
ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
. Leading market positions in well-established industries.
. Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
. Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
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<PAGE>
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Ratings Services
--------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations
are typically rated lower than senior obligations, to reflect the lower
priority in bankruptcy, as noted above. Accordingly, in the case of junior
debt, the rating may not conform exactly with the category definition.
AAA An obligation rated 'AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the
capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
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<PAGE>
CCC An obligation rated 'CCC' is currently vulnerable to non-payment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C' is
CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been
filed or similar action taken, but payments on this obligation
are being continued. A 'C' will also be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.
D An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the
credit rating. Examples include: obligation linked or indexed to
equities, currencies, or commodities; obligations exposed to
severe prepayment risk - such as interest-only or principal-only
mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular obligation as a
matter of policy. Debt obligations of issues outside the United
States and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into account
currency exchange and related uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
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<PAGE>
D A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such payments
will be made during such grace period. The 'D' rating also will
be used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign
currency issuer ratings are also distinguished from local currency issuer
ratings to identity those instances where sovereign risks make them different
for the same issuer.
FITCH RATINGS
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity
for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating
indicates that default of some kind appears probable. `C' ratings
signal imminent default.
45
<PAGE>
DDD,DD,D Default. The ratings of obligations in this category are
based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative and
cannot be estimated with any precision, the following serve
as general guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of outstanding
amounts and accrued interest. "D" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest
recovery potential, i.e., below 50%. Entities rated in this
category have defaulted on some or all of their obligations.
Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or
without a formal reorganization process. Entities rated "DD"
and "D" are generally undergoing a formal reorganization or
liquidation process; those rated "DD" are likely to satisfy
a higher portion of their outstanding obligations, while
entities rated "D" have a poor prospect for repaying all
obligations.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for
timely payment of financial commitments; may have an added
"+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety
is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-
investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity
for meeting financial commitments that is highly uncertain
and 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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for a potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
Comparative Benchmarks
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.
46
<PAGE>
Donoghue's Money Fund Average -- is an average of all major money market fund
yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on the
New York Stock Exchange. It has been a widely followed indicator of the stock
market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New York
Times, Personal Investor, The Wall Street Journal and Weisenberger Investment
Companies Service -- publications that rate fund performance over specified
time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-weighted
index maintained by the International Finance Corporation. This index
consists of over 890 companies in 26 emerging equity markets, and is designed
to measure more precisely the returns 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 Brothers Indices:
------------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes
fixed rate issues of investment grade (BBB) or higher, with maturities of at
least one year and outstanding par values of at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly issued,
fixed-rate, nonconvertible investment grade domestic corporate debt. Also
included are yankee bonds, which are dollar-denominated SEC registered public,
nonconvertible debt issued or guaranteed by foreign sovereign governments,
municipalities, or governmental agencies, or international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued
debt of U.S. government agencies and quasi-federal corporations, and corporate
debt guaranteed by the U.S. government). In addition to the aggregate index,
sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of
at least one year and outstanding par value of at least $150 million. Any
security downgraded during the month is held in the index until month end and
then removed. All returns are market value weighted inclusive of accrued
income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity and
an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate Bond
Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
47
<PAGE>
The Lipper Indices are equally weighted indices for typically the 30 largest
mutual funds within their respective portfolio investment objectives. The
indices are currently grouped in six categories: U.S. Diversified Equity with
12 indices; Equity with 27 indices, Taxable Fixed-Income with 20 indices, Tax-
Exempt Fixed-Income with 28 indices, Closed-End Funds with 16 indices, and
Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of Lipper,
Inc.'s classifications for general equity funds' investment objectives were
changed while other equity objectives remain unchanged. Changing investment
objectives include Capital Appreciation Funds, Growth Funds, Mid-Cap Funds,
Small-Cap Funds, Micro-Cap Funds, Growth & Income Funds, and Equity Income
Funds. Unchanged investment objectives include Sector Equity Funds, World
Equity Funds, Mixed Equity Funds, and certain other funds including all Fixed
Income Funds and S&P(R) Index Funds.
Criteria for the Lipper Indices are: 1) component funds are largest in group;
2) number of component funds remains the same (30); 3) component funds are
defined annually; 4) can be linked historically; and 5) are used as a
benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers, liquidations,
etc.; and 4) will be inaccurate if historical averages are linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt
issues (BBB or higher) with dollar-weighted average maturities of one to five
years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing 60%
or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by prospectus
or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to
grow significantly faster than the earnings of the stocks represented in the
major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions, exclusive
of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an unmanaged
index composed of U.S. treasuries, agencies and corporates with maturities
from 1 to 4.99 years. Corporates are investment grade only (BBB or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market value-
weighted averages of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
48
<PAGE>
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.
Nikkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
----------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
Russell 1000(R) Index - an unmanaged index which measures the performance of
the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of the
total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of the
total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance of
the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Top 200(TM) Growth Index - measures the performance of those Russell
Top 200 companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.
49
<PAGE>
Russell 2500(TM) Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2500(TM) Value Index - measures the performance of those Russell 2500
companies with lower price-to-book ratios and lower forecasted growth values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of $1
million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and does
not reflect any transaction costs. Direct investment in the index is not
possible.
Standard & Poor's U.S. Indices:
-------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital International
launched a new global industry classification standard consisting of 10
economic sectors aggregated from 23 industry groups, 59 industries, and 123
sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their respective indices.
Features of the new classification include 10 economic sectors, rather than
the 11 S&P currently uses. Sector and industry gradations are less severe.
Rather than jumping from 11 sectors to 115 industries under the former S&P
system, the new system progresses from 10 sectors through 23 industry groups,
50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its market
value. It is used by over 95% of U.S. managers and pension plan sponsors. More
than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The
index is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred
benchmark for both active and passive management due to its low turnover and
greater liquidity. Approximately $8 billion is indexed to the S&P SmallCap
600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate Fund. The Index covers over 80% of the
securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including 23
electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
50
<PAGE>
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains 200
constituents, and the S&P Euro Index, a subset of Euro Plus, contains 160
constituents. Both indices provide geographic and economic diversity over 11
industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed as
the new Canadian large cap benchmark and will ultimately replace the Toronto
35 and the TSE 100.
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each major
economic sector of major Asia-Pacific equity markets. Seven countries --
Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, and Taiwan --
are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and Chile
are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities selected
from each of the new S&P sectors. The S&P UK 150 is designed to be broad
enough to provide representation of the market, but narrow enough to ensure
liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged index
comprised of the smallest stocks (less than $1 billion market capitalization)
of the Extended Market Index, of both developed and emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill issues.
Savings and Loan Historical Interest Rates -- as published by the U.S. Savings
and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and inflation.
Target Large Company Value Index - an index comprised of large companies with
market capitalizations currently extending down to approximately $1.9 billion
that are monitored using a variety of relative value criteria in order to
capture the most attractive value opportunities available. A high quality
profile is required and companies undergoing adverse financial pressures are
eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all treasury
bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value Line
Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted index
of publicly traded real estate securities, including real estate investment
trusts, real estate operating companies and partnerships. The index is used
by the institutional investment community as a broad measure of the
performance of public real estate equity for asset allocation and performance
comparison.
51
<PAGE>
Wilshire REIT Index - includes 112 real estate investment trusts (REITs) but
excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment of
dividends, except as otherwise stated.
52
<PAGE>
UAM Funds
Funds for the Informed Investorsm
PIC Twenty Portfolio
Institutional Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
What is the Fund's Objective?................................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................3
What are the Fund's Fees and Expenses?.......................................3
Investing with the UAM Funds..................................................5
Buying Shares................................................................5
Redeeming Shares.............................................................6
Exchanging Shares............................................................8
Transaction Policies.........................................................8
Account Policies............................................................10
Additional Information About the Fund........................................12
Other Investment Practices and Strategies...................................12
Investment Management.......................................................13
Shareholder Servicing Arrangements..........................................14
Financial Highlights.........................................................16
</TABLE>
<PAGE>
Fund Summary
WHAT IS THE FUND'S OBJECTIVE?
-------------------------------------------------------------------------------
The fund seeks long-term growth of capital. The fund may change its objec-
tive without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
In What Types of Securities does the Fund Invest?
Normally, the fund invests in approximately 20-30 stocks selected primar-
ily from the stocks contained within the S&P/BARRA Growth and Russell 1000
Growth Indices. The fund may also invest in companies contained within the
S&P/BARRA Value and Russell 1000 Value Indices. The fund primarily empha-
sizes large companies (i.e., companies with market capitalizations of $5
billion or greater at the time of purchase). 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 se-
curities, rights and warrants.
How Does the Adviser Select Securities for the Fund?
The adviser narrows the fund's investment universe of potential invest-
ments to develop a watch list of approximately 350 names by screening for:
. Large companies (i.e., companies with market capitalization of $5 bil-
lion or greater at the time of purchase);
. Companies that meet its revenue and earnings growth expectations (nor-
mally 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 charac-
teristics relative to the company's competitors/peers and that of the
market on which the security is primarily traded.
Through further research employing technical and fundamental screens, com-
pany contact and communication with other research firms, the adviser de-
velops a buy list of no more than 60 stocks. Using a "bottom-up" security
selection process (i.e., focusing on individual stocks rather than indus-
tries or sectors) the adviser searches for companies:
. Possessing at least one catalyst for growth, such as new products, ex-
ploiting demographic trends, proprietary products, gaining market
1
<PAGE>
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 Fund Management
Team, during which the team reviews individual security holdings and
weightings, proposed new purchases and sales, sector weights, and perfor-
mance 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 fund 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 experi-
ences 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-fall, 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 ad-
viser's investment criteria.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur
2
<PAGE>
because of factors that affect the securities markets generally, such as
adverse changes in economic conditions, the general outlook for corporate
earnings, interest rates or investor sentiment. 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 spe-
cific company, such as decisions made by its management. This risk is
greater for small and medium sized companies, which tend to be more vul-
nerable to adverse developments than larger companies.
Since the fund 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 the fund's shares to be more sensitive
to changes in the market value of a single issuer relative to diversified
mutual funds.
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The portfolio has not presented a bar chart or performance table because
it has been in existence for less than one year.
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
3
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
--------------------------------------------
<S> <C>
Management Fees 0.90%
--------------------------------------------
Other Expenses* 0.95%
--------------------------------------------
Total Annual Fund Operating Expenses 1.85%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.30%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addition, "Other Expenses" do not
take into account any expense offset arrangement the fund may have that
would reduce its custodian fee based on the amount of cash the fund
maintains with its custodian. This would also have the effect of reduc-
ing the fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$188 $582 $1,001 $2,169
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
PICTX 902556737 788
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
.Stop offering shares;
.Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting management
and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
.The fund name;
.The account number;
.The dollar amount or number of shares you wish to redeem;
.The account name(s); and
.The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder 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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an
8
<PAGE>
investment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
Account Policies
SMALL ACCOUNTS
-------------------------------------------------------------------------------
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
DISTRIBUTIONS
-------------------------------------------------------------------------------
Normally, the fund distributes its net investment income and its net capi-
tal gains at least once a year. The UAM Funds will automatically reinvest
dividends and distributions in additional shares of the fund, unless you
elect on your account application to receive them in cash.
FEDERAL TAXES
-------------------------------------------------------------------------------
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
12
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Provident Investment Counsel (PIC), located at 300 North Lake Avenue, Pas-
adena, California 91101, is the investment adviser to the fund. The ad-
viser manages and supervises the investment of the fund's assets on a dis-
cretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to a variety of
investors since 1951.
The fund has agreed to pay the adviser a management fee equal to 0.90% of
the fund's average net asset. In addition, the adviser has voluntarily
agreed to limit the total expenses of the fund to 1.30% of the fund's av-
erage net assets. To maintain this expense limit, the adviser may waive a
portion of its management fee and/or reimburse certain expenses of the
fund. The adviser intends to continue its expense limitation until further
notice, but may discontinue it at any time.
During its most recent fiscal year, the fund paid 0.35% of its average net
assets in advisory fees to the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
Adviser's Historical Performance
The adviser manages separate accounts that have the same investment objec-
tives as the portfolio. The adviser manages these accounts using tech-
niques and strategies substantially similar, though not always identical,
13
<PAGE>
to those used to manage the portfolio. A composite of the performance of
these separate accounts is listed below. The performance data for the man-
aged accounts does not reflect deductions for fees and expenses. All fees
and expenses of the separate accounts were less than the operating ex-
penses of the portfolio. If the performance of the managed accounts was
adjusted to reflect the fees and expenses of the portfolio, the compos-
ite's performance would have been lower.
The adviser calculated its performance using the standards of the Associa-
tion for Investment Management and Research. Had the adviser calculated
its performance using the SEC's methods, it results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the In-
vestment Company Act of 1940 and the Internal Revenue Code. If they were,
their returns might have been lower. The performance of these separate ac-
counts is not intended to predict or suggest the performance of the port-
folio.
<TABLE>
<CAPTION>
PIC Concentrated
Growth Equity
Returns for Periods Ended 6/30/00 Composite* S&P 500 Index
----------------------------------------------------------------------
<S> <C> <C>
Current quarter -7.55% -2.66%
----------------------------------------------------------------------
Year to date -2.71% -0.42%
----------------------------------------------------------------------
1 Year 22.42% 7.24%
----------------------------------------------------------------------
3-years (annualized) 30.36% 19.67%
----------------------------------------------------------------------
Since Inception (1/1/96) (annualized) 32.63% 23.03%
</TABLE>
Source: Provident Investment Counsel
* During the period shown (1/1/96-6/30/00) the adviser's average annual
management fee was 0.8357%. The adviser's composite has not been audit-
ed.
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
14
<PAGE>
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate for the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
15
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal period indicated. Certain
information contained in the table reflects the financial results for a
single share. The total return in the table represents the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at
1-877-826-5465.
<TABLE>
<CAPTION>
Period Ended April 30, 2000#
--------------------------------------
<S> <C>
Net Asset Value,
Beginning of Period $10.00
Income from Investment
Operations:
Net Investment Income (0.02)
Net Realized and
Unrealized Gain (Loss) (0.37)
Total From Investment
Operations (0.39)
Net Asset Value, End of
Period $9.61
Total Return+ (3.90)%++
Ratios and Supplemental
Data
Net Assets, End of
Period (Thousands) $31,309
Ratio of Expenses to
Average Net Assets 1.31%*
Ratio of Net Investment
Income to Average Net
Assets (0.57)%*
Portfolio Turnover Rate 80%
</TABLE>
# For the period from December 29, 1999 (commencement of operations),
through April 30, 2000.
* Annualized
++ Not annualized
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the period.
16
<PAGE>
PIC Twenty Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
PIC Twenty Portfolio
Institutional Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August 28,
2000, as supplemented from time to time. You may obtain the Fund's prospectus by
contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial Statements."
No other portions of the annual report are incorporated by reference.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Description of Permitted Investments...................................... 1
Borrowing.............................................................. 1
Debt Securities........................................................ 1
Derivatives............................................................ 7
Equity Securities...................................................... 15
Foreign Securities..................................................... 17
Investment Companies................................................... 21
Repurchase Agreements.................................................. 21
Restricted Securities.................................................. 21
Securities Lending..................................................... 22
Short Sales............................................................ 22
When Issued Transactions............................................... 23
Investment Policies of the Fund........................................... 23
Management of the Company................................................. 24
Board Members.......................................................... 25
Officers............................................................... 26
Principal Shareholders.................................................... 27
Investment Advisory and Other Services.................................... 28
Investment Adviser..................................................... 28
Distributor............................................................ 29
Shareholder Servicing Arrangements..................................... 29
Administrative Services................................................ 29
Custodian.............................................................. 31
Independent Accountants................................................ 31
Code of Ethics......................................................... 31
Brokerage Allocation and Other Practices.................................. 31
Selection of Brokers................................................... 31
Simultaneous Transactions.............................................. 32
Brokerage Commissions.................................................. 32
Capital Stock and Other Securities........................................ 32
Purchase, Redemption and Pricing of Shares................................ 34
Net Asset Value Per Share.............................................. 34
Purchase of Shares..................................................... 35
Redemption of Shares................................................... 36
Exchange Privilege..................................................... 38
Transfer Of Shares..................................................... 38
Performance Calculations.................................................. 38
Total Return........................................................... 38
Yield.................................................................. 39
Comparisons............................................................ 39
Financial Statements...................................................... 40
Glossary.................................................................. 40
Bond Ratings.............................................................. 41
Moody's Investors Service, Inc......................................... 41
Standard & Poor's Ratings Services..................................... 43
Fitch IBCA Ratings..................................................... 45
Comparative Benchmarks.................................................... 47
</TABLE>
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
BORROWING
--------------------------------------------------------------------------------
The Fund may not borrow money, except if permitted by its fundamental
investment objectives.:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 331/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone
for temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
DEBT SECURITIES
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Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
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While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
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FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
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Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the
security is of an investment quality comparable with other debt
securities that the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
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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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U.S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual Fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years -- the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
Derivatives
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Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for
this right, the Fund pays the current market price for the option (known as
the "option premium"). The Fund may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts")
or to benefit from a decline in the price of securities that it does not
own. The Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost
of purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. The Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. The Fund would ordinarily realize a gain if, during the
option period, the value of the underlying instrument exceeded the exercise
price plus the premium paid and related transaction costs. Otherwise, the
Fund would realize either no gain or a loss on the purchase of the call
option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. Similarly,
when the Fund writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. The Fund may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting
transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Fund may lose an amount of money equal to the difference between the value
of the security and the premium it received. Writing covered put options
may deprive the Fund of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, the Fund must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate,
foreign currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price ;
. A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
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Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
. Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of
the option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put
option). If the option is exercised, the parties will be subject to the
futures contracts. In addition, the writer of an option on a futures
contract is subject to initial and variation margin requirements on the
option position. Options on futures contracts are traded on the same
contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts.
If the price of the futures contract at expiration were below the exercise
price, the Fund would retain the option premium, which would offset, in
part, any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if the market price
declines, the Fund would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Fund could
write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to
the contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between
currency traders (usually large commercial banks) and their customers,
as opposed to futures contracts which are traded only on exchanges
regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the
specific investments.
The Fund may use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Fund could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the Fund's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges
may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend
to minimize the risk of loss due to a decline in the value of the hedged
currency and to limit any potential gain that might result from the
increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may
include shifting exposure from U.S. dollars to a foreign currency, or from
one foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause the Fund to assume
the risk of fluctuations in the value of the currency it purchases. Cross
hedging transactions also involve the risk of imperfect correlation between
changes in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain
assets at the expiration or maturity of a forward or futures contract.
Accordingly, the Fund may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less
than the amount of foreign currency it is obligated to deliver. Conversely,
the Fund may have to sell on the spot market some of the foreign currency
it received upon the sale of a security if the market value of such
security exceeds the amount of foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of
cash flows between two parties on specified dates (settlement dates), where
the cash flows are based on agreed-upon prices, rates, indices, etc. The
nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors, such as interest rates, foreign currency rates, mortgage
securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to
and from the Fund. If a swap agreement calls for payments by the Fund, the
Fund must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. The Fund may be able to
eliminate its exposure under a swap agreement either by assignment or by
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party. If the counter-party is
unable to meet its obligations under the contract, declares bankruptcy,
defaults or becomes insolvent, the Fund may not be able to recover the
money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging,
the Fund will cover its current obligations under swap agreements according
to guidelines established by the SEC. If the Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under
the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index
swap, for example, the index receiver can gain exposure to stocks making up
the index of securities without actually purchasing those stocks. Equity
index swaps involve not only the risk associated with investment in the
securities represented in the index, but also the risk that the performance
of such securities, including dividends, will not exceed the return on the
interest rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating
rate cash flows. Termed basis swaps entail cash flows to both parties based
on floating interest rates, where the interest rate indices are different.
Index amortizing swaps are typically fixed-for floating swaps where the
notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money
by investing in an interest rate swap if interest rates change adversely.
For example, if the Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the Fund may have
to pay more money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for
a floating rate of interest, the Fund may receive less money than it has
agreed to pay.
Currency Swaps -- A currency swap is an agreement between two parties in
which one party agrees to make interest rate payments in one currency and
the other promises to make interest rate payments in another currency. The
Fund may enter into a currency swap when it has one currency and desires a
different currency. Typically the interest rates that determine the
currency swap payments are fixed, although occasionally one or both parties
may pay a floating rate of interest. Unlike an interest rate swap, however,
the principal amounts are exchanged at the beginning of the contract and
returned at the end of the contract. Changes in foreign exchange rates and
changes in interest rates, as described above may negatively affect
currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance of the Fund than
if it had not entered into any derivatives transactions. Derivatives may
magnify the Fund's gains or losses, causing it to make or lose
substantially more than it invested.
When used for hedging purposes, increases in the value of the securities
the Fund holds or intends to acquire should offset any losses incurred with
a derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of
poor correlation, the price of the securities the Fund is hedging may not
move in the same amount, or even in the same direction as the hedging
instrument. The adviser will try to minimize this risk by investing only in
those contracts whose behavior it expects to resemble the assets the Fund
it is trying to hedge. However, if the Fund's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the Fund may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying
instruments, even if the characteristics of the underlying instruments are
very similar to the derivative. Listed below are some of the factors that
may cause such a divergence:
. Current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the
imposition of daily price fluctuation limits or trading of an
instrument stops; and
. Differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the participation
of speculators in such markets.
. Derivatives based upon a narrower index of securities, such as those of
a particular industry group, may present greater risk than derivatives
based on a broad market index. Since narrower indices are made up of a
smaller number of
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securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments precisely over
time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange
the contract was initially traded. Although the Fund intends to purchase
options and futures only where there appears to be an active market, there
is no guarantee that such a liquid market will exist. If there is no
secondary market for the contract, or the market is illiquid, the Fund may
not be able to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time
and price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of
an exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other occurrences may disrupt normal trading
activity; or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends,
the Fund may lose money by investing in derivatives. For example, if the
Fund were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if the Fund were to write
a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
Fund could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of
factors, including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can
change during a single trading day. Daily trading limits establish the
maximum amount that the price of a derivative may vary from the settlement
price of that derivative at the end of trading on the previous day. Once
the price of a derivative reaches this value, the Fund may not trade that
derivative at a price beyond that limit. The daily limit governs only price
movements during a given day and does not limit potential gains or losses.
Derivative prices have occasionally moved to the daily limit for several
consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a
derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative
may result in an immediate and substantial loss (as well as gain) to the
Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
Equity Securities
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and
the liquidation of the company. However, in all other respects, preferred
stocks are subordinated to the liabilities of the issuer. Unlike common
stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a
fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the Fund's option during a specified time period
(such as convertible preferred stocks, convertible debentures and
warrants). A convertible security is generally a fixed income security that
is senior to common stock in an issuer's capital structure, but is usually
subordinated to similar non-convertible securities. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation. In
general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is
more volatile during times of steady interest rates than other types of
debt securities. In addition, they are also influenced by the market value
of the security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying
common stock declines.
A synthetic convertible security is a combination investment in which the
Fund purchases both (i) high-grade cash equivalents or a high grade debt
obligation of an issuer or U.S. Government securities and (ii) call options
or warrants on the common stock of the same or different issuer with some
or all of the anticipated interest income from the associated debt
obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. A synthetic convertible
position has similar investment characteristics, but may differ with
respect to credit quality, time to maturity, trading characteristics, and
other factors. Because the Fund will create synthetic convertible positions
only out of high grade fixed income securities, the credit rating
associated with the Fund's synthetic convertible investments is generally
expected to be higher than that of the average convertible security, many
of which are rated below high grade. However, because the options used to
create synthetic convertible positions will generally have expirations
between one month and three years of the time of purchase, the maturity of
these positions will generally be shorter than average for convertible
securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing
"time value" as maturity approaches), a synthetic convertible position may
lose such value more rapidly than a convertible security of longer
maturity; however, the gain in option value due to appreciation of the
underlying stock may exceed such time value loss, the market price of the
option component generally reflects these differences in maturities, and
the Adviser and applicable sub-adviser take such differences into account
when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, the Fund may
extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that
give the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price
that is usually higher than the market price at the time the warrant is
issued. Corporations often issue warrants to make the accompanying debt
security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets
of the issuer. In addition, their value does not necessarily change with
the value of the underlying securities, and they cease to have value if
they are not exercised on or before their expiration date. Investing in
rights and warrants increases the potential profit or loss to be realized
from the investment as compared with investing the same amount in the
underlying securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits
of owning a company, such investors must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to
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actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made by
its management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to
the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
Investors in small and medium-sized companies typically take on greater
risk and price volatility than they would by investing in larger, more
established companies. This increased risk may be due to the greater
business risks of their small or medium size, limited markets and financial
resources, narrow product lines and frequent lack of management depth. The
securities of small and medium companies are often traded in the over-the-
counter market and might not be traded in volumes typical of securities
traded on a national securities exchange. Thus, the securities of small and
medium capitalization companies are likely to be less liquid, and subject
to more abrupt or erratic market movements, than securities of larger, more
established companies.
Technology Companies
Stocks of technology companies have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Technology companies operate in
various industries. Since these industries frequently share common
characteristics, an event or issue affecting one industry may significantly
influence other, related industries. For example, technology companies may
be strongly affected by worldwide scientific or technological developments
and their products and services may be subject to governmental regulation
or adversely affected by governmental policies.
Foreign Securities
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Types of Foreign Securities
Foreign securities are debt and equity securities that are traded in
markets outside of the United States. The markets in which these securities
are located can be developed or emerging. People can invest in foreign
securities in a number of ways :
. They can invest directly in foreign securities denominated in a foreign
currency;
. They can invest in American Depositary Receipts, 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
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elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
18
<PAGE>
. A foreign government may act adversely to the interests of U.S.
investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment. A
country may restrict or control foreign investments in its securities
markets. These restrictions could limit the Fund's ability to invest in
a particular country or make it very expensive for the Fund to invest
in that country. Some countries require prior governmental approval,
limit the types or amount of securities or companies in which a
foreigner can invest. Other countries may restrict the ability of
foreign investors to repatriate their investment income and capital
gains.
Information and Supervision
There is generally less publicly available information about foreign
companies than companies based in the United States. For example, there are
often no reports and ratings published about foreign companies comparable
to the ones written about United States companies. Foreign companies are
typically not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States companies. The lack of comparable information
makes investment decisions concerning foreign companies 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 more volatile and not as developed or efficient as
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 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;
19
<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 Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce
the income the Fund receives from its investments. The Fund 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 Fund also anticipates
pricing, trading, settling and valuing investments whose nominal values
remain in their existing domestic currencies in Euros. Accordingly, the
Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than
Euro?
20
<PAGE>
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to
the fees currently paid by the Fund. Like other shareholders, the Fund
would pay its proportionate share of those fees. Consequently, shareholders
of the Fund would pay not only the management fees of the Fund, but also
the management fees of the investment company in which the Fund invests.
The Fund may invest up to 10% of its total assets in the securities of
other investment companies, but may not invest more than 5% of its total
assets in the securities of any one investment company or acquire more than
3% of the outstanding securities of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Fund,
provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the
assets of the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market"
on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for
sale to the general public 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 the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
Fund or less than what may be considered the fair value of such securities.
21
<PAGE>
SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When the Fund lends securities, there is a risk that the borrower will
become financially unable to honor its contractual obligations. If this
happens, the Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
-------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Likewise, the Fund can profit if the price
of the security declines between those dates.
To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The Fund will incur
transaction costs in effecting short sales. The Fund's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the Fund may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
22
<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no
extra cost. The Fund will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by the Fund would exceed the two percent (2%) of the value
of the Fund's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the Fund is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN ISSUED TRANSACTIONS
-------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, the Fund 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 Fund has committed to purchase before the
securities are delivered, although the Fund may earn income on securities
it has in a segregated account. The Fund will only enter into these types
of transactions with the intention of actually acquiring the securities,
but may sell them before the settlement date.
The Fund 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 Fund 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
Fund may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
Investment Policies of the Fund
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
23
<PAGE>
determine investment limitation percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of its acquisition of
such security or other asset. Accordingly, the Fund will not consider changes in
values, net assets or other circumstances when determining whether the
investment complies with its investment limitations. The Fund 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) 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 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).
MANAGEMENT OF THE COMPANY
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the following
fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
24
<PAGE>
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds. The Company does
not pay its Interested Directors or officers for their services as
Directors or officers.
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and, therefore,
does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
===========================================================================================================================
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island
Center Harbor, NH 03226 Investment Company, Inc. (investment management).
1/26/29 From 1988 to 1993, Mr. Bennett was President of
Bennett ManagementCompany. Mr. Bennett serves
on the Board of each Company in the UAM Funds
Complex.
---------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24th St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From UAM
Compensation Funds
Name, Address, from Company Complex as of
Date of Birth Principal Occupations During the Past 5 years as of 4/30/00 4/30/00
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
William Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of
Suite 400 Lone Star Industries Inc. (cement and ready-mix
Indianapolis, IN concrete) since March 2000. From June 1998 to
46290 4/21/42 March 2000 he was Executive Vice President and
Chief Administrative Officer of Philip Services
Corp. (ferrous scrap processing, brokerage and
industrial outsourcing services). Mr. Humenuk
was a Partner in the Philadelphia office of the
law firm Dechert Price & Rhoads from July 1976
to June 1998. He was also formerly a Director
of Hofler Corp. (manufacturer of gear grinding
machines). Mr. Humenuk serves on the Board of
each Company in the UAM Funds Complex.
------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive $9,380 $38,950
16 West Madison Street Officer of Broventure Company, Inc., a company
Baltimore, MD 21201 engaged in the investment management business.
8/5/48 He is also Chairman of the Board of Chektec
Corporation (Drugs) and Cyber Scientific, Inc.
(computer mouse company). Mr. English serves
on the Board of each Company in the UAM Funds
Complex.
------------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
OFFICERS
====================================================================================================================================
</TABLE>
The following table lists the officers of the Company and provides
information regarding their present positions, date of birth, address and
their principal occupations during the past five years. The Company's
officers are paid by UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and
Chairman
------------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupation During the Past 5 years
================================================================================================================================
<S> <C> <C>
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer); Treasurer
211 Congress Street of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual funds); held
Boston, MA 02110 various other offices with Fidelity Investments (financial services) from
7/4/51 November 1990 to March 1995.
--------------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of
Signature Financial Group Europe, Ltd. (financial services) from 1995
to 2000; Secretary of the Citigroup Family of Mutual Funds (mutual
funds) from 1996 to 2000; Secretary of the 59 Wall Street Family of
Mutual Funds (mutual funds) from 1996 to 2000.
--------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
-------------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
Boston, MA 02110 Secretary Compliance Officer of UAMfdI (broker-dealer) since February 2000; Assistant
12/23/63 Vice President of Scudder Kemper Investments (financial services) from
May 1992 to February 1998.
-------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
PRINCIPAL SHAREHOLDERS
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Fund:
Name and Address of Shareholder Percentage of Shares Owned
===========================================================================
UMBSC & Co FBO Interstate Brands 90.99%
Retirement Income Plan 340419126
P.O .Box 419692
Kansas City, MO 64141-6692
---------------------------------------------------------------------------
UMBSC & Co. 5.62%
FBO IBC Savings Invest - Equity
P.O. Box 419692
Kansas City, MO 64141-6692
---------------------------------------------------------------------------
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is
defined in the 1940 Act) the portfolio. Shareholders controlling the
portfolio could have the ability to vote a majority of the shares of the
portfolio on any matter requiring the approval of shareholders of the
portfolio. As of August 21, 2000, the directors and officers of the
Company owned less than 1% of the outstanding shares of the Fund.
27
<PAGE>
Investment Advisory and Other Services
INVESTMENT ADVISER
-------------------------------------------------------------------------------
Provident Investment Counsel (PIC), a Massachusetts corporation, is located
at 300 North Lake Avenue, Pasadena, California 91101, is the investment
adviser to the Fund. 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 adviser is a subsidiary of UAM. UAM is a holding company incorporated
in Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM Affiliated Firms are separately
chosen by each of them. Several UAM Affiliated Firms also act as investment
advisers to separate series or portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment
program of the Fund; and
. Determines what portion of the Fund's assets will be invested in
securities and what portion will consist of cash.
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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the
shareholders of the Fund.
28
<PAGE>
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of
Board Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual
rate of .90% of its average daily net assets. Due to the effect of fee
waivers by the adviser, the actual percentage of average net assets that
the Fund pays in any given year may be different from the rate set forth in
its contract with the adviser. For the last fiscal period, the Fund paid
the following in advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Period End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
======================================================================================================================
<S> <C> <C>
4/30/00 $29,137 $57,233 $86,370
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any
particular amount of shares. UAMFDI, an affiliate of UAM, is located at 211
Congress Street, Boston, Massachusetts 02110. UAMFDI receives no
compensation for its services as distributor of the Institutional Class
Shares.
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 services performed with respect to the Company or a fund.
The person making such payments may do so out of its revenues, its profits
or any other source available to it. Such servicing arrangements, when in
effect, are made generally available to all qualified service providers.
The adviser may also compensate its affiliated companies for referring
investors to the Fund.
ADMINISTRATIVE SERVICES
-------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
29
<PAGE>
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of each portfolio of the
Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM Funds
Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
30
<PAGE>
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services as
sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last fiscal year the Fund paid the following in administration
fees:
Fiscal Year End Total Administration Fee
===========================================================================
4/30/00 $32,776
---------------------------------------------------------------------------
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by the Fund.
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction.
During the fiscal year ended April 30, 2000, the adviser directed
$10,833,079 of the portfolio's brokerage transactions to Direct Access
Brokerage Services in exchange for certain research services. Commissions
paid on those transactions were $5,685.
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.
As of April 30, 2000 the Fund held 10,000 shares, $767,500 worth of shares,
of Morgan Stanley Dean Witter, one of its regular brokers or dealers as
defined in rule 10b-1 of the 1940 Act.
31
<PAGE>
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's Board periodically reviews the various
allocation methods used by the adviser.
BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last fiscal period, the Fund has paid the following in brokerage
commissions.
Fiscal Year End Brokerage Commissions
---------------------------------------------------------------------------
4/30/00 $65,601
Capital Stock and Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company.
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
32
<PAGE>
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder
servicing and the distribution of such shares pursuant to a
distribution plan or other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to the Fund at least three days before the record date for income dividend
or capital gain distribution.
33
<PAGE>
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and excise taxes. If the Fund were to fail to make sufficient
distributions in a year, it would be subject to corporate income taxes
and/or excise taxes. In addition, if the shortfall were large enough, the
Fund could be disqualified as a regulated investment company. If the Fund
were to fail to so qualify: (1) it would be taxed at regular corporate
rates without any deduction for distributions to shareholder; and (2) its
shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends
received deduction. Moreover, if the Fund were to fail to make sufficient
distributions in a year, the Fund would be subject to corporate income
taxes and/or excise taxes in respect of the shortfall or, if the shortfall
is large enough, the Fund could be disqualified as a regulated investment
company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year
period ending October 31 of such calendar year and 100% of any such amounts
that were not distributed in the prior year. The Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
At April 30, 2000 the Fund elected to defer $1,567,311 of post-October
capital losses for Federal income tax purposes. These losses will be
available to offset realized capital gains for the fiscal year ending April
30, 2001.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
--------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the
Fund, plus cash and other assets plus income accrued but not yet
received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
34
<PAGE>
How the Company 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 the U.S.
dollar 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 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 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 Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of
all subscription and redemption requests, investment information,
documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of the Fund at the NAV of the Fund determined as
of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
35
<PAGE>
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the adviser.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts,
guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 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-
36
<PAGE>
kind of liquid securities held by the Fund in lieu of cash in conformity
with applicable rules of the SEC. Investors may incur brokerage charges on
the sale of securities received in payment of redemptions.
The Company 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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Fund. If the Fund pays redemption proceeds with securities instead of cash,
it will value such securities as set forth under "How the Company Values
its Assets." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than
the registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. You can get a complete definition of eligible
guarantor institutions by calling 1-877-826-5465. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
37
<PAGE>
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
Performance Calculations
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
38
<PAGE>
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000.
One Year Five Years Since Inception Inception Date
--------------------------------------------------------------------------
-3.90% N/A -3.90% 12/29/99
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. Since Adviser Class Shares and 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 Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not
be identical to the formula used by the Fund to calculate its
performance; and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
39
<PAGE>
FINANCIAL STATEMENTS
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the
Fund's Annual Report free of charge by calling the UAM Funds at the
telephone number appearing on the front page of this SAI.
GLOSSARY
All terms that this SAI does not otherwise define, have the same meaning
in the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested
Board Members.
Interested Board Member refers to an "interested person" (as defined by
the 1940 Act) of the Company. A Board Member may by an interested person
of the Company because they are affiliated with one of the Company's
investment advisers, United Asset Management Corporation or the Company's
principal underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Fund refers to the PIC Twenty Portfolio, which is a series of the Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 Act, the 1940 Act and
the 1934 Act.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal
underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMFSI is UAM Fund Shareholder Servicing Center, Inc., the Company's
sub-shareholder-servicing agent.
40
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BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
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Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment
within the universe of preferred stocks.
aa An issue that 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 that 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 that which is rated "baa" is considered to be a medium
grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of
time.
ba An issue that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa An issue that is rated "caa" is of poor standing. Such
issues may be in default or there may be other elements of
danger with respect to principal or interest.
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have other
marked shortcomings.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in each
minus(-) 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 that 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 that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than the Aaa
securities.
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A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds that 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 that 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 that 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 that 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 that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals)
Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin
when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
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Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
. Broad margins in earnings coverage of fixed
financial charges and high internal cash generation.
. Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the
level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS SERVICES
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Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with the
category definition.
AAA An obligation rated 'AAA' has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very
strong.
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A An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment
than other speculative issues. However, it faces major
ongoing uncertainties or exposures to adverse business,
financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment
than obligations rated 'BB', but the obligor currently has
the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
CCC An obligation rated 'CCC' is currently vulnerable to non-
payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its
financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C'
is CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C'
rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action taken, but
payments on this obligation are being continued. A 'C' will
also be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently
paying.
D An obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are
not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are not
addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment
risk -such as interest-only or principal-only mortgage
securities; and obligations with unusually risky interest
terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that
there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a
particular obligation as a matter of policy. Debt
obligations of issues outside the United States and its
territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into
account currency exchange and related uncertainties.
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.
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Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate
protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment
on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the
obligation.
C A short-term obligation rated 'C' is currently vulnerable
to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet
its financial commitment on the obligation.
D A short-term obligation rated 'D' is in payment default.
The 'D' rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard &
Poors' believes that such payments will be made during such
grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
FITCH IBCA RATINGS
-------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case
of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
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.
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<PAGE>
A High credit quality. `A' ratings denote a low expectation
of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity
may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a
possibility of credit risk developing, particularly as the
result of adverse economic change over time; however,
business or financial alternatives may be available to
allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A
`CC' rating indicates that default of some kind appears
probable. `C' ratings signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category are
based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative and
cannot be estimated with any precision, the following serve
as general guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of outstanding
amounts and accrued interest. "D" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest
recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some
or all of their obligations. Entities rated "DDD" have the
highest prospect for resumption of performance or continued
operation with or without a formal reorganization process.
Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated
"DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for
timely payment of financial commitments; may have an added
"+" to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety
is not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-
investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity
for meeting financial commitments that is highly uncertain
and solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
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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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
COMPARATIVE BENCHMARKS
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of change, over time in
the price of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
-----------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public,
47
<PAGE>
nonconvertible debt issued or guaranteed by foreign sovereign governments,
municipalities, or governmental agencies, or international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate
Bond Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
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<PAGE>
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign
common stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices --capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
---------------------------
Russell 3000(R)Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance
of the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
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<PAGE>
Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000(R) Value Index - measures the performance of those Russell
1000 with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
Standard & Poor's U.S. Indices:
------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123 sub-industries covering almost 6,000 companies
globally. The new classification standard will be used with all of their
respective indices. Features of the new classification include 10 economic
sectors, rather than the 11 S&P currently uses. Sector and industry
gradations are less severe. Rather than jumping from 11 sectors to 115
industries under the former S&P system, the new system progresses from 10
sectors through 23 industry groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
50
<PAGE>
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
--------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
--------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries--Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan --are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
51
<PAGE>
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasur 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.
52
<PAGE>
UAM Funds
Funds for the Informed Investor sm
Sirach Growth II Portfolio
(formerly, Hanson Equity Portfolio)
Institutional Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
What are the Fund's Objectives?..............................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................2
What are the Fund's Fees and Expenses?.......................................3
Investing with the UAM Funds..................................................5
Buying Shares................................................................5
Redeeming Shares.............................................................6
Exchanging Shares............................................................8
Transaction Policies.........................................................8
Account Policies............................................................10
Additional Information About the Fund........................................12
Other Investment Practices and Strategies...................................12
Investment Management.......................................................13
Shareholder Servicing Arrangements..........................................14
Financial Highlights.........................................................15
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks maximum long-term total return, consistent with reasonable
risk to principal, by investing in a diversified portfolio of equity secu-
rities, primarily the common stock of large, United States-based companies
with outstanding financial characteristics and strong growth prospects
that can be purchased at reasonable valuations. The fund may not change
its investment objective without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
Normally, the fund invests at least 80% of its total assets in equity se-
curities. These investments will consist primarily of common stocks of
companies with large market capitalizations (typically over $1 billion at
the time of purchase). 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.
The basis of the adviser's investment philosophy is to "buy the company,
not the stock." The adviser believes that the fund can achieve long-term
results by investing in a select number of well managed companies that
have clear business plans, specific financial goals, above-average earn-
ings and dividend growth rates, and whose shares can be purchased at rea-
sonable valuations.
The adviser's stock selection process is bottom-up, which means it focuses
on individual stocks rather than industries or sectors. (Top-down invest-
ors would first decide which industries or sectors they want to emphasize
and then would look for stocks that fit those requirements.) This process
has three steps. First, the adviser asks three questions:
. Does the adviser understand the company's business?
. Is the company's management shareholder-conscious?
. Is the company's long-term outlook favorable?
Next, the adviser screens for companies that:
. Have reasonable price-to-earnings ratios.
. Have above average total return potential.
. Are leaders in their industries.
1
<PAGE>
. Are highly profitable.
. Are financially strong (low levels of debt).
Finally, all investment decisions must receive the approval of the advis-
er's internal investment committee.
The adviser sells shares of a company when:
. The company fails to meet the adviser's investment criteria.
. The adviser finds a more attractive investment.
. The valuation of the company's shares becomes excessive.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
Investing in stocks of smaller companies can be riskier than investing in
larger, more mature companies. Smaller companies may be more vulnerable to
adverse developments than larger companies because they tend to have nar-
rower product lines and more limited financial resources. Their stocks may
trade less frequently and in limited volumes.
Growth funds may not perform as well as other types of mutual funds when
growth investing is out of favor. The values of growth stocks may be more
sensitive to charges in current or expected earnings than the value of
other stocks.
2
<PAGE>
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares the average annual
returns of the fund to those of a broad-based securities market index. Re-
turns are based on past results and are not an indication of future
performance.
Calendar Year Returns
[GRAPH]
1998 18.57%
1999 14.05%
During the periods shown in the chart for the fund, the highest return for
a quarter was 21.86% (quarter ending 12/31/98) and the lowest return for a
quarter was -11.41% (quarter ending 09/30/98). For the period from January
1, 2000, through June 30, 2000, the fund returned -7.26%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 10/2/97*
--------------------------------------------
<S> <C> <C>
Sirach Growth II Portfolio 14.05% 14.29%
--------------------------------------------
S & P 500 Index 21.04% 23.26%
</TABLE>
* Beginning of operations. Index comparisons begin on September 30, 1997.
3
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.70%
--------------------------------------------
Other Expenses 0.73%
--------------------------------------------
Total Annual Fund Operating Expenses 1.43%
</TABLE>
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$146 $452 $782 $1,713
</TABLE>
4
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
5
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HANSX 902556844 649
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
6
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
7
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an
8
<PAGE>
investment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
9
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
10
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
11
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest in securities of companies located outside of the
United States, American Depositary Receipts, European Depositary Receipts
and other similar global instruments. When the fund invests in foreign se-
curities, it will be subject to risks not typically associated with domes-
tic securities. Foreign investments, especially those of companies in
emerging markets, can be riskier and more volatile than investments in the
United States. Adverse political and economic developments or changes in
the value of foreign currency can make it harder for the fund to sell its
securities and could reduce the value of your shares. Differences in tax
and accounting standards and difficulties in obtaining information about
foreign companies can negatively affect investment decisions. Unlike more
established markets, emerging markets may have governments that are less
stable, markets that are less liquid and economies that are less devel-
oped.
12
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
While on August 4, 2000, the Board of Trustees of UAM Funds Trust approved
a change in adviser for the fund from Hanson Investment Management Company
("Hanson") to Sirach Capital Management Company, Inc. ("Sirach") the same
team of investment professionals continues to manage the fund. Sirach is
located at 600 University Street, 3323 One Union Square, Seattle, Washing-
ton 98101. As of September 11, 2000, Sirach's address will be changing to
520 Pike Tower, 28th Floor, Seattle, Washington 98101-1389. Sirach and
Hanson are both affiliates of UAM. Sirach has provided investment manage-
ment services to corporations, pension and profit-sharing plans, 401(k)
and thrift plans, endowments, trusts, estates and other institutions and
individuals since 1970. The change in adviser is not expected to result in
any change in the actual investment management services, administrative
functions, supervisory responsibilities or fee arrangements for the fund.
During its most recent fiscal year, the fund paid 0.70% of its average net
assets in advisory fees to the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
13
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, UAM Funds' board reviews these arrangements to ensure
that the fees paid are appropriate for the services performed. The fund
does not pay these service fees on shares purchased directly. In addition,
the adviser and its affiliates may, at their own expense, pay financial
representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may also pay its affiliated companies for
distribution and marketing services performed with respect to the fund.
14
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a
single share. The total returns in the table represent the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at 1-
877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000 1999 1998#
--------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.19 $ 11.38 $ 10.00
Income from Investment Operations:
Net Investment Income (0.03) (0.04) (0.02)
Net Realized and Unrealized Gain (Loss) (0.13) 1.91 1.40
Total From Investment Operations (0.16) 1.87 1.38
Distributions:
Net Realized Gain (0.39) (0.06) --
Net Asset Value, End of Period $ 12.64 $ 13.19 $ 11.38
Total Return (1.20)% 16.52% 13.80%+
Ratios and Supplemental Data
Net Assets, End of Period (Thousands) $30,003 $30,450 $25,690
Ratio of Expenses to Average Net Assets 1.43% 1.40% 1.56%*
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.27)% (0.38)% (0.35)%*
Portfolio Turnover Rate 41% 28% 11%
</TABLE>
# For the period from October 2, 1997 (commencement of operations),
through April 30, 1998.
* Annualized
+ Not annualized
15
<PAGE>
Sirach Growth II Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
Sirach Growth II Portfolio
(Formerly, Hanson Equity Portfolio)
Institutional Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August
28, 2000, as supplemented from time to time. You may obtain the Fund's
prospectus by contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial
Statements." No other portions of the annual report are incorporated by
reference.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Description of Permitted Investments..................................... 1
Borrowing............................................................. 1
Debt Securities....................................................... 1
Derivatives........................................................... 7
Equity Securities..................................................... 15
Foreign Securities.................................................... 17
Investment Companies.................................................. 21
Repurchase Agreements................................................. 21
Restricted Securities................................................. 21
Securities Lending.................................................... 22
Short Sales........................................................... 22
When Issued Transactions.............................................. 23
Investment Policies of the Fund.......................................... 23
Management of the Company................................................ 24
Board Members......................................................... 24
Officers.............................................................. 26
Principal Shareholders................................................... 28
Investment Advisory and Other Services................................... 28
Investment Adviser.................................................... 28
Distributor........................................................... 29
Shareholder Servicing Arrangements.................................... 29
Administrative Services............................................... 30
Custodian............................................................. 31
Independent Accountants............................................... 31
Code of Ethics........................................................ 32
Brokerage Allocation and Other Practices................................. 32
Selection of Brokers.................................................. 32
Simultaneous Transactions............................................. 32
Brokerage Commissions................................................. 32
Capital Stock and Other Securities....................................... 33
Purchase, Redemption and Pricing of Shares............................... 35
Net Asset Value Per Share............................................. 35
Purchase of Shares.................................................... 36
Redemption of Shares.................................................. 38
Exchange Privilege.................................................... 38
Transfer Of Shares.................................................... 39
Performance Calculations.............................................. 39
Total Return.......................................................... 39
Yield................................................................. 39
Comparisons........................................................... 40
Financial Statements..................................................... 40
Glossary................................................................. 40
Bond Ratings............................................................. 41
Moody's Investors Service, Inc........................................ 41
Standard & Poor's Ratings Services.................................... 44
Fitch Ratings......................................................... 46
Comparative Benchmarks................................................... 47
</TABLE>
<PAGE>
Description of Permitted Investments
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
BORROWING
-------------------------------------------------------------------------------
The Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 331/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone
for temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the Fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
DEBT SECURITIES
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment
occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential
housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the
security is of an investment quality comparable with other debt
securities that the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
4
<PAGE>
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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
5
<PAGE>
Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years -- the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
6
<PAGE>
Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
DERIVATIVES
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Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for
this right, the Fund pays the current market price for the option (known as
the "option premium"). The Fund may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts")
or to benefit from a decline in the price of securities that it does not
own. The Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost
of purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. The Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. The Fund would ordinarily realize a gain if, during the
option period, the value of the underlying instrument exceeded the exercise
price plus the premium paid and related transaction costs. Otherwise, the
Fund would realize either no gain or a loss on the purchase of the call
option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. Similarly,
when the Fund writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. The Fund may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting
transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Fund may lose an amount of money equal to the difference between the value
of the security and the premium it received. Writing covered put options
may deprive the Fund of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, the Fund must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate,
foreign currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of
the option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put
option). If the option is exercised, the parties will be subject to the
futures contracts. In addition, the writer of an option on a futures
contract is subject to initial and variation margin requirements on the
option position. Options on futures contracts are traded on the same
contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts.
If the price of the futures contract at expiration were below the exercise
price, the Fund would retain the option premium, which would offset, in
part, any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if the market price
declines, the Fund would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Fund could
write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to
the contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between
currency traders (usually large commercial banks) and their customers,
as opposed to futures contracts which are traded only on exchanges
regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the
specific investments.
The Fund may use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Fund could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the Fund's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges
may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend
to minimize the risk of loss due to a decline in the value of the hedged
currency and to limit any potential gain that might result from the
increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may
include shifting exposure from U.S. dollars to a foreign currency, or from
one foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause the Fund to assume
the risk of fluctuations in the value of the currency it purchases. Cross
hedging transactions also involve the risk of imperfect correlation between
changes in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain
assets at the expiration or maturity of a forward or futures contract.
Accordingly, the Fund may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less
than the amount of foreign currency it is obligated to deliver. Conversely,
the Fund may have to sell on the spot market some of the foreign currency
it received upon the sale of a security if the market value of such
security exceeds the amount of foreign currency it is obligated to
deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of
cash flows between two parties on specified dates (settlement dates), where
the cash flows are based on agreed-upon prices, rates, indices, etc. The
nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors, such as interest rates, foreign currency rates, mortgage
securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to
and from the Fund. If a swap agreement calls for payments by the Fund, the
Fund must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. The Fund may be able to
eliminate its exposure under a swap agreement either by assignment or by
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party. If the counter-party is
unable to meet its obligations under the contract, declares bankruptcy,
defaults or becomes insolvent, the Fund may not be able to recover the
money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging,
the Fund will cover its current obligations under swap agreements according
to guidelines established by the SEC. If the Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under
the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index
swap, for example, the index receiver can gain exposure to stocks making up
the index of securities without actually purchasing those stocks. Equity
index swaps involve not only the risk associated with investment in the
securities represented in the index, but also the risk that the performance
of such securities, including dividends, will not exceed the return on the
interest rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating
rate cash flows. Termed basis swaps entail cash flows to both parties based
on floating interest rates, where the interest rate indices are different.
Index amortizing swaps are typically fixed-for floating swaps where the
notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money
by investing in an interest rate swap if interest rates change adversely.
For example, if the Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the Fund may have
to pay more money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for
a floating rate of interest, the Fund may receive less money than it has
agreed to pay.
Currency Swaps -- A currency swap is an agreement between two parties in
which one party agrees to make interest rate payments in one currency and
the other promises to make interest rate payments in another currency. The
Fund may enter into a currency swap when it has one currency and desires a
different currency. Typically the interest rates that determine the
currency swap payments are fixed, although occasionally one or both parties
may pay a floating rate of interest. Unlike an interest rate swap, however,
the principal amounts are exchanged at the beginning of the contract and
returned at the end of the contract. Changes in foreign exchange rates and
changes in interest rates, as described above may negatively affect
currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance of the Fund than
if it had not entered into any derivatives transactions. Derivatives may
magnify the Fund's gains or losses, causing it to make or lose
substantially more than it invested.
When used for hedging purposes, increases in the value of the securities
the Fund holds or intends to acquire should offset any losses incurred with
a derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of
poor correlation, the price of the securities the Fund is hedging may not
move in the same amount, or even in the same direction as the hedging
instrument. The adviser will try to minimize this risk by investing only in
those contracts whose behavior it expects to resemble the assets the Fund
it is trying to hedge. However, if the Fund's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the Fund may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying
instruments, even if the characteristics of the underlying instruments are
very similar to the derivative. Listed below are some of the factors that
may cause such a divergence:
. Current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the
imposition of daily price fluctuation limits or trading of an
instrument stops; and
. Differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the participation
of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based
on a broad market index. Since narrower indices are made up of a smaller
number of
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securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments precisely over
time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange
the contract was initially traded. Although the Fund intends to purchase
options and futures only where there appears to be an active market, there
is no guarantee that such a liquid market will exist. If there is no
secondary market for the contract, or the market is illiquid, the Fund may
not be able to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time
and price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of
an exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other occurrences may disrupt normal trading
activity; or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends,
the Fund may lose money by investing in derivatives. For example, if the
Fund were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if the Fund were to write
a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
Fund could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of
factors, including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can
change during a single trading day. Daily trading limits establish the
maximum amount that the price of a derivative may vary from the settlement
price of that derivative at the end of trading on the previous day. Once
the price of a derivative reaches this value, the Fund may not trade that
derivative at a price beyond that limit. The daily limit governs only price
movements during a given day and does not limit potential gains or losses.
Derivative prices have occasionally moved to the daily limit for several
consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a
derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative
may result in an immediate and substantial loss (as well as gain) to the
Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and
the liquidation of the company. However, in all other respects, preferred
stocks are subordinated to the liabilities of the issuer. Unlike common
stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a
fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the Fund's option during a specified time period
(such as convertible preferred stocks, convertible debentures and
warrants). A convertible security is generally a fixed income security that
is senior to common stock in an issuer's capital structure, but is usually
subordinated to similar non-convertible securities. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation. In
general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is
more volatile during times of steady interest rates than other types of
debt securities. In addition, they are also influenced by the market value
of the security's underlying common stock. The price of a convertible
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<PAGE>
security tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying
common stock declines.
A synthetic convertible security is a combination investment in which the
Fund purchases both (i) high-grade cash equivalents or a high grade debt
obligation of an issuer or U.S. Government securities and (ii) call options
or warrants on the common stock of the same or different issuer with some
or all of the anticipated interest income from the associated debt
obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. A synthetic convertible
position has similar investment characteristics, but may differ with
respect to credit quality, time to maturity, trading characteristics, and
other factors. Because the Fund will create synthetic convertible positions
only out of high grade fixed income securities, the credit rating
associated with the Fund's synthetic convertible investments is generally
expected to be higher than that of the average convertible security, many
of which are rated below high grade. However, because the options used to
create synthetic convertible positions will generally have expirations
between one month and three years of the time of purchase, the maturity of
these positions will generally be shorter than average for convertible
securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing
"time value" as maturity approaches), a synthetic convertible position may
lose such value more rapidly than a convertible security of longer
maturity; however, the gain in option value due to appreciation of the
underlying stock may exceed such time value loss, the market price of the
option component generally reflects these differences in maturities, and
the Adviser and applicable sub-adviser take such differences into account
when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, the Fund may
extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that
give the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price
that is usually higher than the market price at the time the warrant is
issued. Corporations often issue warrants to make the accompanying debt
security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets
of the issuer. In addition, their value does not necessarily change with
the value of the underlying securities, and they cease to have value if
they are not exercised on or before their expiration date. Investing in
rights and warrants increases the potential profit or loss to be realized
from the investment as compared with investing the same amount in the
underlying securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits
of owning a company, such investors must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to
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<PAGE>
actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made by
its management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to
the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
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<PAGE>
elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
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<PAGE>
. A foreign government may act adversely to the interests of U.S.
investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment. A
country may restrict or control foreign investments in its securities
markets. These restrictions could limit the Fund's ability to invest in
a particular country or make it very expensive for the Fund to invest
in that country. Some countries require prior governmental approval,
limit the types or amount of securities or companies in which a
foreigner can invest. Other countries may restrict the ability of
foreign investors to repatriate their investment income and capital
gains.
Information and Supervision
There is generally less publicly available information about foreign
companies than companies based in the United States. For example, there are
often no reports and ratings published about foreign companies comparable
to the ones written about United States companies. Foreign companies are
typically not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States companies. The lack of comparable information
makes investment decisions concerning foreign companies 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 more volatile and not as developed or efficient as
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 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;
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<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 Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce
the income the Fund receives from its investments. The Fund 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 Fund also anticipates
pricing, trading, settling and valuing investments whose nominal values
remain in their existing domestic currencies in Euros. Accordingly, the
Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than
Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
INVESTMENT COMPANIES
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to
the fees currently paid by the Fund. Like other shareholders, the Fund
would pay its proportionate share of those fees. Consequently, shareholders
of the Fund would pay not only the management fees of the Fund, but also
the management fees of the investment company in which the Fund invests.
The Fund may invest up to 10% of its total assets in the securities of
other investment companies, but may not invest more than 5% of its total
assets in the securities of any one investment company or acquire more than
3% of the outstanding securities of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Fund,
provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the
assets of the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market" on
a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for
sale to the general public 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 the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
Fund or less than what may be considered the fair value of such
securities.
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<PAGE>
SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When the Fund lends securities, there is a risk that the borrower will
become financially unable to honor its contractual obligations. If this
happens, the Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
--------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Likewise, the Fund can profit if the price
of the security declines between those dates.
To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The Fund will incur
transaction costs in effecting short sales. The Fund's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the Fund may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
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<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no
extra cost. The Fund will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by the Fund would exceed the two percent (2%) of the value
of the Fund's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the Fund is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, the Fund 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 Fund has committed to purchase before the
securities are delivered, although the Fund may earn income on securities
it has in a segregated account. The Fund will only enter into these types
of transactions with the intention of actually acquiring the securities,
but may sell them before the settlement date.
The Fund 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 Fund 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
Fund may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
INVESTMENT POLICIES OF THE FUND
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will
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<PAGE>
determine investment limitation percentages (with the exception of a
limitation relating to borrowing) immediately after and as a result of its
acquisition of such security or other asset. Accordingly, the Fund will not
consider changes in values, net assets or other circumstances when
determining whether the investment complies with its investment
limitations. The Fund will not:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the U.S. government or any if its agencies or
instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any one issuer.
. Invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its
agencies.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 331/3% of the
portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in
real estate and may purchase and sell securities which are secured by
interests in real estate.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives, (ii) entering into repurchase agreements or
(iii) by lending its portfolio securities to banks, brokers, dealers
and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Portfolio from (i)
making any permitted borrowings, mortgages or pledges, or (ii) entering
into repurchase transactions.
MANAGEMENT OF THE COMPANY
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds in the UAM Complex.
The Company does not pay its Interested Directors or officers for their
services as Directors or officers.
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<PAGE>
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and, therefore,
does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Date of Company as of Complex as of
Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment Management $9,380 $38,950
RR2 Box 700 Company, Inc. and Great Island Investment Company, Inc.
Center Harbor, NH 03226 (investment management). From 1988 to 1993, Mr. Bennett
1/26/29 was President of Bennett Management Company. Mr.
Bennett serves on the Board of each Company in the
UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President Administration, $9,380 $38,950
10401 N. Meridian St General Counsel and Secretary of Lone Star Industries Inc.
Suite 400 (cement and ready-mix concrete) since March 2000. From
Indianapolis, IN 46290 June 1998 to March 2000 he was Executive Vice President
4/21/42 and Chief Administrative Officer of Philip Services
Corp. (ferrous scrap processing, brokerage and industrial
outsourcing services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price & Rhoads
from July 1976 to June 1998. He was also formerly a Director
of Hofler Corp. (manufacturer of gear grinding machines). Mr.
Humenuk serves on the Board of each Company in the UAM Funds
Complex.
---------------------------------------------------------------------------------------------------------------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr. English
serves on the Board of each Company in the UAM Funds
Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Date of Company as of Complex as of
Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides
information regarding their present positions, date of birth, address and
their principal occupations during the past five years. The Company's
officers are paid by UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Name, Address, Date of Position
Birth with Company Principal Occupations During the Past 5 years
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and Chairman
----------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
----------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer);
211 Congress Street Treasurer of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual
Boston, MA 02110 funds); held various other offices with Fidelity Investments (financial
7/4/51 services) from November 1990 to March 1995.
----------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of
Signature Financial Group Europe, Ltd. (financial services) from 1995
to 2000; Secretary of the Citigroup Family of Mutual Funds (mutual
funds) from 1996 to 2000; Secretary of the 59 Wall Street Family of
Mutual Funds (mutual funds) from 1996 to 2000.
----------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union
Boston, MA 02110 Corporation (financial services) from 1995 to 1998; Attorney with Signature
9/15/67 Financial Group, Inc. (financial services) from 1994 to 1995.
----------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
----------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
27
<PAGE>
Principal Shareholders
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Fund:
<TABLE>
<CAPTION>
Name and Address of Shareholder Percentage of Shares Owned
----------------------------------------------------------------------------------------------------------------------
<S> <C>
Charles Schwab & Co., Inc. 100.00%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is defined
in the 1940 Act) the portfolio. Shareholders controlling the portfolio
could have the ability to vote a majority of the shares of the portfolio on
any matter requiring the approval of shareholders of the portfolio. As of
August 21, 2000, the directors and officers of the Company owned less than
1% of the outstanding shares of the Fund.
Investment Advisory and Other Services
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Sirach Capital Management, Inc., located at 3323 One Union Square, Seattle,
Washington 98101, is the investment adviser to the fund. The adviser
manages and supervises the investment of the fund's assets on a
discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
pension and profit sharing plans, 401(k) and thrift plans, trusts, estates
and other institutions and individuals since 1970.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated
in Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM Affiliated Firms are separately
chosen by each of them. Several UAM Affiliated Firms also act as investment
advisers to separate series or portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment program
of the Fund; and
28
<PAGE>
. Determines what portion of the Fund'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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the
shareholders of the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of
Board Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual
rate of .70% of its average daily net assets. Due to the effect of fee
waivers by the adviser, the actual percentage of average net assets that
the Fund pays in any given year may be different from the rate set forth in
its contract with the adviser. For the last three fiscal years, the Fund
paid the following in advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/30/00 $203,641 $0 $203,641
-----------------------------------------------------------------------------------------------------------------------
4/30/99 $171,247 $0 $171,247
-----------------------------------------------------------------------------------------------------------------------
4/30/98 $83,786 $0 $83,786
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any
particular amount of shares. UAMFDI, an affiliate of UAM, is located at 211
Congress Street, Boston, Massachusetts 02110. UAMFDI receives no
compensation for its services as distributor of the Institutional Class
Shares.
29
<PAGE>
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 services performed with respect to the Company or a fund.
The person making such payments may do so out of its revenues, its profits
or any other source available to it. Such servicing arrangements, when in
effect, are made generally available to all qualified service providers.
The adviser may also compensate its affiliated companies for referring
investors to the Fund.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of each portfolio of the
Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
30
<PAGE>
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM
Funds Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services
as sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last three fiscal years the Fund paid the following in
administration fees:
<TABLE>
<CAPTION>
Fiscal Year End Total Administration Fee
------------------------------------------------------------------------------------------------------------------------
<S> <C>
4/30/00 $100,300
------------------------------------------------------------------------------------------------------------------------
4/30/99 $ 23,531
------------------------------------------------------------------------------------------------------------------------
4/30/98 $ 22,082
</TABLE>
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
31
<PAGE>
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by the Fund.
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction. During the fiscal year ended April 30, 2000, the adviser
directed $15,413,862 of the portfolio's brokerage transactions to Direct
Access Brokerage Services in exchange for certain research services.
Commissions paid on those transactions were $26,138.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the
purchase of Company shares for their clients.
As of April 30, 2000, the Sirach Growth II Portfolio held 17,500 shares,
$1,042,344 worth of shares of Citigroup, Inc., in addition, the Fund held
23,400 shares, $960,862 worth of shares of Wells Fargo Co., the Fund's
regular brokers or dealers as defined in rule 10b-1 of the 1940 Act.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's 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.
32
<PAGE>
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last three fiscal years, the Fund has paid the following in
brokerage commissions.
<TABLE>
<CAPTION>
Fiscal Year End Brokerage Commissions
------------------------------------------------------------------------------------------------------------------------
<S> <C>
4/30/00 $37,173
------------------------------------------------------------------------------------------------------------------------
4/30/99 $18,977
------------------------------------------------------------------------------------------------------------------------
4/30/98 $33,367
</TABLE>
CAPITAL STOCK AND OTHER SECURITIES
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company and the Fund
is diversified. This means that with respect to 75% of its total assets,
the Fund may not invest more than 5% of its total assets in the securities
of any one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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
allocatable to that class. The Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
33
<PAGE>
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder
servicing and the distribution of such shares pursuant to a
distribution plan or other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to the Fund at least three days before the record date for income dividend
or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and excise taxes. If the Fund were to fail to make sufficient
distributions in a year, it would be subject to corporate income taxes
and/or excise taxes. In addition, if the shortfall were large enough, the
Fund could be disqualified as a regulated investment company. If the Fund
were to fail to so qualify: (1) it would be taxed at regular corporate
rates without any deduction for distributions to shareholder; and (2) its
shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends
received deduction. Moreover, if the Fund were to fail to make sufficient
distributions in a year, the Fund would be subject to corporate income
taxes and/or excise taxes in respect of the shortfall or, if the shortfall
is large enough, the Fund could be disqualified as a regulated investment
company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income
34
<PAGE>
(excess of capital gains over capital losses) for the one year period
ending October 31 of such calendar year and 100% of any such amounts that
were not distributed in the prior year. The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and
any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
As of April 30, 2000, the Fund has no capital loss carryovers.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
--------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the
Fund, plus cash and other assets plus income accrued but not yet
received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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 the U.S.
dollar 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 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 Board.
35
<PAGE>
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 Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of
all subscription and redemption requests, investment information,
documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of the Fund at the NAV of the Fund determined as
of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the adviser.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
36
<PAGE>
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts,
guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Fund in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of securities received in payment of
redemptions.
The Company 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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Fund. If the Fund pays redemption proceeds with securities instead of cash,
it will value such securities as set forth under "How the Company Values
its Assets." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than
the registered shareowner(s);
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<PAGE>
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. You can get a complete definition of eligible
guarantor institutions by calling 1-877-826-5465. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
TRANSFER OF SHARES
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
PERFORMANCE CALCULATIONS
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
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<PAGE>
TOTAL RETURN
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000.
One Year Five Years Since Inception Inception Date
---------------------------------------------------------------------------
-1.20% N/A 11.06% 10/03/97
YIELD
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. Since Adviser Class Shares and 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.
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<PAGE>
COMPARISONS
--------------------------------------------------------------------------------
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its performance;
and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
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<PAGE>
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Fund refers to the Sirach Growth II Portfolio, which is a series of the
Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
the 1934 ACT.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
Bond Ratings
MOODY'S INVESTORS SERVICE, INC.
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Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment
within the universe of preferred stocks.
aa An issue that 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 that is rated "a" is considered to be an upper-
medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate
levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa An issue that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
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<PAGE>
ca An issue that is rated "ca" is speculative in a high degree.
Such issues are often in default or have other marked
shortcomings.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in each
minus (-) 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 that 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 that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present that make the long-term risks
appear somewhat larger than the Aaa securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds that 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 that 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 that 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 that are rated Ca represent obligations that 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.
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<PAGE>
Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals)
Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin
when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
. Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
. Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the
level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS SERVICES
--------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
43
<PAGE>
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with the
category definition.
AAA An obligation rated 'AAA' has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very
strong.
A An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment
than other speculative issues. However, it faces major
ongoing uncertainties or exposures to adverse business,
financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment
than obligations rated 'BB', but the obligor currently has
the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
CCC An obligation rated 'CCC' is currently vulnerable to non-
payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its
financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C A subordinated debt or preferred stock obligation rated 'C'
is CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C'
rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action taken, but
payments on this obligation are being continued. A 'C' will
also be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently
paying.
D An obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are
not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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<PAGE>
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are not
addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment
risk - such as interest-only or principal-only mortgage
securities; and obligations with unusually risky interest
terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that
there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a
particular obligation as a matter of policy. Debt
obligations of issues outside the United States and its
territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into
account currency exchange and related uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate
protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment
on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the
obligation.
C A short-term obligation rated 'C' is currently vulnerable
to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet
its financial commitment on the obligation.
D A short-term obligation rated 'D' is in payment default.
The 'D' rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard &
Poors' believes that such payments will be made during such
grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
45
<PAGE>
FITCH RATINGS
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International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility
of credit risk developing, particularly as the result of
adverse economic change over time; however, business or
financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are
not investment grade.
B Highly speculative. `B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A `CC'
rating indicates that default of some kind appears probable.
`C' ratings signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
"DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest.
"D" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or
all of their obligations. Entities rated "DDD" have the
highest prospect for resumption of performance or continued
operation with or without a formal reorganization process.
Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are
likely to satisfy a higher portion of their outstanding
obligations, while entities rated "D" have a poor prospect for
repaying all obligations.
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International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety is
not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term adverse
changes could result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes
in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments that is highly uncertain and
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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
Comparative Benchmarks
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of change, over time in
the price of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
47
<PAGE>
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
-----------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public, nonconvertible debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental agencies, or
international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate
Bond Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
48
<PAGE>
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign
common stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices --capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
---------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
49
<PAGE>
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance
of the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000(R) Value Index - measures the performance of those Russell
1000 with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
Standard & Poor's U.S. Indices:
------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123
50
<PAGE>
sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their respective indices.
Features of the new classification include 10 economic sectors, rather than
the 11 S&P currently uses. Sector and industry gradations are less severe.
Rather than jumping from 11 sectors to 115 industries under the former S&P
system, the new system progresses from 10 sectors through 23 industry
groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
--------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
--------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
51
<PAGE>
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries--Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan--are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill
issues.
Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and
inflation.
Target Large Company Value Index - an index comprised of large companies
with market capitalizations currently extending down to approximately $1.9
billion that are monitored using a variety of relative value criteria in
order to capture the most attractive value opportunities available. A high
quality profile is required and companies undergoing adverse financial
pressures are eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all
treasury bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted
index of publicly traded real estate securities, including real estate
investment trusts, real estate operating companies and partnerships. The
index is used by the institutional investment community as a broad measure
of the performance of public real estate equity for asset allocation and
performance comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs)
but excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment
of dividends, except as otherwise stated.
52
<PAGE>
UAM Funds
Funds for the Informed Investor sm
TJ Core Equity Portfolio
Institutional Service Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
</TABLE>
<TABLE>
<S> <C>
What are the Fund's Objectives?..............................................1
What are the Fund's Principal Investment Strategies?.........................1
What are the Fund's Principal Risks?.........................................2
How Has the Fund Performed?..................................................3
What are the Fund's Fees and Expenses?.......................................4
Investing with the UAM Funds..................................................6
Buying Shares................................................................6
Redeeming Shares.............................................................7
Exchanging Shares............................................................9
Transaction Policies.........................................................9
Account Policies............................................................11
Additional Information About the Fund........................................13
Other Investment Practices and Strategies...................................13
Investment Management.......................................................14
Shareholder Servicing Arrangements..........................................15
Financial Highlights.........................................................16
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks maximum total return consistent with reasonable risk to
principal by investing in the common stock of quality companies with lower
valuations in sectors of the economy exhibiting strong, or improving, rel-
ative performance. The fund may not change its investment objectives with-
out shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
Normally, the fund invests at least 65% of its total assets in equity se-
curities. These investments will consist primarily of common stocks of
companies with market capitalizations greater than $200 million at the
time of purchase. Eighty percent of the common stocks held by the fund
will be of companies with market capitalizations greater than $800 mil-
lion. The fund may also invest up to 35% of its assets in investment-grade
debt securities. The adviser expects the fund to hold less than 20% of its
assets in cash or cash equivalents.
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
The key decisions the adviser makes regarding the investment of the fund
assets include: analyzing the global and domestic economic environment,
selecting the best industries or groups of industries, and purchasing
stock of companies in those industries that offer the best relative value.
The adviser decides how to allocate the fund's assets by examining key
economic variables, such as the level and direction of interest rates,
forecasted growth in the gross domestic product (GDP), anticipated gains
in corporate profits, inflationary pressures and money supply growth.
The adviser makes three key decisions in investing the assets of the fund:
(1) determining how to allocate the fund's assets among cash and stock;
(2) selecting the best industries or groups of industries; and (3) picking
companies in those industries that offer the best value. The adviser de-
cides how to allocate the fund's assets by examining key economic varia-
bles, such as the level and direction of interest rates, forecasted growth
in the gross domestic product (GDP), anticipated gains in corporate prof-
its, inflationary pressures and money supply growth.
1
<PAGE>
The adviser next analyzes each sector in detail using selected industry
screens to identify industries or groups of industries exhibiting strong
or improving economic fundamentals.
Finally, the adviser looks for companies in those industries that offer
the best value by emphasizing industry leaders that are currently out-of-
favor and selling at attractive prices relative to other companies in
their industry and the S&P 500 Index. The adviser is particularly inter-
ested in the company's market value and forecasted earnings and dividends
growth over the next 1 to 5 years.
The adviser monitors the valuations of the securities held by the fund and
initiates a comprehensive review of issues when:
. They reach the advisor's targeted objectives.
. Their price declines by 20% relative the their industry and the S&P
500.
The adviser selects investments for the fund using a team approach. At
regular meetings, the adviser's team of investment professionals considers
whether to add potential investments to the fund. The adviser does not buy
or sell a stock unless a majority of the team members agree. In case of a
tie, the industry analyst's vote determines whether the adviser will buy
or sell the stock.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific
2
<PAGE>
company, such as decisions made by its management. This risk is greater
for small and medium sized companies, which tend to be more vulnerable to
adverse developments than larger companies.
As with most funds that invest in debt securities, changes in interest
rates are one of the most important factors that could affect the value of
your investment. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) and the fund's share
price to fall. Rising interest rates may also cause investors to pay off
mortgage-backed and asset-backed securities later than anticipated forcing
the fund to keep its money invested at lower rates. Falling interest
rates, however, generally cause investors to pay off mortgage-backed and
asset-backed securities earlier than expected, forcing the fund to rein-
vest the money at a lower interest rate.
The credit rating or financial condition of an issuer may also affect the
value of a debt security. Generally, the lower the quality rating of a se-
curity, the greater the risk that the issuer will fail to pay interest
fully and return principal in a timely manner. If an issuer defaults or
becomes unable to honor its financial obligations, the security may lose
some or all of its value. The issuer of an investment-grade security is
more likely to pay interest and repay principal than an issuer of a lower
rated bond. Adverse economic conditions or changing circumstances, howev-
er, may weaken the capacity of the issuer to pay interest and repay prin-
cipal.
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares the average annual
returns of the fund to those of a broad-based securities market index. Re-
turns are based on past results and are not an indication of future per-
formance.
3
<PAGE>
Calendar Year Returns
[GRAPH]
1996 18.19%
1997 31.18%
1998 30.10%
1999 8.00%
During the periods shown in the chart for the fund, the highest return for
a quarter was 20.65% (quarter ending 12/31/98) and the lowest return for a
quarter was -7.45% (quarter ending 09/30/99). For the period from January
1, 2000, through June 30, 2000, the fund returned -3.24%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 9/28/95*
------------------------------------------
<S> <C> <C>
TJ Core Equity Portfolio 8.00% 21.31%
------------------------------------------
S&P 500 Index 21.04% 26.39%
</TABLE>
* Beginning of operations. Index comparisons begin on September 30, 1995.
WHAT ARE THE FUND'S FEES AND EXPENSES?
--------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
4
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 0.75%
--------------------------------------------
Service (12b-1) Fees 0.25%
--------------------------------------------
Other Expenses* 0.64%
--------------------------------------------
Total Annual Fund Operating Expenses 1.64%
</TABLE>
* "Other Expenses" presented in the table above may be higher than the ex-
penses you would actually pay as a shareholder in the fund because the
adviser has voluntarily agreed to limit the expenses of the fund to the
extent necessary to keep its total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) from exceeding 1.25%
of its average daily net assets. The adviser may change or cancel its
expense limitation at any time. In addtion "Other Expenses" do not take
into account any expense offset arrangement the fund may have that would
reduce its custodian fee based on the amount of cash the fund maintains
with its custodian. This would also have the effect of reducing the
fund's expenses.
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$167 $517 $892 $1,944
</TABLE>
5
<PAGE>
Investing with the UAM Funds
BUYING SHARES
--------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/ account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
6
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
TJCEX 902556877 935
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
7
<PAGE>
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder 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.
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
8
<PAGE>
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an
9
<PAGE>
investment's fair value according to methods established by the Board. The
UAM Funds value debt securities that are purchased with remaining maturi-
ties of 60 days or less at amortized cost, which approximates market val-
ue. 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 intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
10
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
11
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
12
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
--------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Foreign Securities
The fund may invest up to 20% of its assets in securities of companies lo-
cated outside of the United States, American Depositary Receipts, European
Depositary Receipts and other similar global instruments. When the fund
invests in foreign securities, it will be subject to risks not typically
associated with domestic securities. Foreign investments, especially those
of companies in emerging markets, can be riskier and more volatile than
investments in the United States. Adverse political and economic develop-
ments or changes in the value of foreign currency can make it harder for
the fund to sell its securities and could reduce the value of your shares.
Differences in tax and accounting standards and difficulties in obtaining
information about foreign companies can negatively affect investment deci-
sions. Unlike more established markets, emerging markets may have govern-
ments that are less stable, markets that are less liquid and economies
that are less developed.
13
<PAGE>
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
Tom Johnson Investment Management, a Massachusetts corporation located at
Two Leadership Square, 211 North Robinson, Suite 450, Oklahoma City, Okla-
homa 73102, is the investment adviser to the fund. The adviser manages and
supervises the investment of the portfolio's assets on a discretionary ba-
sis. The adviser, an affiliate of United Asset Management Corporation, has
provided investment management services to corporations, unions, pension
and profit sharing plans, trusts, estates and other institutions as well
as individuals since 1983.
The fund has agreed to pay the adviser a management fee equal to 0.75% of
the fund's average net assets. In addition, the adviser has voluntarily
agreed to limit the total expenses of the fund to 1.25%, also expressed as
a percentage of its average net assets. To maintain this expense limit,
the adviser may waive a portion of its management fee and/or reimburse
certain expenses of the fund. The adviser intends to continue its expense
limitation until further notice, but may discontinue it at any time. Dur-
ing its most recent fiscal year, the fund paid 0.36% of its average net
assets as advisory fees to the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
14
<PAGE>
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
Distribution Plans
The fund has adopted a Distribution Plan and a Shareholder Services Plan
under Rule 12b-1 of the Investment Company Act of 1940 that permits them
to pay broker-dealers, financial institutions and other third parties for
the sale and distribution of its share and for marketing, and shareholder
services. The 12b-1 plans allow the fund to pay up to 1.00% of its average
daily net assets annually for these services. However, the fund is cur-
rently authorized to pay only 0.25% per year. Because this class of shares
pays these fees out of their assets on an ongoing basis, over time, your
shares may cost more than if you had paid another type of sales charge.
Shareholder Servicing
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate to the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may pay its affiliated companies for dis-
tribution and marketing services performed with respect to the fund.
15
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a
single share. The total returns in the table represent the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at
1-877-826-5465.
<TABLE>
<CAPTION>
Periods Ended April 30, 2000 1999 1998 1997 1996#
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $19.68 $17.30 $13.05 $11.05 $10.00
Income from Investment
Operations:
Net Investment Income 0.08 0.10 0.10 0.12 0.06
Net Realized and Unrealized
Gain (Loss) (0.96) 4.29 4.55 2.08 1.05
Total From Investment
Operations (0.88) 4.39 4.65 2.20 1.11
Distributions:
Net Investment Income (0.08) (0.10) (0.11) (0.11) (0.06)
Net Realized Gain (0.49) (1.91) (0.29) (0.09) --
Total Distributions (0.57) (2.01) (0.40) (0.20) (0.06)
Net Asset Value, End of
Period $ 18.23 $ 19.68 $ 17.30 $13.05 $11.05
Total Return+ (4.50)% 27.34% 36.05% 20.14% 11.13%++
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $40,191 $21,376 $11,348 $2,888 $1,023
Ratio of Expenses to Average
Net Assets 1.26% 1.25% 1.25% 1.26% 1.38%*
Ratio of Net Investment
Income to Average Net
Assets 0.41% 0.50% 0.74% 1.07% 1.06%*
Portfolio Turnover Rate 63% 54% 52% 27% 17%
</TABLE>
# For the period from September 28, 1995 (inception of institutional serv-
ice class shares), through April 30, 1996.
* Annualized
++Not annualized
+ Total return would have been different had certain fees not been waived
and expenses assumed by the adviser during the periods indicated.
16
<PAGE>
TJ Core Equity Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
TJ Core Equity Portfolio
Institutional Service Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August
28, 2000, as supplemented from time to time. You may obtain the Fund's
prospectus by contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial
Statements." No other portions of the annual report are incorporated by
reference.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
<S> <C>
Description of Permitted Investments............................... 1
Borrowing....................................................... 1
Debt Securities................................................. 1
Derivatives..................................................... 7
Equity Securities............................................... 15
Foreign Securities.............................................. 17
Investment Companies............................................ 21
Repurchase Agreements........................................... 21
Restricted Securities........................................... 21
Securities Lending.............................................. 22
Short Sales..................................................... 22
When Issued Transactions........................................ 23
Investment Policies of the Fund.................................... 24
Management of the Company.......................................... 24
Board Members................................................... 25
Officers........................................................ 26
Principal Shareholders............................................. 27
Investment Advisory and Other Services............................. 28
Investment Adviser.............................................. 28
Distributor..................................................... 29
Service And Distribution Plans.................................. 29
Administrative Services......................................... 32
Custodian....................................................... 33
Independent Accountants......................................... 33
Code of Ethics.................................................. 33
Brokerage Allocation and Other Practices........................... 34
Selection of Brokers............................................ 34
Simultaneous Transactions....................................... 34
Brokerage Commissions........................................... 34
Capital Stock and Other Securities................................. 34
Purchase, Redemption and Pricing of Shares......................... 37
Net Asset Value Per Share....................................... 37
Purchase of Shares.............................................. 37
Redemption of Shares............................................ 38
Exchange Privilege.............................................. 40
Transfer Of Shares.............................................. 40
Performance Calculations........................................... 40
Total Return.................................................... 40
Yield........................................................... 41
Comparisons..................................................... 42
Financial Statements............................................... 42
Glossary........................................................... 42
Bond Ratings....................................................... 43
Moody's Investors Service, Inc.................................. 43
Standard & Poor's Ratings Services.............................. 45
Fitch Ratings................................................... 48
Comparative Benchmarks............................................. 49
</TABLE>
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
Borrowing
--------------------------------------------------------------------------------
The Fund may not borrow money, except if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 33 1/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone
for temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the Fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
Debt Securities
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential
housing.
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FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
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Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the
security is of an investment quality comparable with other debt
securities that the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
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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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years -- the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
Derivatives
--------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for
this right, the Fund pays the current market price for the option (known as
the "option premium"). The Fund may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts")
or to benefit from a decline in the price of securities that it does not
own. The Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost
of purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. The Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. The Fund would ordinarily realize a gain if, during the
option period, the value of the underlying instrument exceeded the exercise
price plus the premium paid and related transaction costs. Otherwise, the
Fund would realize either no gain or a loss on the purchase of the call
option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. Similarly,
when the Fund writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. The Fund may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting
transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Fund may lose an amount of money equal to the difference between the value
of the security and the premium it received. Writing covered put options
may deprive the Fund of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, the Fund must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate,
foreign currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, the Fund of securities that corresponds to the
index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of
the option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put
option). If the option is exercised, the parties will be subject to the
futures contracts. In addition, the writer of an option on a futures
contract is subject to initial and variation margin requirements on the
option position. Options on futures contracts are traded on the same
contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts.
If the price of the futures contract at expiration were below the exercise
price, the Fund would retain the option premium, which would offset, in
part, any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if the market price
declines, the Fund would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Fund could
write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to
the contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between
currency traders (usually large commercial banks) and their customers,
as opposed to futures contracts which are traded only on exchanges
regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the
specific investments.
The Fund may use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Fund could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the Fund's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges
may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend
to minimize the risk of loss due to a decline in the value of the hedged
currency and to limit any potential gain that might result from the
increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may
include shifting exposure from U.S. dollars to a foreign currency, or from
one foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause the Fund to assume
the risk of fluctuations in the value of the currency it purchases. Cross
hedging transactions also involve the risk of imperfect correlation between
changes in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain
assets at the expiration or maturity of a forward or futures contract.
Accordingly, the Fund may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less
than the amount of foreign currency it is obligated to deliver. Conversely,
the Fund may have to sell on the spot market some of the foreign currency
it received upon the sale of a security if the market value of such
security exceeds the amount of foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of
cash flows between two parties on specified dates (settlement dates), where
the cash flows are based on agreed-upon prices, rates, indices, etc. The
nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors, such as interest rates, foreign currency rates, mortgage
securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to
and from the Fund. If a swap agreement calls for payments by the Fund, the
Fund must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. The Fund may be able to
eliminate its exposure under a swap agreement either by assignment or by
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party. If the counter-party is
unable to meet its obligations under the contract, declares bankruptcy,
defaults or becomes insolvent, the Fund may not be able to recover the
money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging,
the Fund will cover its current obligations under swap agreements according
to guidelines established by the SEC. If the Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under
the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index
swap, for example, the index receiver can gain exposure to stocks making up
the index of securities without actually purchasing those stocks. Equity
index swaps involve not only the risk associated with investment in the
securities represented in the index, but also the risk that the performance
of such securities, including dividends, will not exceed the return on the
interest rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating
rate cash flows. Termed basis swaps entail cash flows to both parties based
on floating interest rates, where the interest rate indices are different.
Index amortizing swaps are typically fixed-for floating swaps where the
notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money
by investing in an interest rate swap if interest rates change adversely.
For example, if the Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the Fund may have
to pay more money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for
a floating rate of interest, the Fund may receive less money than it has
agreed to pay.
Currency Swaps -- A currency swap is an agreement between two parties in
which one party agrees to make interest rate payments in one currency and
the other promises to make interest rate payments in another currency. The
Fund may enter into a currency swap when it has one currency and desires a
different currency. Typically the interest rates that determine the
currency swap payments are fixed, although occasionally one or both parties
may pay a floating rate of interest. Unlike an interest rate swap, however,
the principal amounts are exchanged at the beginning of the contract and
returned at the end of the contract. Changes in foreign exchange rates and
changes in interest rates, as described above may negatively affect
currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance of the Fund than
if it had not entered into any derivatives transactions. Derivatives may
magnify the Fund's gains or losses, causing it to make or lose
substantially more than it invested.
When used for hedging purposes, increases in the value of the securities
the Fund holds or intends to acquire should offset any losses incurred with
a derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of
poor correlation, the price of the securities the Fund is hedging may not
move in the same amount, or even in the same direction as the hedging
instrument. The adviser will try to minimize this risk by investing only in
those contracts whose behavior it expects to resemble the assets the Fund
it is trying to hedge. However, if the Fund's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the Fund may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying
instruments, even if the characteristics of the underlying instruments are
very similar to the derivative. Listed below are some of the factors that
may cause such a divergence:
. Current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the
imposition of daily price fluctuation limits or trading of an
instrument stops; and
. Differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the participation
of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based
on a broad market index. Since narrower indices are made up of a smaller
number of
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securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments precisely over
time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange
the contract was initially traded. Although the Fund intends to purchase
options and futures only where there appears to be an active market, there
is no guarantee that such a liquid market will exist. If there is no
secondary market for the contract, or the market is illiquid, the Fund may
not be able to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time
and price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of
an exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other occurrences may disrupt normal trading
activity; or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends,
the Fund may lose money by investing in derivatives. For example, if the
Fund were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if the Fund were to write
a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
Fund could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of
factors, including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can
change during a single trading day. Daily trading limits establish the
maximum amount that the price of a derivative may vary from the settlement
price of that derivative at the end of trading on the previous day. Once
the price of a derivative reaches this value, the Fund may not trade that
derivative at a price beyond that limit. The daily limit governs only price
movements during a given day and does not limit potential gains or losses.
Derivative prices have occasionally moved to the daily limit for several
consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a
derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative
may result in an immediate and substantial loss (as well as gain) to the
Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and
the liquidation of the company. However, in all other respects, preferred
stocks are subordinated to the liabilities of the issuer. Unlike common
stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a
fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the Fund's option during a specified time period
(such as convertible preferred stocks, convertible debentures and
warrants). A convertible security is generally a fixed income security that
is senior to common stock in an issuer's capital structure, but is usually
subordinated to similar non-convertible securities. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation. In
general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is
more volatile during times of steady interest rates than other types of
debt securities. In addition, they are also influenced by the market value
of the security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying
common stock declines.
A synthetic convertible security is a combination investment in which the
Fund purchases both (i) high-grade cash equivalents or a high grade debt
obligation of an issuer or U.S. Government securities and (ii) call options
or warrants on the common stock of the same or different issuer with some
or all of the anticipated interest income from the associated debt
obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. A synthetic convertible
position has similar investment characteristics, but may differ with
respect to credit quality, time to maturity, trading characteristics, and
other factors. Because the Fund will create synthetic convertible positions
only out of high grade fixed income securities, the credit rating
associated with the Fund's synthetic convertible investments is generally
expected to be higher than that of the average convertible security, many
of which are rated below high grade. However, because the options used to
create synthetic convertible positions will generally have expirations
between one month and three years of the time of purchase, the maturity of
these positions will generally be shorter than average for convertible
securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing
"time value" as maturity approaches), a synthetic convertible position may
lose such value more rapidly than a convertible security of longer
maturity; however, the gain in option value due to appreciation of the
underlying stock may exceed such time value loss, the market price of the
option component generally reflects these differences in maturities, and
the Adviser and applicable sub-adviser take such differences into account
when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, the Fund may
extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that
give the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price
that is usually higher than the market price at the time the warrant is
issued. Corporations often issue warrants to make the accompanying debt
security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets
of the issuer. In addition, their value does not necessarily change with
the value of the underlying securities, and they cease to have value if
they are not exercised on or before their expiration date. Investing in
rights and warrants increases the potential profit or loss to be realized
from the investment as compared with investing the same amount in the
underlying securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits
of owning a company, such investors must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to
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actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made by
its management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to
the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
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elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
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. A foreign government may act adversely to the interests of U.S.
investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U.S. investment. A
country may restrict or control foreign investments in its securities
markets. These restrictions could limit the Fund's ability to invest
in a particular country or make it very expensive for the Fund to
invest in that country. Some countries require prior governmental
approval, limit the types or amount of securities or companies in
which a foreigner can invest. Other countries may restrict the ability
of foreign investors to repatriate their investment income and capital
gains.
Information and Supervision
There is generally less publicly available information about foreign
companies than companies based in the United States. For example, there are
often no reports and ratings published about foreign companies comparable
to the ones written about United States companies. Foreign companies are
typically not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States companies. The lack of comparable information
makes investment decisions concerning foreign companies 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 more volatile and not as developed or efficient as
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 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;
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. Available quotation information is generally representative of very
large round-lot transactions in the inter-bank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-
clock market. To the extent that a market is closed while the markets
for the underlying currencies remain open, certain markets may not
always reflect significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce
the income the Fund receives from its investments. The Fund 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 Fund also anticipates
pricing, trading, settling and valuing investments whose nominal values
remain in their existing domestic currencies in Euros. Accordingly, the
Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than
Euro?
20
<PAGE>
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
Investment Companies
--------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to
the fees currently paid by the Fund. Like other shareholders, the Fund
would pay its proportionate share of those fees. Consequently, shareholders
of the Fund would pay not only the management fees of the Fund, but also
the management fees of the investment company in which the Fund invests.
The Fund may invest up to 10% of its total assets in the securities of
other investment companies, but may not invest more than 5% of its total
assets in the securities of any one investment company or acquire more than
3% of the outstanding securities of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Fund,
provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the
assets of the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market"
on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
Restricted Securities
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for
sale to the general public 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 the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
Fund or less than what may be considered the fair value of such
securities.
21
<PAGE>
SECURITIES LENDING
--------------------------------------------------------------------------------
The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund 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
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When the Fund lends securities, there is a risk that the borrower will
become financially unable to honor its contractual obligations. If this
happens, the Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
--------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Likewise, the Fund can profit if the price
of the security declines between those dates.
To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The Fund will incur
transaction costs in effecting short sales. The Fund's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the Fund may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
22
<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no
extra cost. The Fund will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by the Fund would exceed the two percent (2%) of the value
of the Fund's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the Fund is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN ISSUED TRANSACTIONS
--------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, the Fund 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 Fund has committed to purchase before the
securities are delivered, although the Fund may earn income on securities
it has in a segregated account. The Fund will only enter into these types
of transactions with the intention of actually acquiring the securities,
but may sell them before the settlement date.
The Fund 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 Fund 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
Fund may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
23
<PAGE>
INVESTMENT POLICIES OF THE FUND
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will determine investment limitation percentages (with the exception
of a limitation relating to borrowing) immediately after and as a result of
its acquisition of such security or other asset. Accordingly, the Fund will
not consider changes in values, net assets or other circumstances when
determining whether the investment complies with its investment
limitations. The Fund will not:
The Fund will not:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the U.S. government or any if its agencies or
instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any one issuer.
. Invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government and its
agencies.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 331/3% of
the portfolio's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal
in real estate and may purchase and sell securities which are secured
by interests in real estate.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives, (ii) entering into repurchase agreements or
(iii) by lending its portfolio securities to banks, brokers, dealers
and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder.
. Underwrite the securities of other issuers.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the portfolio from (i)
making any permitted borrowings, mortgages or pledges, or (ii)
entering into option, futures or repurchase transactions.
MANAGEMENT OF THE COMPANY
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
24
<PAGE>
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds in the UAM Complex.
The Company does not pay its Interested Directors or officers for their
services as Directors or officers.
BOARD MEMBERS
--------------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and, therefore,
does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Company as of Complex as of
Date of Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
===========================================================================================================================
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH 03226 Company, Inc. (investment management). From 1988 to
1/26/29 1993, Mr. Bennett was President of Bennett Management
Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN 46290 since March 2000. From June 1998 to March 2000 he
4/21/42 was Executive Vice President and Chief Administrative
Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Company as of Complex as of
Date of Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
===========================================================================================================================
<S> <C> <C> <C>
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison of Broventure Company, Inc., a company engaged in the
Street investment management business. He is also Chairman of
Baltimore, MD the Board of Chektec Corporation (Drugs) and Cyber
21201 Scientific, Inc. (computer mouse company). Mr.
8/5/48 English serves on the Board of each Company in the
UAM Funds Complex.
---------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
OFFICERS
--------------------------------------------------------------------------------
The following table lists the officers of the Company and provides
information regarding their present positions, date of birth, address and
their principal occupations during the past five years. The Company's
officers are paid by UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and Chairman
------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer);
211 Congress Street Treasurer of the Fidelity Group of Mutual Funds from 1991 to 1995
Boston, MA 02110 (mutual funds); held various other offices with Fidelity Investments
7/4/51 (financial services) from November 1990 to March 1995.
------------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice President and
7/31/65 Secretary of Signature Financial Group, Inc. (financial services) and
affiliated broker-dealers from 1991 to 2000; Director and Secretary of Signature
Financial Group Europe, Ltd. (financial services) from 1995 to 2000; Secretary
of the Citigroup Family of Mutual Funds (mutual funds) from 1996 to 2000;
Secretary of the 59 Wall Street Family of Mutual Funds (mutual funds) from
1996 to 2000.
------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
PRINCIPAL SHAREHOLDERS
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Fund:
<TABLE>
<CAPTION>
Name and Address of Shareholder Percentage of Shares Owned
=======================================================================================================================
<S> <C>
Charles Schwab & Co., Inc. 25.37%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
-----------------------------------------------------------------------------------------------------------------------
UMBSC & Co 20.59%
FBO Lillick & Charles TJ Core
C/O Trust Department
PO Box 419175
Kansas City, MO 64141-6175
-----------------------------------------------------------------------------------------------------------------------
Wilmington Trust Co Tr 7.05%
FBO Catholic Healthcare West
Deferred Company TR
C/O Mutual Funds/UAM
P.O. Box 8971
Wilmington, DE 19899-8971
-----------------------------------------------------------------------------------------------------------------------
UMBSC & Co. FBO UTD Meth Fdn Chr Rtr 6.76%
P.O. Box 419260
Kansas City, MO 64141-6260
-----------------------------------------------------------------------------------------------------------------------
Fire Co. 5.90%
P.O.Box 26883
Oklahoma City, OK 73126-0883
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is defined
in the 1940 Act) the portfolio. Shareholders controlling the portfolio
could have the ability to vote a majority of the shares of the portfolio on
any matter requiring the approval of shareholders of the portfolio. As of
August 21, 2000, the directors and officers of the Company owned less than
1% of the outstanding shares of the Fund.
27
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
--------------------------------------------------------------------------------
Tom Johnson Investment Management, a Massachusetts corporation located at
Two Leadership Square, 211 North Robinson, Suite 450, Oklahoma City,
Oklahoma, is the investment adviser to the Fund. The adviser manages and
supervises the investment of the Fund's assets on a discretionary basis.
The adviser, an affiliate of United Asset Management Corporation, has
provided investment management services to corporations, unions, pension
and profit sharing plans, trusts, estates and other institutions as well as
individuals since 1983.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated
in Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM Affiliated Firms are separately
chosen by each of them. Several UAM Affiliated Firms also act as investment
advisers to separate series or portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment
program of the Fund; and
. Determines what portion of the Fund's assets will be invested in
securities and what portion will consist of cash.
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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the
shareholders of the Fund.
28
<PAGE>
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of
Board Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual
rate of 0.75% of its average daily net assets. Due to the effect of fee
waivers by the adviser, the actual percentage of average net assets that
the Fund pays in any given year may be different from the rate set forth in
its contract with the adviser. For the last three fiscal years, the Fund
paid the following in advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
=======================================================================================================================
<S> <C> <C> <C> <C>
4/30/00 $127,887 $137,537 $265,424
-----------------------------------------------------------------------------------------------------------------------
4/30/99 $0 $99,818 $99,818
-----------------------------------------------------------------------------------------------------------------------
4/30/98 $0 $63,097 $63,097
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any
particular amount of shares. UAMFDI, an affiliate of UAM, is located at 211
Congress Street, Boston, Massachusetts 02110. UAMFDI receives no
compensation for its services as distributor of the Institutional Class
Shares.
SERVICE AND DISTRIBUTION PLANS
--------------------------------------------------------------------------------
The Company has adopted a Distribution Plan and a Shareholder Servicing
Plan (the "Plans") for their Institutional Service Class Shares pursuant to
Rule 12b-1 under the 1940 Act.
Shareholder Servicing Plan
The Shareholder Servicing Plan (Service Plan) permits the Company to
compensate broker-dealers or other financial institutions (Service Agents)
that have agreed with UAMFDI to provide administrative support services to
Institutional Service Class shareholders that are their customers. Under
the Service Plan, Institutional Service Class Shares may pay service fees
at the maximum annual rate of 0.25% of the average daily net asset value of
such shares held by the Service Agent for the benefit of its customers. The
Company pays these fees out of the assets allocable to Institutional
Service Class Shares to UAMFDI, to the Service Agent directly or through
UAMFDI. Each item for which a payment may be made under the Service Plan
constitutes personal service and/or shareholder account maintenance and may
constitute an expense of distributing Institutional Service Class Shares as
the SEC construes such term under Rule 12b-1. Services for which
Institutional Service Class Shares may compensate Service Agents include:
. Acting as the sole shareholder of record and nominee for beneficial
owners.
. Maintaining account records for such beneficial owners of the Fund's
shares.
. Opening and closing accounts.
. Answering questions and handling correspondence from shareholders
about their accounts.
29
<PAGE>
. Processing shareholder orders to purchase, redeem and exchange shares.
. Handling the transmission of funds representing the purchase price or
redemption proceeds.
. Issuing confirmations for transactions in the Fund's shares by
shareholders.
. Distributing current copies of prospectuses, statements of additional
information and shareholder reports.
. Assisting customers in completing application forms, selecting
dividend and other account options and opening any necessary custody
accounts.
. Providing account maintenance and accounting support for all
transactions.
. Performing such additional shareholder services as may be agreed upon
by the Company and the Service Agent, provided that any such
additional shareholder services must constitute a permissible non-
banking activity in accordance with the then current regulations of,
and interpretations thereof by, the Board of Governors of the Federal
Reserve System, if applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits the Fund to pay UAMFDI or others for certain
distribution, promotional and related expenses involved in marketing its
Institutional Service Class Shares. Under the Distribution Plan,
Institutional Service Class Shares may pay distribution fees at the maximum
annual rate of 0.75% of the average daily net asset value of such shares
held by the Service Agent for the benefit of its customers. These expenses
include, among other things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of
making such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions
from prospective and existing investors about the Company.
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements
of additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Company, including
obtaining information from the Company and providing performance and
other information about the Company.
In addition, the Institutional Service Class Shares may make payments
directly to other unaffiliated parties, who either aid in the distribution
of their shares or provide services to the Class.
Fees Paid under the Service and Distribution Plans
The Plans permit Institutional Service Class Shares to pay distribution and
service fees at the maximum annual rate of 1.00% of the class' average
daily net assets for the year. The Company's governing board has limited
the amount the Institutional Service Class may pay under the Plans to 0.25%
of the class' average daily net assets for the year, and may increase such
amount to the plan maximum at any time. During the fiscal year ended April
30, 2000, the Institutional Services Class of the Fund paid $88,442 in
expenses under the Service Plan for services described above.
The Company will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Company may buy or sell
Fund securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for
aid in providing administrative services to shareholders.
30
<PAGE>
Approving, Amending and Terminating the Plans
Shareholders of the Fund have approved the Plans. The Plans also were
approved by the governing board of the Company, including a majority of the
members of the board who are not interested persons of the Company and who
have no direct or indirect financial interest in the operation of the Plans
(Plan Members), by votes cast in person at meetings called for the purpose
of voting on these Plans.
Continuing the Plans
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Company's board members and its Plan Members.
To continue the Plans, the board must determine whether such continuation
is in the best interest of the Institutional Service Class shareholders and
that there is a reasonable likelihood of the Plans providing a benefit to
the Class. The Company's board has determined that the Company's
distribution arrangements are likely to benefit the Company and its
shareholders by enhancing the Company's ability to efficiently service the
accounts of its Institutional Service Class shareholders.
Amending the Plans
A majority of the Company's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the
Plans must be approved by a majority of the outstanding voting securities
of the Class, as well as by a majority of the Plan Members.
Terminating the Plans
A majority of the Plan Members or a majority of the outstanding voting
securities of the Class may terminate the Plans at any time without
penalty. In addition, the Plans will terminate automatically upon their
assignment.
Miscellaneous
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Company.
The Company and UAMFDI intend to comply with the Conduct Rules of the
National Association of Securities Dealers relating to investment company
sales charges. with these rules.
Pursuant to the Plans, the board reviews, at least quarterly, a written
report of the amounts expended under each agreement with Service Agents and
the purposes for which the expenditures were made.
Additional Non-12b-1 Shareholder Servicing Arrangements
In addition to payments by the Company under the Plans, UAM and any of its
affiliates, may, at its own expense, compensate a Service Agent or other
person for marketing, shareholder servicing, record-keeping and/or other
services performed with respect to the Company, the Fund or any class of
shares of the Fund. The person making such payments may do so out of its
revenues, its profits or any other source available to it. Such services
arrangements, when in effect, are made generally available to all qualified
service providers. The adviser may also compensate its affiliated companies
for referring investors to the Fund.
31
<PAGE>
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
. Advisory and administration fees;
. Charges and expenses of pricing and data services, independent public
accountants and custodians;
. Insurance premiums including fidelity bond premiums;
. Outside legal expenses;
. Costs of maintenance of corporate existence;
. Typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of each portfolio of the
Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
32
<PAGE>
1. An annual fee to UAMFSI for administration services calculated as follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services, which
UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM Funds
Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services as
sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last three fiscal years the Fund paid the following in
administration fees:
<TABLE>
<CAPTION>
Fiscal Year End Total Administration Fee
=========================================================================================================================
<S> <C> <C>
4/30/00 $120,580
-------------------------------------------------------------------------------------------------------------------------
4/30/99 $20,503
-------------------------------------------------------------------------------------------------------------------------
4/30/98 $3,366
</TABLE>
* Effective March 1, 1998, UAMFSI became the Fund's administrator. Prior to
March 1, 1998, another firm provided administrative services to the Fund.
CUSTODIAN
--------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by the Fund.
33
<PAGE>
Brokerage Allocation And Other Practices
SELECTION OF BROKERS
--------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction. For the fiscal year ended April 30, 2000, neither the Fund nor
the adviser directed and of the portfolio brokerage transactions to a
broker because of research services provided.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the
purchase of Company shares for their clients.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's Board periodically reviews the various
allocation methods used by the adviser.
BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last three fiscal years, the Fund has paid the following in
brokerage commissions.
<TABLE>
<CAPTION>
Fiscal Year End Brokerage Commissions
=========================================================================================================================
<S> <C> <C>
4/30/00 $69,696
-------------------------------------------------------------------------------------------------------------------------
4/30/99 $23,689
</TABLE>
34
<PAGE>
4/30/98 $18,284
Capital Stock And Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company and the Fund
is diversified. This means that with respect to 75% of its total assets,
the Fund may not invest more than 5% of its total assets in the securities
of any one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder
servicing and the distribution of such shares pursuant to a
distribution plan or other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
35
<PAGE>
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
gains :
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
Unless the shareholder elects otherwise in writing, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to the Fund at least three days before the record date for income dividend
or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and excise taxes. If the Fund were to fail to make sufficient
distributions in a year, it would be subject to corporate income taxes
and/or excise taxes. In addition, if the shortfall were large enough, the
Fund could be disqualified as a regulated investment company. If the Fund
were to fail to so qualify: (1) it would be taxed at regular corporate
rates without any deduction for distributions to shareholder; and (2) its
shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends
received deduction. Moreover, if the Fund were to fail to make sufficient
distributions in a year, the Fund would be subject to corporate income
taxes and/or excise taxes in respect of the shortfall or, if the shortfall
is large enough, the Fund could be disqualified as a regulated investment
company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year
period ending October 31 of such calendar year and 100% of any such amounts
that were not distributed in the prior year. The Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
As of April 30, 2000, the Fund had no capital loss carryovers.
36
<PAGE>
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
---------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal
to its NAV. The Fund calculates its NAV by subtracting its liabilities
from its total assets and dividing the result by the total number of
shares outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by
the Fund, plus cash and other assets plus income accrued but not
yet received.
The Fund normally calculates its NAV as of the close of trading on the
NYSE every day the NYSE is open for trading. The NYSE usually closes
at 4:00 p.m. The NYSE is closed on the following days: New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
How the Company 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 the U.S. dollar 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
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 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 Fund calculates its NAV on the following business day.
Service Agents are responsible to their customers and the Company for
timely transmission of all subscription and redemption requests,
investment information, documentation and money.
37
<PAGE>
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of the Fund at the NAV of the Fund determined as
of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the adviser.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts,
guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
By Telephone
Shareholders may not do the following by telephone:
38
<PAGE>
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Fund in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of securities received in payment of
redemptions.
The Company 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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Fund. If the Fund pays redemption proceeds with securities instead of cash,
it will value such securities as set forth under "How the Company Values
its Assets." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company 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.
39
<PAGE>
Broker-dealers guaranteeing signatures must be a member of a clearing
corporation or maintain net capital of at least $100,000. Credit unions
must be authorized to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
Exchange Privilege
--------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
Transfer Of Shares
--------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
PERFORMANCE CALCULATIONS
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
Total Return
--------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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
40
<PAGE>
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 expenses on an annual basis. Since Adviser Class Shares
and 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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
and the five-year period ended April 30, 2000 and the period from the
Fund's inception date through April 30, 2000.
<TABLE>
<CAPTION>
One Year Five Years Since Inception Inception Date
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-4.50% N/A 18.89% 9/28/95
</TABLE>
Yield
--------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period. Since Adviser Class Shares and 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.
The table lists the Fund's 30-day SEC yield for period ended April 30,
2000.
<TABLE>
<CAPTION>
One Year
-----------------------------------------------------------------------------------------------------------------------
<S> <C>
Institutional Service Class 0.35%
</TABLE>
41
<PAGE>
Comparisons
--------------------------------------------------------------------------------
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not
be identical to the formula used by the Fund to calculate its
performance; and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
FINANCIAL STATEMENTS
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
GLOSSARY
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
42
<PAGE>
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Fund refers to the TJ Core Equity Portfolio, which is a series of the
Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
the 1934 ACT.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
BOND RATINGS
Moody's Investors Service, Inc.
---------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates
good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
aa An issue that 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 that is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are
judged to be somewhat greater than in the "aaa" and
"aa" classification, earnings and asset protection
are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms
of the issue over any long period of time may be
small.
caa An issue that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance
of dividend payments and maintenance of other terms
of the issue over any long period of time may be
small.
43
<PAGE>
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have
other marked shortcomings.
c This is the lowest rated class of preferred or
preference stock. Issues so rated can thus be
regarded as having extremely poor prospects of ever
attaining any real investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in
minus (-) 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 that 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best
bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or
there may be other elements present that make the
long-term risks appear somewhat larger than the Aaa
securities.
A Bonds that are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the
future.
Baa Bonds that 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 that 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 that 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 that 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 that are rated Ca represent obligations that
are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds that 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.
44
<PAGE>
Con. (...) (This rating applies only to U.S. Tax-Exempt
Municipals) Bonds for which the security depends
upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in
operating experience, (c) rentals that begin when
facilities are completed, or (d) payments to which
some other limiting condition attaches.
Parenthetical rating denotes probable credit stature
upon completion of construction or elimination of
basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution)
have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the
following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
. Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
. Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-
term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to
variation. Capitalization characteristics, while
still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior
short-term obligation. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and
profitability may result in changes in the level of
debt protection measurements and may require
relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of
the Prime rating categories.
Standard & Poor's Ratings Services
--------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
45
<PAGE>
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with the
category definition.
AAA An obligation rated 'AAA' has the highest rating
assigned by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest
rated obligations only in small degree. The
obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated 'A' is somewhat more susceptible
to the adverse effects of changes in circumstances
and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is
still strong.
BBB An obligation rated 'BBB' exhibits adequate
protection parameters. However, adverse economic
conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC,' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to
nonpayment than other speculative issues. However,
it faces major ongoing uncertainties or exposures to
adverse business, financial, or economic conditions
which could lead to the obligor's inadequate
capacity to meet its financial commitment on the
obligation.
B An obligation rated 'B' is more vulnerable to
nonpayment than obligations rated 'BB', but the
obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse
business, financial, or economic conditions will
likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
CCC An obligation rated 'CCC' is currently vulnerable to
non-payment, and is dependent upon favorable
business, financial, and economic conditions for the
obligor to meet its financial commitment on the
obligation. In the event of adverse business,
financial, or economic conditions, the obligor is
not likely to have the capacity to meet its
financial commitment on the obligations.
CC An obligation rated 'CC' is currently highly
vulnerable to nonpayment.
C A subordinated debt or preferred stock obligation
rated 'C' is CURRENTLY HIGHLY VULNERABLE to non-
payment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed
or similar action taken, but payments on this
obligation are being continued. A 'C' will also be
assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is
currently paying.
D An obligation rated 'D' is in payment default. The
'D' rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless
Standard & Poor's believes that such payments will
be made during such grace period. The 'D' rating
also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if
payments on an obligation are jeopardized.
46
<PAGE>
r This symbol is attached to the ratings of
instruments with significant noncredit risks. It
highlights risks to principal or volatility of
expected returns which are not addressed in the
credit rating. Examples include: obligation linked
or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such
as interest-only or principal-only mortgage
securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested,
that there is insufficient information on which to
base a rating, or that Standard & Poor's does not
rate a particular obligation as a matter of policy.
Debt obligations of issues outside the United States
and its territories are rated on the same basis as
domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor and do
not take into account currency exchange and related
uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the
highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is strong. Within this category, certain
obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet
its financial commitment on these obligations is
extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than
obligations in higher rating categories. However,
the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits
adequate protection parameters. However, adverse
economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the
obligation.
B A short-term obligation rated 'B' is regarded as
having significant speculative characteristics. The
obligor currently has the capacity to meet its
financial commitment on the obligation; however, it
faces major ongoing uncertainties which could lead
to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated 'C' is currently
vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic
conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated 'D' is in payment
default. The 'D' rating category is used when
payments on an obligation are not made on the date
due even if the applicable grace period has not
expired, unless Standard & Poors' believes that such
payments will be made during such grace period. The
'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
47
<PAGE>
Fitch Ratings
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the
lowest expectation of credit risk. They are assigned
only in case of exceptionally strong capacity for
timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected
by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very
low expectation of credit risk. They indicate very
strong capacity for timely payment of financial
commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low
expectation of credit risk. The capacity for timely
payment of financial commitments is considered
strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in
economic conditions than is the case for higher
ratings.
BBB Good credit quality. `BBB' ratings indicate that
there is currently a low expectation of credit risk.
The capacity for timely payment of financial
commitments is considered adequate, but adverse
changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a
possibility of credit risk developing, particularly
as the result of adverse economic change over time;
however, business or financial alternatives may be
available to allow financial commitments to be met.
Securities rated in this category are not investment
grade.
B Highly speculative. `B' ratings indicate that
significant credit risk is present, but a limited
margin of safety remains. Financial commitments are
currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable
business and economic environment.
CCC,CC,C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or
economic developments. A `CC' rating indicates that
default of some kind appears probable. `C' ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category
are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation
of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any
precision, the following serve as general
guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. "D"
indicates potential recoveries in the range of 50%-
90%, and "D" the lowest recovery potential, i.e.,
below 50%.
Entities rated in this category have defaulted
on some or all of their obligations. Entities rated
"DDD" have the highest prospect for resumption of
performance or continued operation with or without a
formal reorganization process. Entities rated "DD"
and "D" are generally undergoing a formal
reorganization or liquidation process; those rated
"DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
48
<PAGE>
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity
for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong
credit feature.
F2 Good credit quality. A satisfactory capacity for
timely payment of financial commitments, but the
margin of safety is not as great as in the case of
the higher ratings.
F3 Fair credit quality. The capacity for timely payment
of financial commitments is adequate; however, near-
term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-
term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility.
Capacity for meeting financial commitments that is
highly uncertain and 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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
COMPARATIVE BENCHMARKS
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of change, over time in
the price of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
49
<PAGE>
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
------------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public, nonconvertible debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental agencies, or
international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate
Bond Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
50
<PAGE>
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign
common stocks and ADRs.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices --capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
----------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
51
<PAGE>
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the performance
of the 2,500 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. Russell 1000(R) Value Index - measures the performance of
Russell 1000 with lower price-to-book ratios and lower forecasted growth
values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those Russell
Top 200 companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell Midcap(TM) Growth Index - measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap(TM) Value Index - measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
Standard & Poor's U.S. Indices:
-------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123
52
<PAGE>
sub-industries covering almost 6,000 companies globally. The new
classification standard will be used with all of their respective indices.
Features of the new classification include 10 economic sectors, rather than
the 11 S&P currently uses. Sector and industry gradations are less severe.
Rather than jumping from 11 sectors to 115 industries under the former S&P
system, the new system progresses from 10 sectors through 23 industry
groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
53
<PAGE>
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries--Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan--are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill
issues.
Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and
inflation.
Target Large Company Value Index - an index comprised of large companies
with market capitalizations currently extending down to approximately $1.9
billion that are monitored using a variety of relative value criteria in
order to capture the most attractive value opportunities available. A high
quality profile is required and companies undergoing adverse financial
pressures are eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all
treasury bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted
index of publicly traded real estate securities, including real estate
investment trusts, real estate operating companies and partnerships. The
index is used by the institutional investment community as a broad measure
of the performance of public real estate equity for asset allocation and
performance comparison.
Wilshire REIT Index - includes 112 real estate investment trusts (REITs)
but excludes seven real estate operating companies that are included in the
Wilshire Real Estate Securities Index.
Note: With respect to the comparative measures of performance for equity
securities described herein, comparisons of performance assume reinvestment
of dividends, except as otherwise stated.
54
<PAGE>
UAM Funds
Funds for the Informed Investor sm
TS&W International Octagon Portfolio
(formerly, Jacobs International Octagon Portfolio)
Institutional Class Shares Prospectus August 28, 2000
[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.
<PAGE>
Table Of Contents
<TABLE>
<S> <C>
Fund Summary..................................................................1
</TABLE>
<TABLE>
<S> <C>
What are the Fund's Objectives?............................................ 1
What are the Fund's Principal Investment Strategies?....................... 1
What are the Fund's Principal Risks?....................................... 3
How Has the Fund Performed?................................................ 4
What are the Fund's Fees and Expenses?..................................... 4
</TABLE>
<TABLE>
<S> <C>
Investing with the UAM Funds..................................................6
</TABLE>
<TABLE>
<S> <C>
Buying
Shares.....6
Redeeming
Shares.....7
Exchanging
Shares.....9
Transaction
Policies...9
Account
Policies..11
</TABLE>
<TABLE>
<S> <C>
Additional Information About the Fund........................................13
</TABLE>
<TABLE>
<S> <C>
Other Investment Practices and Strategies.................................. 13
Investment Management...................................................... 14
Shareholder Servicing Arrangements......................................... 14
</TABLE>
<TABLE>
<S> <C>
Financial Highlights.........................................................16
</TABLE>
<PAGE>
Fund Summary
WHAT ARE THE FUND'S OBJECTIVES?
-------------------------------------------------------------------------------
The fund seeks to provide long-term capital appreciation by investing in
equity securities of companies in developed and emerging markets. The fund
may not change its objective without shareholder approval.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
-------------------------------------------------------------------------------
The fund normally invests at least 80% of its total assets in equity secu-
rities of companies located in at least three countries outside the United
States. Typically, the fund may invest about 20% to 40% of total assets in
small companies (typically companies with market capitalizations of less
than $1.5 billion at the time of purchase). The adviser expects to diver-
sify the investments of the fund throughout the world and within markets
to minimize specific country and currency risks. The adviser selects in-
vestments for the fund using a flexible, value-oriented approach that fo-
cuses on companies rather than on countries or markets.
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, pre-
ferred stocks, convertible securities, rights and warrants.
Foreign securities include securities of companies located outside the
United States and American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs) and other similar global instruments. ADRs are certifi-
cates evidencing ownership of shares of a foreign issuer that are issued
by depository banks and generally trade on an established market in the
United States or elsewhere. EDRs are similar to ADRs, except that European
Banks or trust companies typically issue them. Although ADRs and EDRs are
alternatives to directly purchasing the underlying foreign securities in
their national markets and currencies, they continue to be subject to many
of the risks associated with investing directly in foreign securities.
Security Selection
The adviser looks for companies that it believes will benefit from global
trends, promising business or product developments and changing economic,
social and political trends. The adviser seeks to identify stocks selling
at the greatest discount to their intrinsic future value by comparing its
estimate of the company's future earnings and cash flow to the
1
<PAGE>
industry average. In attempting to identify value across disparate econo-
mies in the international marketplace, the adviser believes that rigid ad-
herence to a single model results in missed opportunities. Therefore, the
adviser ascertains a company's value using a variety of measurements, in-
cluding its stock price-to-cash flow, enterprise value-to-cash flow and
price-to-future earnings ratios.
After concluding that a particular company is good investment, the adviser
sets a purchase price, calculates its potential appreciation and ranks the
investment versus other potential investments. The fund may purchase the
security if the adviser considers it to be a value investment.
The fund intends to purchase and hold securities for two to four years and
does not expect to trade for short-term gain. The fund sells a security:
. When it reaches its target price. Target prices are determined based
on the adviser's valuation models and perception of risk in a particu-
lar country or region.
. To make room for more attractive alternatives.
Country Allocation
The adviser expects to diversify the investments of the fund throughout
the world and within markets to minimize specific country and currency
risks. The adviser allocates investments to countries based on its percep-
tion of risks in that country and not on any predetermined guidelines. The
following table lists some of the countries in which the fund may invest:
<TABLE>
<S> <C> <C>
Argentina Greece Peru
Australia Hong Kong Philippines
Austria Indonesia Poland
Bermuda Ireland Portugal
Brazil Israel Russia
Czech Republic Italy Singapore
Chile Korea Spain
China Japan Sweden
Denmark Malaysia Switzerland
Finland Mexico Thailand
France Netherlands United Kingdom
Germany Norway
</TABLE>
Although it may invest entirely in countries with developed or emerging
markets, the fund usually invests 10% to 40% of its assets in companies
located in emerging markets. A company is located in an emerging country
if it has one or more of the following characteristics:
2
<PAGE>
. Its principal securities trading market is in an emerging country.
. It derives 50% or more of its annual revenue from goods produced,
sales made or services performed in emerging countries.
. It is organized under the laws of, and has a principal office in, an
emerging country.
It may be too difficult or too risky for the fund to invest in some emerg-
ing countries. Consequently, the fund will focus its investments on those
countries where it believes the economies are developing and the markets
are becoming more sophisticated.
WHAT ARE THE FUND'S PRINCIPAL RISKS?
-------------------------------------------------------------------------------
As with all mutual funds, at any time, your investment in the fund may be
worth more or less than the price that you originally paid for it. There
is also a possibility that the fund will not achieve its goal. This could
happen because its strategy failed to produce the intended results or be-
cause the adviser did not implement its strategy properly. The fund's
shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government authority or the FDIC. You may
lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the
fund's shares and the total return on your investment include the possi-
bility that the equity securities held by the fund will experience sudden,
unpredictable drops in value or long periods of decline in value. This may
occur because of factors that affect the securities markets generally,
such as adverse changes in economic conditions, the general outlook for
corporate earnings, interest rates or investor sentiment. Equity securi-
ties may also lose value because of factors affecting an entire industry
or sector, such as increases in production costs, or factors directly re-
lated to a specific company, such as decisions made by its management.
Value oriented mutual funds may not perform as well as certain other types
of equity mutual funds during periods when value stocks are out of favor.
Investing in stocks of smaller companies can be riskier than investing in
larger, more mature companies. Smaller companies may be more vulnerable to
adverse developments than larger companies because they tend to have nar-
rower product lines and more limited financial resources. Their stocks may
trade less frequently and in limited volume.
When the fund invests in foreign securities, it will be subject to risks
not typically associated with domestic securities. Foreign investments,
espe-
3
<PAGE>
cially investments in emerging markets, can be riskier and more volatile
than investments in the United States. Adverse political and economic de-
velopments or changes in the value of foreign currency can make it harder
for a fund to sell its securities and could reduce the value of your
shares. Differences in tax and accounting standards and difficulties in
obtaining information about foreign companies can negatively affect in-
vestment decisions. Unlike more established markets, emerging markets may
have governments that are less stable, markets that are less liquid and
economies that are less developed.
HOW HAS THE FUND PERFORMED?
-------------------------------------------------------------------------------
The following information illustrates some of the risks of investing in
the fund. The bar chart shows how performance of the fund has varied from
year to year. The average annual return table compares the average annual
returns of the fund to those of a broad-based securities market index. Re-
turns are based on past results and are not an indication of future per-
formance.
Calendar Year Returns
[CHART]
During the periods shown in the chart for the fund, the highest return for
a quarter was 35.93% (quarter ending 12/31/99) and the lowest return for a
quarter was -20.74% (quarter ending 09/30/98). For the period from January
1, 2000, through June 30, 2000, the fund returned -7.32%.
Average Annual Returns For Periods Ended December 31, 1999
<TABLE>
<CAPTION>
Since
1 Year 1/2/97*
----------------------------------------------------------------
<S> <C> <C>
TSW International Octagon Portfolio 44.42% 13.46%
----------------------------------------------------------------
Morgan Stanley Capital International EAFE Index 26.96% 16.06%
</TABLE>
* Beginning of operations. Index comparisons begin on December 31, 1996.
4
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
-------------------------------------------------------------------------------
Shareholder Transaction Fees (fees paid directly from your investment)
The fund is a no-load investment, which means there are no fees or charges
to buy or sell its shares, to reinvest dividends or to exchange into other
UAM Funds.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
The fund does have annual operating expenses and as a shareholder you pay
them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of the fund.
<TABLE>
<S> <C>
Management Fees 1.00%
--------------------------------------------
Other Expenses 0.61%
--------------------------------------------
Total Annual Fund Operating Expenses 1.61%
</TABLE>
Example
This example can help you to compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example assumes you in-
vest $10,000 in the fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year, that you reinvested all
of your dividends and distributions and that you paid the total expenses
stated above (which do not reflect any expense limitations) throughout the
period of your investment. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$164 $508 $876 $1,911
</TABLE>
5
<PAGE>
Investing with the UAM Funds
BUYING SHARES
-------------------------------------------------------------------------------
By Mail
You can open an account with the fund by sending a check or money order
and your account application to the UAM Funds. You should make your check
or money order payable to the "UAM Funds." The UAM Funds do not accept
third-party checks. You can add to an existing account by sending a check
and, if possible, the "Invest by Mail" stub that accompanied your state-
ment to the UAM Funds. Be sure your check identifies clearly your name,
your account number and the fund name.
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
Express Mail Address
UAM Funds
210 West 10th Street
Kansas City, MO 64105
By Wire
To open an account by wire, first call 1-877-826-5465 for an account num-
ber and wire control number. Next, send your completed account application
to the UAM Funds. Finally, wire your money using the wiring instructions
set forth below. To add to an existing account by wire, call 1-877-826-
5465 to get a wire control number and wire your money to the UAM Funds.
Wiring Instructions
United Missouri Bank
ABA # 101000695
UAM Funds
DDA Acct. # 9870964163
Ref: fund name/account number/
account name/wire control number
By Automatic Investment Plan (Via Automated Clearing House or ACH)
You may not open an account via ACH. However, once you have established an
account, you can set up an automatic investment plan by mailing a com-
pleted application to the UAM Funds. To cancel or change a plan, write to
the UAM Funds. Allow up to 15 days to create the plan and 3 days to cancel
or change it.
6
<PAGE>
Minimum Investments
You can open an account with the fund with a minimum initial investment of
$2,500 ($500 for individual retirement accounts (IRAs) and $250 for
Spousal IRAs). You can buy additional shares for as little as $100.
Fund Codes
The fund's reference information, which is listed below, will be helpful
to you when you contact the UAM Funds to purchase or exchange shares,
check daily net asset value per share (NAV) or get additional information.
<TABLE>
<CAPTION>
Trading
Symbol CUSIP Fund Code
--------------------------------------------------------------------------------------------------
<S> <C> <C>
JIOPX 902556828 900
</TABLE>
Rights Reserved by the UAM Funds
At any time and without notice, the UAM Funds may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting manage-
ment and by increasing expenses.)
REDEEMING SHARES
-------------------------------------------------------------------------------
By Mail
Send a letter to the UAM Funds specifying:
. The fund name;
. The account number;
. The dollar amount or number of shares you wish to redeem;
. The account name(s); and
. The address.
All registered share owner(s) in the exact name(s) and any special capac-
ity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem
shares. Please see the Statement of Additional Information (SAI) if you
need more information.
7
<PAGE>
Regular Mail Address
UAM Funds
PO Box 219081
Kansas City, MO 64121
By Telephone
You may redeem shares over the phone by calling 1-877-826-5465. To partic-
ipate in this service and to receive your redemptions by wire, you must
complete the appropriate sections of the account application and mail it
to the UAM Funds.
Online
You can redeem shares on the Internet at www.uam.com. For login informa-
tion, including your personal identification number (PIN), please call 1-
877-826-5465.
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as
$100 per month from your UAM Funds account to another financial institu-
tion. To participate in this service, you must complete the appropriate
sections of the account application and mail it to the UAM Funds.
Payment of Redemption Proceeds
Redemption proceeds can be mailed to your account address, sent to your
bank by ACH transfer or wired to your bank account (provided that your
bank information is already on file). The UAM Funds will pay for all
shares redeemed within seven days after they receive a redemption request
in proper form.
The UAM Funds may require that a bank or member firm of a national securi-
ties exchange guarantee signatures. A notary public cannot guarantee a
signature. Signature guarantees are for the protection of shareholders.
Before they grant a redemption request, the UAM Funds may require a share-
holder to furnish additional legal documents to insure proper authoriza-
tion.
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.
8
<PAGE>
Rights Reserved by the UAM Funds
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail. The UAM Funds may sus-
pend your right to redeem if:
. Trading on the New York Stock Exchange is restricted; or
. The Securities and Exchange Commission allows the UAM Funds to delay
redemptions.
EXCHANGING SHARES
-------------------------------------------------------------------------------
At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
You can also exchange shares of the UAM Funds on the Internet at
www.uam.com. For login information, including your personal identification
number (PIN), please call 1-877-826-5465. Before exchanging your shares,
please read the prospectus of the UAM Fund for which you want to exchange.
You may obtain any UAM Fund prospectus by calling 1-877-826-5465. You may
only exchange shares between accounts with identical registrations (i.e.,
the same names and addresses).
Rights Reserved by the UAM Funds
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
TRANSACTION POLICIES
-------------------------------------------------------------------------------
Calculating Your Share Price
You may buy, sell or exchange shares of a UAM Fund on each day the New
York Stock Exchange is open at a price equal to its NAV next computed af-
ter 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. East-
ern Time). Therefore, to receive the NAV on any given day, the UAM Funds
must accept your order before the close of trading on the New York Stock
Exchange that day. Otherwise, you will receive the NAV that is calculated
at the close of trading on the following business day.
Since securities that are traded on foreign exchanges may trade on days
when the New York Stock Exchange is closed, the value of a UAM Fund may
change on days when you are unable to purchase or redeem shares.
9
<PAGE>
The UAM Funds calculate their NAVs by adding the total value of their as-
sets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds use current market prices to
value their investments. However, the UAM Funds may value investments at
fair value when market prices are not readily available or when events oc-
cur that make established valuation methods (such as stock exchange clos-
ing prices) unreliable. The UAM Funds will determine an investment's fair
value according to methods established by the Board. The UAM Funds value
debt securities that are purchased with remaining maturities of 60 days or
less at amortized cost, which approximates market value. The UAM Funds may
use a pricing service to value some of their assets, such as debt securi-
ties or foreign securities.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the UAM Funds through a financial intermedi-
ary (such as a financial planner or adviser). Generally, to buy or sell
shares at the NAV of any given day your financial intermediary must re-
ceive your order before the close of trading on the New York Stock Ex-
change that day. Your financial intermediary is responsible for transmit-
ting all purchase and redemption requests, investment information, docu-
mentation 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
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities in-
stead of cash.
Telephone Transactions
The UAM Funds will employ reasonable procedures to confirm that instruc-
tions communicated by telephone are genuine. The UAM Funds will not be re-
sponsible for any loss, liability, cost or expense for following instruc-
tions received by telephone reasonably believed to be genuine.
10
<PAGE>
ACCOUNT POLICIES
-------------------------------------------------------------------------------
Small Accounts
The UAM Funds may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial invest-
ment. This provision does not apply:
. To retirement accounts and certain other accounts; or
. When the value of your account falls because of market fluctuations
and not your redemptions.
The UAM Funds will notify you before liquidating your account and allow
you 60 days to increase the value of your account.
Distributions
Normally, the fund distributes its net investment income quarterly and its
net capital gains at least once a year. The UAM Funds will automatically
reinvest dividends and distributions in additional shares of the fund, un-
less you elect on your account application to receive them in cash.
Federal Taxes
The following is a summary of the federal income tax consequences of in-
vesting in the fund. This summary does not apply to shares held in an in-
dividual retirement account or other tax-qualified plan, which are not
subject to current tax. Transactions relating to shares held in such ac-
counts may, however, be taxable at some time in the future. You should al-
ways consult your tax advisor for specific guidance regarding the tax ef-
fect of your investment in the UAM Funds.
Taxes on Distributions Distributions of the fund will generally be taxable
to shareholders as ordinary income or capital gains. You will be subject
to income tax on these distributions regardless of whether they are paid
in cash or reinvested in additional shares. The amount of tax you may pay
on a distribution will be based on the amount of time the fund held its
investments, not how long you held your shares. Dividends and distribu-
tions of short-term capital gains (capital gains relating to securities
held for twelve months or less) are generally taxable at the same rate as
ordinary income. Distributions of long-term capital gains (capital gains
relating to securities held for more than twelve months) are generally
taxable as long-term capital gains. Once a year UAM Funds will send you a
statement showing the types and total amount of distributions you received
during the previous year.
11
<PAGE>
You should note that if you purchase shares just before a distribution,
the purchase price would reflect the amount of the upcoming distribution.
In this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply con-
stitutes a return of your investment. This is known as "buying a dividend"
and should be avoided.
The fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the fund receives from U.S. corpora-
tions may be eligible for the corporate dividends-received deduction, sub-
ject to certain holding period requirements and financing limitations.
If the fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the fund received
from sources in foreign countries. The fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow share-
holders to offset some of their U.S. federal income tax.
Taxes on Exchanges and Redemptions When you exchange or redeem shares in
the fund, you may recognize a capital gain or loss for federal tax purpos-
es. 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.
Generally, your gain or loss will be long-term or short-term depending on
whether your holding period exceeds 12 months. However, any loss you real-
ize on shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions you
received on the shares.
Backup Withholding By law, the fund must withhold 31% of your distribu-
tions and redemption proceeds if you fail (i) to provide complete, correct
taxpayer information, (ii) to properly include on your return payments of
taxable interest or dividends, or (iii) to certify to the fund that you
are not subject to back-up withholding when required to do so or that you
are an "exempt recipient."
State and Local Taxes
You may also have to pay state and local taxes on distributions and re-
demptions. However, state taxes may not apply to portions of distributions
that are attributable to interest on federal securities. As mentioned
above, you should always consult your tax advisor for specific guidance
regarding the tax effect of your investment in the fund.
12
<PAGE>
Additional Information About the Fund
OTHER INVESTMENT PRACTICES AND STRATEGIES
-------------------------------------------------------------------------------
In addition to its principal investment strategies, the fund may use the
investment strategies described below. The fund may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For more information concern-
ing any of the fund's investment practices and its risks, you should read
the SAI.
Derivatives
The fund may invest in derivatives, a category of investments that in-
cludes forward foreign currency exchange contracts, futures, options and
swaps to protect its investments against changes resulting from market
conditions (a practice called "hedging"), to reduce transaction costs or
to manage cash flows. Forward foreign currency exchange contracts, futures
and options are called derivatives because their value is based on an un-
derlying asset or economic factor. Derivatives are often more volatile
than other investments and may magnify the fund's gains or losses. There
are various factors that affect the fund's ability to achieve its objec-
tives with derivatives. Successful use of a derivative depends on the de-
gree to which prices of the underlying assets correlate with price move-
ments in the derivatives the fund buys or sells. The fund could be nega-
tively affected if the change in market value of its securities fails to
correlate perfectly with the values of the derivatives it purchased or
sold.
Short-Term Investing
At times, the adviser may decide to invest up to 100% of the fund's assets
in a variety of high-quality, short-term debt securities, such as U.S.
government securities. The adviser may invest in these types of securities
for temporary defensive purposes, to earn a return on uninvested assets or
to meet redemptions. The adviser may temporarily adopt a defensive posi-
tion to reduce changes in the value of the shares of the fund that may re-
sult from adverse market, economic, political or other developments. When
the adviser pursues a temporary defensive strategy, the fund may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent the fund from achieving its stated objectives.
Portfolio Turnover
The fund may buy and sell investments relatively often. Such a strategy
often involves higher expenses, including brokerage commission, and may
13
<PAGE>
increase the amount of capital gains (and, in particular, short-term
gains) realized by the fund. Shareholders must pay tax on such capital
gains.
Portfolio Turnover
The fund may buy and sell investments relatively often. Such a strategy
often involves higher expenses, including brokerage commissions, and may
increase the amount of capital gains (and, in particular, short-term
gains) realized by the fund. Shareholders must pay tax on such capital
gains.
INVESTMENT MANAGEMENT
-------------------------------------------------------------------------------
Investment Adviser
On or about July 24, 2000, a majority of investment professionals at Ja-
cobs Asset Management ("Jacobs") joined Thompson, Siegel & Walmsley, Inc.
("TS&W") and TS&W replaced Jacobs as investment adviser to the fund. TS&W,
a Virginia corporation, is located at 5000 Monument Avenue, Richmond, Vir-
ginia 23230. TS&W, an affiliate of United Asset Management Corporation,
will manage and supervise the investment of the fund's assets on a discre-
tionary basis. TS&W has provided investment management services to corpo-
rations, pension and profit-sharing plans, 401(k) and thrift plans,
trusts, estates and other institutions and individuals since 1970. The
change in adviser is not expected to result in any change in the actual
investment management services, administrative functions, supervisory re-
sponsibilities or fee arrangements for the fund.
The fund has agreed to pay the advisor a management fee equal to 1.00% of
the fund's average net assets. In addition, the adviser has voluntarily
agreed to limit the total expenses of the fund to 1.75% of its average net
assets. To maintain this expense limit, the adviser may waive a portion of
its management fee and/or reimburse certain expenses of the fund. The ad-
viser intends to continue its expense limitation until further notice, but
may discontinue it at any time. During its most recent fiscal year, the
fund paid 1.00% of its average net assets in advisory fees to the adviser.
Portfolio Managers
A team of the adviser's investment professionals has primary responsibil-
ity for the day-to-day management of the fund.
SHAREHOLDER SERVICING ARRANGEMENTS
-------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representa-
tives may receive compensation from the fund or its service providers for
14
<PAGE>
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the fund that are attributable to
the financial representative. These services may include record keeping,
transaction processing for shareholders' accounts and certain shareholder
services not currently offered to shareholders that deal directly with the
fund. In addition, your financial representatives may charge you other ac-
count fees for buying or redeeming shares of the fund or for servicing
your account. Your financial representative should provide you with a
schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representa-
tives. Periodically, the UAM Funds' board reviews these arrangements to
ensure that the fees paid are appropriate for the services performed. The
fund does not pay these service fees on shares purchased directly. In ad-
dition, the adviser and its affiliates may, at their own expense, pay fi-
nancial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with re-
spect to the fund. The adviser may pay its affiliated companies for dis-
tribution and marketing services performed with respect to the fund.
15
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the fi-
nancial performance of the fund for the fiscal periods indicated. Certain
information contained in the table reflects the financial results for a
single share. The total returns in the table represent the rate that an
investor would have earned on an investment in the fund assuming all divi-
dends and distributions were reinvested. PricewaterhouseCoopers LLP has
audited this information. The financial statements and the unqualified
opinion of PricewaterhouseCoopers LLP are included in the annual report of
the fund, which is available upon request by calling the UAM Funds at 1-
877-826-5465.
<TABLE>
<CAPTION>
Years Ended April 30, 2000 1999 1998 1997#
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 10.19 $ 11.85 $ 10.17 $ 10.00
Income from Investment Operations:
Net Investment Income 0.01 0.11 0.10 0.06
Net Realized and Unrealized Gain
(Loss) 2.34 (1.49) 1.82 0.11@
Total From Investment Operations 2.35 (1.38) 1.92 0.17
Distributions:
Net Investment Income (0.09) (0.08) (0.09) --
In Excess of Net Investment Income (0.08) -- -- --
Net Realized Gain -- (0.20) (0.15) --
Total Distributions (0.17) (0.28) (0.24) --
Net Asset Value, End of Period $ 12.37 $ 10.19 $ 11.85 $ 10.17
Total Return+ 23.12% (11.51)% 19.19% 1.70%++
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $61,199 $73,053 $113,033 $35,833
Ratio of Expenses to Average Net
Assets 1.61% 1.54% 1.49% 1.75%*
Ratio of Net Investment Income to
Average Net Assets 0.26% 0.97% 1.23% 3.67%*
Portfolio Turnover Rate 92% 108% 39% 7%
</TABLE>
# For the period from January 2, 1997 (commencement of operations),
through April 30, 1997.
* Annualized
++ Not annualized
+ Total return would have been lower had certain fees not been waived and
certain expenses not been assumed by the adviser during the periods in-
dicated.
@ The amount shown for a share outstanding throughout the period does not
accord with the aggregate net losses on investments for that period be-
cause of the timing of sales and repurchases of the fund shares in re-
lation to fluctuating market value of investments in the fund.
16
<PAGE>
TS&W International Octagon Portfolio
Investors who want more information about the fund should read the fund's
annual/semi-annual reports and the fund's statement of additional informa-
tion. The annual/semi-annual reports of the fund provide additional infor-
mation about its investments. In the annual report, you will also find a
discussion of the market conditions and investment strategies that signif-
icantly affected the performance of the fund during the last fiscal year.
The statement of additional information contains additional detailed in-
formation about the fund and is incorporated by reference into (legally
part of) this prospectus.
Investors can receive free copies of the statement of additional informa-
tion, shareholder reports and other information about the UAM Funds and
can make shareholder inquiries by writing to or calling:
UAM Funds
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
www.uam.com
You can review and copy information about the fund (including the
statement of additional information) at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-202-942-8090. Reports and other
information about the fund are available on the EDGAR Database on the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
You may obtain copies of this information, after paying a duplicating fee,
by electronic request at the following E-mail address: [email protected],
or by writing the Securities and Exchange Commission's Public Reference
Section, Washington, D.C. 20549-0102.
Investment Company Act of 1940 file number: 811-8544.
[LOGO OF UAM]
<PAGE>
UAM Funds Trust
PO Box 219081
Kansas City, MO 64121
(Toll free) 1-877-UAM-LINK (826-5465)
TS&W International Octagon Portfolio
(Formerly, Jacobs International Octagon Portfolio)
Institutional Class
Statement of Additional Information
August 28, 2000
This statement of additional information is not a prospectus. However, you
should read it in conjunction with the prospectus of the Fund dated August
28, 2000, as supplemented from time to time. You may obtain the Fund's
prospectus by contacting the UAM Funds at the address listed above.
The audited financial statements of the Fund and the related report of
PricewaterhouseCoopers LLP, independent accountants of the Fund, are
incorporated herein by reference in the section called "Financial
Statements." No other portions of the annual report are incorporated by
reference.
<PAGE>
<TABLE>
Table Of Contents
<S> <C>
Description of Permitted Investments.......................................................................... 1
Borrowing.................................................................................................. 1
Debt Securities............................................................................................ 1
Derivatives................................................................................................ 7
Equity Securities.......................................................................................... 15
Foreign Securities......................................................................................... 17
Investment Companies....................................................................................... 21
Repurchase Agreements...................................................................................... 21
Restricted Securities...................................................................................... 21
Securities Lending......................................................................................... 22
Short Sales................................................................................................ 22
When Issued Transactions................................................................................... 23
Investment Policies of the Fund............................................................................... 24
Management of the Company..................................................................................... 24
Board Members.............................................................................................. 24
Officers................................................................................................... 26
Principal Shareholders........................................................................................ 27
Investment Advisory and Other Services........................................................................ 27
Investment Adviser......................................................................................... 27
Distributor................................................................................................ 29
Shareholder Servicing Arrangements......................................................................... 29
Administrative Services.................................................................................... 29
Custodian.................................................................................................. 31
Independent Accountants.................................................................................... 31
Code of Ethics............................................................................................. 31
Brokerage Allocation and Other Practices...................................................................... 31
Selection of Brokers....................................................................................... 31
Simultaneous Transactions.................................................................................. 31
Brokerage Commissions...................................................................................... 32
Capital Stock and Other Securities............................................................................ 32
Purchase, Redemption and Pricing of Shares.................................................................... 34
Net Asset Value Per Share.................................................................................. 34
Purchase of Shares......................................................................................... 35
Redemption of Shares....................................................................................... 36
Exchange Privilege......................................................................................... 37
Transfer Of Shares......................................................................................... 38
Performance Calculations...................................................................................... 38
Total Return............................................................................................... 38
Yield...................................................................................................... 38
Comparisons................................................................................................ 39
Financial Statements.......................................................................................... 39
Glossary...................................................................................................... 40
Bond Ratings.................................................................................................. 40
Moody's Investors Service, Inc............................................................................. 40
Standard & Poor's Ratings Services......................................................................... 43
Fitch Ratings.............................................................................................. 45
Comparative Benchmarks........................................................................................ 46
</TABLE>
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
As described in the Fund's prospectus, the Fund may use a variety of
investment strategies in addition to its principal investment strategies.
This SAI describes each of these investments/strategies and their risks.
The Fund may not notify shareholders before employing new strategies,
unless it expects such strategies to become principal strategies. You can
find more information concerning the limits on the ability of the Fund to
use these investments in "Investment Policies of the Fund."
Borrowing
--------------------------------------------------------------------------------
The Fund may not borrow money, except that if permitted by its fundamental
investment policies:
. It may borrow from banks (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 33 1/3% of its total
assets (including the amount borrowed);
. It may borrow up to an additional 5% of its total assets from anyone
for temporary purposes;
. It may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities; and
. It may purchase securities on margin and engage in short sales to the
extent permitted by applicable law.
Borrowing is a form of leverage, which may magnify the Fund's gain or loss.
To mitigate the risks of leverage, the Fund will limit the amount it may
borrow to not more than 33 1/3% of its total assets, taken at market value.
In addition, the Fund will only borrow from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
Debt Securities
--------------------------------------------------------------------------------
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return
and repayment of the amount borrowed at maturity. Some debt securities,
such as zero-coupon bonds, do not pay current interest and are purchased at
a discount from their face value.
Types of Debt Securities
U.S. Government Securities
U.S. government securities are securities that the U.S. Treasury has issued
(treasury securities) and securities that a federal agency or a government-
sponsored entity has issued (agency securities). Treasury securities
include treasury bills, which have initial maturities of less than one
year, treasury notes, which have initial maturities of one to ten years and
treasury bonds, which have initial maturities of at least ten years and
certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury
securities. Unlike treasury securities, the full faith and credit of the
U.S. government generally does not back agency securities. Agency
securities are typically supported in one of three ways:
. By the right of the issuer to borrow from the U.S. Treasury;
. By the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. By the credit of the sponsoring agency.
1
<PAGE>
While U.S. government securities are guaranteed as to principal and
interest, their market value is not guaranteed. U.S. government securities
are subject to the same interest rate and credit risks as other fixed
income securities. However, since U.S. government securities are of the
highest quality, the credit risk is minimal. The U.S. government does not
guarantee the net asset value of the assets of the Fund.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or
for capital expenditures such as plant construction, equipment purchases
and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay
the principal amount of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble
as securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity or on specified call
dates, mortgage-backed securities make monthly payments that consist of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Since homeowners usually have the option of paying either
part or all of the loan balance before maturity, the effective maturity of
a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure
or guarantee the timely payment of interest and principal of these pools
through various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The adviser
will consider such insurance and guarantees and the creditworthiness of the
issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers
or guarantors will not meet their obligations under the insurance policies
or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA)
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned corporation of the U.S. government and
it falls within the Department of Housing and Urban Development. Securities
issued by GNMA are considered the equivalent of treasury securities and are
backed by the full faith and credit of the U.S. government. GNMA guarantees
the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or VA-
guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of the Fund's shares. To buy GNMA
securities, the Fund may have to pay a premium over the maturity value of
the underlying mortgages, which the Fund may lose if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions and mortgage bankers. Securities issued by FNMA are agency
securities, which means FNMA, but not the U.S. government, guarantees their
timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970
to increase the availability of mortgage credit for residential housing.
2
<PAGE>
FHLMC issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not backed by
the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to
guaranteeing the mortgage-related security, such issuers may service and/or
have originated the underlying mortgage loans. Pools created by these
issuers generally offer a higher rate of interest than pools created by
GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways. For example, payments of
interest and principal are more frequent (usually monthly) and their
interest rates are sometimes adjustable. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to
repay the loans underlying a mortgage-backed security sooner than expected.
If the prepayment rates increase, the Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
Other Asset-Backed Securities
These securities are interests in pools of a broad range of assets other
than mortgages, such as automobile loans, computer leases and credit card
receivables. Like mortgage-backed securities, these securities are pass-
through. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available
to support payments on these securities. For example, credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which allow debtors to reduce their balances by offsetting certain amounts
owed on the credit cards. Most issuers of asset-backed securities backed by
automobile receivables permit the servicers of such receivables to retain
possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure
the receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in
the pool ("credit support"). Delinquency or loss more than that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
The Fund may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount
of administrative expenses and the actual prepayment experience on the
underlying assets.
3
<PAGE>
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs typically pay interest monthly and have
a more focused range of principal payment dates than pass-through
securities. While whole mortgage loans may collateralize CMOs, mortgage-
backed securities guaranteed by GNMA, FHLMC, or FNMA and their income
streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired
by its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest
tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the Fund may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The Fund will only invest in a security issued by a commercial bank if the
bank:
. Has total assets of at least $1 billion, or the equivalent in other
currencies;
. Is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
. Is a foreign branch of a U.S. bank and the adviser believes the
security is of an investment quality comparable with other debt
securities that the Fund may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term
with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of
the obligation. The Fund may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against money
deposited in a commercial bank or savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptance
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers. Such
investments are unsecured and usually discounted. The Fund may invest in
commercial
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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 "Bond Ratings" for a
description of commercial paper ratings.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are derivative multiple-class mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. Typically, one class will
receive some of the interest and most of the principal, while the other
class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs.
Slower than anticipated prepayments of principal may adversely affect the
yield to maturity of a PO. The yields and market risk of interest only and
principal only stripped mortgage-backed securities, respectively, may be
more volatile than those of other fixed income securities, including
traditional mortgage-backed securities.
Yankee Bonds
Yankee bonds are dollar-denominated bonds issued inside the United States
by foreign entities. Investment in these securities involve certain risks
which are not typically associated with investing in domestic securities.
See "FOREIGN SECURITIES".
Zero Coupon Bonds
These securities make no periodic payments of interest, but instead are
sold at a discount from their face value. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount
of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. The market value of zero coupon
securities may exhibit greater price volatility than ordinary debt
securities because a stripped security will have a longer duration than an
ordinary debt security with the same maturity. The Fund's investments in
pay-in-kind, delayed and zero coupon bonds may require it to sell certain
of its assets 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 U. S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities
through the Federal Reserve book-entry record keeping system. Under a
Federal Reserve program known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities," the Fund can record its
beneficial ownership of the coupon or corpus directly in the book-entry
record-keeping system.
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Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay
the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier,
on or after specified dates (call dates). Debt securities are most likely
to be called when interest rates are falling because the issuer can
refinance at a lower rate, similar to a homeowner refinancing a mortgage.
The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average
of the effective or anticipated maturity of each debt security held by the
mutual fund, with the maturity of each security weighted by the percentage
of the assets of the mutual fund it represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or of a mutual fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows
generated over the life of a debt security. Future interest payments and
principal payments are discounted to reflect their present value and then
are multiplied by the number of years they will be received to produce a
value expressed in years -- the duration. Effective duration takes into
account call features and sinking fund prepayments that may shorten the
life of a debt security.
An effective duration of 4 years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a
security is estimated to increase by 4%. An increase in rates by the same
magnitude is estimated to reduce the price of the security by 4%. By
knowing the yield and the effective duration of a debt security, one can
estimate total return based on an expectation of how much interest rates,
in general, will change. While serving as a good estimator of prospective
returns, effective duration is an imperfect measure.
Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total
return of a debt instrument, therefore, will be determined not only by how
much interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will
go down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities,
which may cause your share price to fall. Lower rates motivate people to
pay off mortgage-backed and asset-backed securities earlier than expected.
The Fund may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the Fund. If
left unattended, drifts in the average maturity of the Fund can have the
unintended effect of increasing or reducing its effective duration, which
may adversely affect its expected performance.
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Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the Fund's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the Fund to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market
interest rates. For these reasons, mortgage-backed securities may be less
effective than other types of U.S. government securities as a means of
"locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation
for assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate securities offer
higher yields than Treasury securities because their payment of interest
and complete repayment of principal is less certain. The credit rating or
financial condition of an issuer may affect the value of a debt security.
Generally, the lower the quality rating of a security, the greater the
risks that the issuer will fail to pay interest and return principal. To
compensate investors for taking on increased risk, issuers with lower
credit ratings usually offer their investors a higher "risk premium" in the
form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an
adjustment to this "risk premium." If an issuer's outstanding debt carries
a fixed coupon, adjustments to the risk premium must occur in the price,
which affects the yield to maturity of the bond. If an issuer defaults or
becomes unable to honor its financial obligations, the bond may lose some
or all of its value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security
is not rated or is rated under a different system, the adviser may
determine that it is of investment-grade. The adviser may retain securities
that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit
worthy and/or highly leveraged (indebted) companies. A corporation may
issue a junk bond because of a corporate restructuring or other similar
event. Compared with investment-grade bonds, junk bonds carry a greater
degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business condition of
the corporation issuing these securities influences their price and
liquidity more than changes in interest rates, when compared to investment-
grade debt securities. Insufficient liquidity in the junk bond market may
make it more difficult to dispose of junk bonds and may cause the Fund to
experience sudden and substantial price declines. A lack of reliable,
objective data or market quotations may make it more difficult to value
junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The Fund currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation
of market risk. The section "Bond Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
The adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time the Fund buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are
downgraded below the above-stated ratings. The Fund may invest in
securities of any rating.
Derivatives
--------------------------------------------------------------------------------
Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Unless, otherwise
stated in the Fund's prospectus, the Fund can use derivatives to gain
exposure to various markets in a cost efficient manner, to
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reduce transaction costs or to remain fully invested. The Fund may also
invest in derivatives to protect it from broad fluctuations in market
prices, interest rates or foreign currency exchange rates (a practice known
as "hedging"). When hedging is successful, the Fund will have offset any
depreciation in the value of its assets by the appreciation in the value of
the derivative position. Although techniques other than the sale and
purchase of derivatives could be used to control the exposure of the Fund
to market fluctuations, the use of derivatives may be a more effective
means of hedging this exposure.
Types of Derivatives
Futures
A futures contract is an agreement between two parties whereby one party
sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index,
interest rate, foreign exchange rate or other similar instrument. Agreeing
to buy the underlying financial information is called buying a futures
contract or taking a long position in the contract. Likewise, agreeing to
sell the underlying financial instrument is called selling a futures
contract or taking a short position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
Boards of trade -- known as "contract markets" -- approved for such trading
and regulated by the Commodity Futures Trading Commission, a federal
agency. These contract markets standardize the terms, including the
maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to
pay for or deliver the underlying financial instrument until some future
date (the delivery date). Contract markets require both the purchaser and
seller to deposit "initial margin" with a futures broker, known as a
futures commission merchant, or custodian bank when they enter into the
contract. Initial margin deposits are typically equal to a percentage of
the contract's value. After they open a futures contract, the parties to
the transaction must compare the purchase price of the contract to its
daily market value. If the value of the futures contract changes in such a
way that a party's position declines, that party must make additional
"variation margin" payments so that the margin payment is adequate. On the
other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain
to receive all or a portion of this amount. This process is known as
"marking to the market."
Although the actual terms of a futures contract calls for the actual
delivery of and payment for the underlying security, in many cases the
parties may close the contract early by taking an opposite position in an
identical contract. If the sale price upon closing out the contract is less
than the original purchase price, the person closing out the contract will
realize a loss. If the sale price upon closing out the contract is more
than the original purchase price, the person closing out the contract will
realize a gain. The opposite is also true. If the purchase price upon
closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures
position.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer
two kinds of rights: a "call" (the right to buy the security) or a "put"
(the right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no
such intermediary and are subject to the risk that the counter-party will
not fulfill its obligations under the contract.
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Purchasing Put and Call Options
When the Fund purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for
this right, the Fund pays the current market price for the option (known as
the "option premium"). The Fund may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts")
or to benefit from a decline in the price of securities that it does not
own. The Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost
of purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the Fund obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. The Fund would normally purchase call options in
anticipation of an increase in the market value of securities it owns or
wants to buy. The Fund would ordinarily realize a gain if, during the
option period, the value of the underlying instrument exceeded the exercise
price plus the premium paid and related transaction costs. Otherwise, the
Fund would realize either no gain or a loss on the purchase of the call
option.
The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option)
or buying (in the case of a call option) the underlying instrument at
the strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the Fund writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. Similarly,
when the Fund writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. The Fund may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may
cancel an over-the-counter option by entering into an offsetting
transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the Fund would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Fund would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Fund may lose an amount of money equal to the difference between the value
of the security and the premium it received. Writing covered put options
may deprive the Fund of the opportunity to profit from a decrease in the
market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The Fund could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Fund would expect the option to expire and
the premium it received to offset the decline of the security's value.
However, the Fund must be prepared to deliver the underlying instrument in
return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. The Fund can cover a
call option by owning:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate,
foreign currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
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. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
. In the case of an index, the Fund of securities that corresponds to
the index.
The Fund can cover a put option by:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract
(in the case of a put option) at a fixed time and price. Upon exercise of
the option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put
option). If the option is exercised, the parties will be subject to the
futures contracts. In addition, the writer of an option on a futures
contract is subject to initial and variation margin requirements on the
option position. Options on futures contracts are traded on the same
contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the
option early by purchasing or selling an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It
also may purchase such put options in order to hedge a long position in the
underlying futures contract. The Fund may buy call options on futures
contracts for the same purpose as the actual purchase of the futures
contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts.
If the price of the futures contract at expiration were below the exercise
price, the Fund would retain the option premium, which would offset, in
part, any decline in the value of its assets.
The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if the market price
declines, the Fund would pay more than the market price for the underlying
instrument. The premium received on the sale of the put option, less any
transaction costs, would reduce the net cost to the Fund.
Combined Positions
The Fund may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund could
construct a
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combined position whose risk and return characteristics are similar to
selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Fund could
write a call option at one strike price and buy a call option at a lower
price to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Forward Foreign Currency Exchange Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of currency at a future date or date range at a
specific price. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. Unlike futures
contracts, forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to
the contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between
currency traders (usually large commercial banks) and their customers,
as opposed to futures contracts which are traded only on exchanges
regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to
a commodities exchange.
Foreign Currency Hedging Strategies
A "settlement hedge" or "transaction hedge" is designed to protect the Fund
against an adverse change in foreign currency values between the date a
security is purchased or sold and the date on which payment is made or
received. Entering into a forward contract for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction
for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the
security. The Fund may also use forward contracts to purchase or sell a
foreign currency when it anticipates purchasing or selling securities
denominated in foreign currency, even if it has not yet selected the
specific investments.
The Fund may use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Fund could also hedge the
position by selling another currency expected to perform similarly to the
currency in which the Fund's investment is denominated. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges
may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to
purchase or sell. They simply establish a rate of exchange that one can
achieve at some future point in time. Additionally, these techniques tend
to minimize the risk of loss due to a decline in the value of the hedged
currency and to limit any potential gain that might result from the
increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery
of one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may
include shifting exposure from U.S. dollars to a foreign currency, or from
one foreign currency to another foreign currency. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased. Cross-hedges protect against losses resulting
from a decline in the hedged currency, but will cause the Fund to assume
the risk of fluctuations in the value of the currency it purchases. Cross
hedging transactions also involve the risk of imperfect correlation between
changes in the values of the currencies involved.
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It is difficult to forecast with precision the market value of certain
assets at the expiration or maturity of a forward or futures contract.
Accordingly, the Fund may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less
than the amount of foreign currency it is obligated to deliver. Conversely,
the Fund may have to sell on the spot market some of the foreign currency
it received upon the sale of a security if the market value of such
security exceeds the amount of foreign currency it is obligated to deliver.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of
cash flows between two parties on specified dates (settlement dates), where
the cash flows are based on agreed-upon prices, rates, indices, etc. The
nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors, such as interest rates, foreign currency rates, mortgage
securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to
and from the Fund. If a swap agreement calls for payments by the Fund, the
Fund must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement
would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. The Fund may be able to
eliminate its exposure under a swap agreement either by assignment or by
other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party. If the counter-party is
unable to meet its obligations under the contract, declares bankruptcy,
defaults or becomes insolvent, the Fund may not be able to recover the
money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging,
the Fund will cover its current obligations under swap agreements according
to guidelines established by the SEC. If the Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under
the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.
Equity Swaps -- In a typical equity index swap, one party agrees to pay
another party the return on a stock, stock index or basket of stocks in
return for a specified interest rate. By entering into an equity index
swap, for example, the index receiver can gain exposure to stocks making up
the index of securities without actually purchasing those stocks. Equity
index swaps involve not only the risk associated with investment in the
securities represented in the index, but also the risk that the performance
of such securities, including dividends, will not exceed the return on the
interest rate that the Fund will be committed to pay.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of
interest rate cash flow on specified dates in the future. Some of the
different types of interest rate swaps are "fixed-for floating rate swaps,"
"termed basis swaps" and "index amortizing swaps." Fixed-for floating rate
swap involve the exchange of fixed interest rate cash flows for floating
rate cash flows. Termed basis swaps entail cash flows to both parties based
on floating interest rates, where the interest rate indices are different.
Index amortizing swaps are typically fixed-for floating swaps where the
notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money
by investing in an interest rate swap if interest rates change adversely.
For example, if the Fund enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the Fund may have
to pay more money than it receives. Similarly, if the Fund
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enters into a swap where it agrees to exchange a fixed rate of interest for
a floating rate of interest, the Fund may receive less money than it has
agreed to pay.
Currency Swaps -- A currency swap is an agreement between two parties in
which one party agrees to make interest rate payments in one currency and
the other promises to make interest rate payments in another currency. The
Fund may enter into a currency swap when it has one currency and desires a
different currency. Typically the interest rates that determine the
currency swap payments are fixed, although occasionally one or both parties
may pay a floating rate of interest. Unlike an interest rate swap, however,
the principal amounts are exchanged at the beginning of the contract and
returned at the end of the contract. Changes in foreign exchange rates and
changes in interest rates, as described above may negatively affect
currency swaps.
Caps, Collars and Floors
Caps and floors have an effect similar to buying or writing options. In a
typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Risks of Derivatives
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance of the Fund than
if it had not entered into any derivatives transactions. Derivatives may
magnify the Fund's gains or losses, causing it to make or lose
substantially more than it invested.
When used for hedging purposes, increases in the value of the securities
the Fund holds or intends to acquire should offset any losses incurred with
a derivative. Purchasing derivatives for purposes other than hedging could
expose the Fund to greater risks.
Correlation of Prices
The Fund's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of
poor correlation, the price of the securities the Fund is hedging may not
move in the same amount, or even in the same direction as the hedging
instrument. The adviser will try to minimize this risk by investing only in
those contracts whose behavior it expects to resemble the assets the Fund
it is trying to hedge. However, if the Fund's prediction of interest and
currency rates, market value, volatility or other economic factors is
incorrect, the Fund may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying
instruments, even if the characteristics of the underlying instruments are
very similar to the derivative. Listed below are some of the factors that
may cause such a divergence:
. Current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract;
. A difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the
imposition of daily price fluctuation limits or trading of an
instrument stops; and
. Differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the
participation of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based
on a broad market index. Since narrower indices are made up of a smaller
number of
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securities, they are more susceptible to rapid and extreme price
fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of
the investments of the Fund. A currency hedge, for example, should protect
a yen-denominated security from a decline in the yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments precisely over
time.
Lack of Liquidity
Before a futures contract or option is exercised or expires, the Fund can
terminate it only by entering into a closing purchase or sale transaction.
Moreover, the Fund may close out a futures contract only on the exchange
the contract was initially traded. Although the Fund intends to purchase
options and futures only where there appears to be an active market, there
is no guarantee that such a liquid market will exist. If there is no
secondary market for the contract, or the market is illiquid, the Fund may
not be able to close out its position. In an illiquid market, the Fund may:
. Have to sell securities to meet its daily margin requirements at a
time when it is disadvantageous to do so;
. Have to purchase or sell the instrument underlying the contract;
. Not be able to hedge its investments; and
. Not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time
and price) under a variety of market conditions. For example:
. An exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives,
which sometimes occurs because of increased market volatility;
. Unusual or unforeseen circumstances may interrupt normal operations of
an exchange;
. The facilities of the exchange may not be adequate to handle current
trading volume;
. Equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other occurrences may disrupt normal trading
activity; or
. Investors may lose interest in a particular derivative or category of
derivatives.
Management Risk
If the adviser incorrectly predicts stock market and interest rate trends,
the Fund may lose money by investing in derivatives. For example, if the
Fund were to write a call option based on its adviser's expectation that
the price of the underlying security would fall, but the price were to rise
instead, the Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if the Fund were to write
a put option based on the adviser's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
Fund could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of
factors, including:
. Actual and anticipated changes in interest rates;
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. Fiscal and monetary policies; and
. National and international political events.
Most exchanges limit the amount by which the price of a derivative can
change during a single trading day. Daily trading limits establish the
maximum amount that the price of a derivative may vary from the settlement
price of that derivative at the end of trading on the previous day. Once
the price of a derivative reaches this value, the Fund may not trade that
derivative at a price beyond that limit. The daily limit governs only price
movements during a given day and does not limit potential gains or losses.
Derivative prices have occasionally moved to the daily limit for several
consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a
derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative
may result in an immediate and substantial loss (as well as gain) to the
Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Fund may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
Equity Securities
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Types of Equity Securities
Common Stocks
Common stocks represent units of ownership in a company. Common stocks
usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's Board of directors.
Preferred Stocks
Preferred stocks are also units of ownership in a company. Preferred stocks
normally have preference over common stock in the payment of dividends and
the liquidation of the company. However, in all other respects, preferred
stocks are subordinated to the liabilities of the issuer. Unlike common
stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a
fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk.
Convertible Securities
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the
issuer's common stock at the Fund's option during a specified time period
(such as convertible preferred stocks, convertible debentures and
warrants). A convertible security is generally a fixed income security that
is senior to common stock in an issuer's capital structure, but is usually
subordinated to similar non-convertible securities. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation. In
general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock).
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is
more volatile during times of steady interest rates than other types of
debt securities. In addition, they are also influenced by the market value
of the security's underlying common stock. The price of a convertible
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security tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying
common stock declines.
A synthetic convertible security is a combination investment in which the
Fund purchases both (i) high-grade cash equivalents or a high grade debt
obligation of an issuer or U.S. Government securities and (ii) call options
or warrants on the common stock of the same or different issuer with some
or all of the anticipated interest income from the associated debt
obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a
similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock. A synthetic convertible
position has similar investment characteristics, but may differ with
respect to credit quality, time to maturity, trading characteristics, and
other factors. Because the Fund will create synthetic convertible positions
only out of high grade fixed income securities, the credit rating
associated with the Fund's synthetic convertible investments is generally
expected to be higher than that of the average convertible security, many
of which are rated below high grade. However, because the options used to
create synthetic convertible positions will generally have expirations
between one month and three years of the time of purchase, the maturity of
these positions will generally be shorter than average for convertible
securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing
"time value" as maturity approaches), a synthetic convertible position may
lose such value more rapidly than a convertible security of longer
maturity; however, the gain in option value due to appreciation of the
underlying stock may exceed such time value loss, the market price of the
option component generally reflects these differences in maturities, and
the Adviser and applicable sub-adviser take such differences into account
when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, the Fund may
extend the maturity by investing in a new option with longer maturity on
the common stock of the same or different issuer. If the Fund does not so
extend the maturity of a position, it may continue to hold the associated
fixed income security.
Rights and Warrants
A right is a privilege granted to existing shareholders of a corporation to
subscribe to shares of a new issue of common stock before it is issued.
Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower
price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that
give the holder the right to buy proportionate amount of common stock at a
specified price. Warrants are freely transferable and are traded on major
exchanges. Unlike rights, warrants normally have a life that is measured in
years and entitles the holder to buy common stock of a company at a price
that is usually higher than the market price at the time the warrant is
issued. Corporations often issue warrants to make the accompanying debt
security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets
of the issuer. In addition, their value does not necessarily change with
the value of the underlying securities, and they cease to have value if
they are not exercised on or before their expiration date. Investing in
rights and warrants increases the potential profit or loss to be realized
from the investment as compared with investing the same amount in the
underlying securities.
Risks of Investing in Equity Securities
General Risks of Investing in Stocks
While investing in stocks allows investors to participate in the benefits
of owning a company, such investors must accept the risks of ownership.
Unlike bondholders, who have preference to a company's earnings and cash
flow, preferred stockholders, followed by common stockholders in order of
priority, are entitled only to the residual amount after a company meets
its other obligations. For this reason, the value of a company's stock will
usually react more strongly to
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actual or perceived changes in the company's financial condition or
prospects than its debt obligations. Stockholders of a company that fares
poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of
rising and falling stock prices. The value of a company's stock may fall
because of:
. Factors that directly relate to that company, such as decisions made
by its management or lower demand for the company's products or
services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated
to the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in
a more senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies
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
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elsewhere. A custodian bank or similar financial institution in the
issuer's home country holds the underlying shares in trust. The depository
bank may not have physical custody of the underlying securities at all
times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are alternatives to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Emerging Markets
An "emerging country" is generally a country that the International Bank
for Reconstruction and Development (World Bank) and the International
Finance Corporation would consider to be an emerging or developing country.
Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more
developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock
markets. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and
traded on their stock exchanges through investment funds that they have
specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders of a UAM Fund that invests
in such investment funds will bear not only their proportionate share of
the expenses of the UAM Fund (including operating expenses and the fees of
the adviser), but also will 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
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. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory
taxation and other restrictions on U.S. investment. A country may restrict
or control foreign investments in its securities markets. These
restrictions could limit the Fund's ability to invest in a particular
country or make it very expensive for the Fund to invest in that country.
Some countries require prior governmental approval, limit the types or
amount of securities or companies in which a foreigner can invest. Other
countries may restrict the ability of foreign investors to repatriate
their investment income and capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign companies 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 more volatile and not as developed or efficient as 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 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;
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. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
significant price and rate movements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the Fund to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income the Fund receives from its investments. The Fund 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 Fund also anticipates
pricing, trading, settling and valuing investments whose nominal values
remain in their existing domestic currencies in Euros. Accordingly, the
Fund 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?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
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. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new
currency be created?
INVESTMENT COMPANIES
------------------------------------------------------------------------------
The Fund may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to
the fees currently paid by the Fund. Like other shareholders, the Fund
would pay its proportionate share of those fees. Consequently, shareholders
of the Fund would pay not only the management fees of the Fund, but also
the management fees of the investment company in which the Fund invests.
The Fund may invest up to 10% of its total assets in the securities of
other investment companies, but may not invest more than 5% of its total
assets in the securities of any one investment company or acquire more than
3% of the outstanding securities of any one investment company.
The SEC has granted an order that allows the Fund to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Fund,
provided that the investment is:
. For cash management purposes;
. Consistent with the Fund's investment policies and restrictions; and
. The adviser to the investing Fund waives any fees it earns on the
assets of the Fund that are invested in the UAM DSI Money Market Fund.
The Fund will bear expenses of the UAM DSI Money Market Fund 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 Fund normally uses repurchase agreements to earn
income on assets that are not invested.
When the Fund 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 to "mark to the market" on
a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, the Fund's right to sell the
security may be restricted. In addition, the value of the security might
decline before the Fund can sell it and the Fund might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
--------------------------------------------------------------------------------
The Fund may purchase restricted securities that are not registered for
sale to the general public 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 the Fund's investment limitations. The price realized from the sales of
these securities could be more or less than those originally paid by the
Fund or less than what may be considered the fair value of such securities.
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SECURITIES LENDING
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The Fund may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the Fund lends its
securities, it will follow the following guidelines:
. The borrower must provide colllateral at least equal to the market
value of the securities loaned.
. The collateral must consist of cash, an irrevocable letter of credit
issued by a domestic U.S. bank or securities issued or guaranteed by
the U. S. government;
. The borrower must add to the collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis);
. It must be able to terminate the loan at any time;
. It must receive reasonable interest on the loan (which may include the
Fund investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements.
When the Fund lends securities, there is a risk that the borrower will
become financially unable to honor its contractual obligations. If this
happens, the Fund could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
SHORT SALES
------------------------------------------------------------------------------
Description of Short Sales
Selling a security short involves an investor sale of a security it does
not own. To sell a security short an investor must borrow the security from
someone else to deliver to the buyer. The investor then replaces the
security it borrowed by purchasing it at the market price at or before the
time of replacement. Until it replaces the security, the investor repays
the person that lent it the security for any interest or dividends that may
have accrued during the period of the loan.
Investors typically sell securities short to:
. Take advantage of an anticipated decline in prices.
. Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Likewise, the Fund can profit if the price
of the security declines between those dates.
To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The Fund will incur
transaction costs in effecting short sales. The Fund's gains and losses
will be decreased or increased, as the case may be, by the amount of the
premium, dividends, interest, or expenses the Fund may be required to pay
in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent
necessary to meet margin requirements, until the short position is closed
out.
22
<PAGE>
Short Sales Against the Box
In addition, the Fund may engage in short sales "against the box." In a
short sale against the box, the Fund agrees to sell at a future date a
security that it either currently owns or has the right to acquire at no
extra cost. The Fund will incur transaction costs to open, maintain and
close short sales against the box.
Restrictions on Short Sales
The Fund will not short sell a security if:
. After giving effect to such short sale, the total market value of all
securities sold short would exceed 25% of the value of the Fund net
assets.
. The market value of the securities of any single issuer that have been
sold short by the Fund would exceed the two percent (2%) of the value
of the Fund's net assets.
. Such securities would constitute more than two percent (2%) of any
class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an
amount of cash or liquid securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities the Fund is required to
deposit with the broker in connection with the short sale (not including
the proceeds from the short sale). The segregated assets are marked to
market daily in an attempt to ensure that the amount deposited in the
segregated account plus the amount deposited with the broker is at least
equal to the market value of the securities at the time they were sold
short.
WHEN ISSUED TRANSACTIONS
------------------------------------------------------------------------------
A when-issued security is one whose terms are available and for which a
market exists, but which have not been issued. In a forward delivery
transaction, the Fund 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 Fund has committed to purchase before the
securities are delivered, although the Fund may earn income on securities
it has in a segregated account. The Fund will only enter into these types
of transactions with the intention of actually acquiring the securities,
but may sell them before the settlement date.
The Fund 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 Fund 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
Fund may miss the opportunity to obtain the security at a favorable price
or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes
place also may be higher than those obtained in the transaction itself.
Because the Fund does not pay for the security until the delivery date,
these risks are in addition to the risks associated with its other
investments.
The Fund will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The Fund will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
23
<PAGE>
Investment Policies of the Fund
The Fund will determine percentages (with the exception of a limitation
relating to borrowing) immediately after and as a result of the Fund's
acquisition of such security or other asset. Accordingly, the Fund will not
consider changes in values, net assets or other circumstances when
determining whether the investment complies with its investment
limitations.
The following investment limitations are fundamental, which means the Fund
cannot change them without approval by the vote of a majority of the
outstanding voting securities of the Fund, as defined by the 1940 Act. The
Fund will not:
. With respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in securities of any single issuer
(other than obligations issued or guaranteed as to principal and
interest by the of the U.S. government or any if its agencies or
instrumentalities).
. With respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any issuer.
. Invest more than 25% of its assets in companies within a single
industry; however, there are no limitations on investments made in
instruments issued or guaranteed by the U.S. government, and its
agencies when a portfolio adopts a temporary defensive position.
. Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 33 1/3% of
the Fund's gross assets valued at the lower of market or cost.
. Invest in physical commodities or contracts on physical commodities.
. Purchase or sell real estate limited partnerships, although it may
purchase and sell securities of companies which deal in real estate and
may purchase and sell securities which are secured by interests in real
estate.
. Make loans except (i) by purchasing debt securities in accordance with
its investment objectives and (ii) by lending its portfolio securities
in banks, brokers, dealers and other financial institutions so long as
such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder.
. Underwrite the securities of other issuers.
MANAGEMENT OF THE COMPANY
The Board manages the business of the Company. The Board elects officers to
manage the day-to-day operations of the Company and to execute policies the
Board has formulated. The Company pays each Independent Director the
following fees:
. A $200 quarterly retainer fee per active Fund;
. $3,000 for each meeting of the Board other than a private meeting or
telephonic meeting;
. $1,500 for each private meeting of the Board;
. $1,000 for each telephonic meeting of the Board; and
. $1,000 per day for attending seminars, up to a maximum of three events
per year.
In addition, the Company reimburses each Independent Director for travel
and other expenses incurred while attending board meetings. The $3,000
meeting fee and expense reimbursements are aggregated for all of the
Directors and allocated proportionately among all Funds in the UAM Complex.
The Company does not pay its Interested Directors or officers for their
services as Directors or officers.
24
<PAGE>
BOARD MEMBERS
-----------------------------------------------------------------------------
The following table lists the Board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex. The UAM Funds Complex is currently comprised of 49
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Company as that term is defined in the 1940
Act. Mr. English 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 Company does not believe
that the relationship is a material business relationship, and, therefore,
does not consider him to be an interested Board member. If these
circumstances change, the Board will determine whether any action is
required to change the composition of the Board.
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Company as of Complex as of
Date of Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John T. Bennett, Jr. Mr. Bennett is President of Squam Investment $9,380 $38,950
RR2 Box 700 Management Company, Inc. and Great Island Investment
Center Harbor, NH 03226 Company, Inc. (investment management). From 1988 to
1/26/29 1993, Mr. Bennett was President of Bennett Management
Company. Mr. Bennett serves on the Board of each
Company in the UAM Funds Complex.
--------------------------------------------------------------------------------- -------------------- --------------------
Nancy J. Dunn Ms. Dunn has been Financial Officer of World Wildlife $9,380 $38,950
1250 24/th/ St., NW Fund (nonprofit), since January 1999. From 1991 to
Washington, DC 20037 1999, Ms. Dunn was Vice President for Finance and
8/14/51 Administration and Treasurer of Radcliffe College
(Education). Ms. Dunn serves on the Board of each
Company in the UAM Funds Complex.
--------------------------------------------------------------------------------- -------------------- --------------------
William A. Humenuk Mr. Humenuk has been Senior Vice President $9,380 $38,950
10401 N. Meridian St Administration, General Counsel and Secretary of Lone
Suite 400 Star Industries Inc. (cement and ready-mix concrete)
Indianapolis, IN 46290 since March 2000. From June 1998 to March 2000 he
4/21/42 was Executive Vice President and Chief Administrative
Officer of Philip Services Corp. (ferrous scrap
processing, brokerage and industrial outsourcing
services). Mr. Humenuk was a Partner in the
Philadelphia office of the law firm Dechert Price &
Rhoads from July 1976 to June 1998. He was also
formerly a Director of Hofler Corp. (manufacturer of
gear grinding machines). Mr. Humenuk serves on the
Board of each Company in the UAM Funds Complex.
--------------------------------------------------------------------------------- -------------------- --------------------
Philip D. English Mr. English is President and Chief Executive Officer $9,380 $38,950
16 West Madison Street of Broventure Company, Inc., a company engaged in the
Baltimore, MD 21201 investment management business. He is also Chairman
8/5/48 of the Board of Chektec Corporation (Drugs) and Cyber
Scientific, Inc. (computer mouse company). Mr.
English serves on the Board of each Company in the
UAM Funds Complex.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from From UAM Funds
Name, Address, Company as of Complex as of
Date of Birth Principal Occupations During the Past 5 years 4/30/00 4/30/00
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norton H. Reamer* Chairman, Chief Executive Officer and a Director of 0 0
One International Place United Asset Management Corporation (financial
Boston, MA 02110 services); Director, Partner or Trustee of each of
3/21/35 the Investment Companies of the Eaton Vance Group of
Mutual Funds (mutual funds).
</TABLE>
OFFICERS
------------------------------------------------------------------------------
The following table lists the officers of the Company and provides
information regarding their present positions, date of birth, address and
their principal occupations during the past five years. The Company's
officers are paid by UAM, its affiliates or SEI, but not by the Company.
<TABLE>
<CAPTION>
<S> <C> <C>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
======================================================================================================================
Norton H. Reamer* Board You can find Mr. Reamer's biography in the table above.
One International Place Member;
Boston, MA 02110 President
3/21/35 and Chairman
----------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial Officer of United Asset
One International Place President Management Corporation (financial services) since 1998.
Boston, MA 02110
9/19/47
----------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI (financial services) and UAMFDI (broker dealer);
211 Congress Street Treasurer of the Fidelity Group of Mutual Funds from 1991 to 1995 (mutual
Boston, MA 02110 funds); held various other offices with Fidelity Investments (financial
7/4/51 services) from November 1990 to March 1995.
----------------------------------------------------------------------------------------------------------------------
Linda T. Gibson Secretary General Counsel and Managing Director of UAM Investment Services, Inc.
211 Congress Street (financial services); Senior Vice President and General Counsel of UAMFSI
Boston, MA 02110 (financial services) and UAMFDI (broker-dealer); Senior Vice and President and
7/31/65 Secretary of Signature Financial Group, Inc. financial Services and affiliated
broker-dealers from 1991 to 2000; Director and Secretary of Signature Financial
Group Europe, Ltd. (financial services) from 1995 to 2000; Secretary of the
Citigroup Family of Mutual Funds (mutual funds) from 1996 to 2000; Secretary of
the 59 Wall Street Family of Mutual Funds (mutual funds) from 1996 to 2000.
----------------------------------------------------------------------------------------------------------------------
Martin J. Wolin Assistant Vice President and Associate General Counsel of UAMFSI (financial services)
211 Congress Street Secretary since February 1998; Assistant General Counsel of First Union Corporation
Boston, MA 02110 (financial services) from 1995 to 1998; Attorney with Signature Financial
9/15/67 Group, Inc. (financial services) from 1994 to 1995.
------------------------------------------------------------------------------------------------------------------------
Theresa DelVeccio Assistant Secretary of UAMFSI (financial services) since February 1998; Secretary and
211 Congress Street Secretary Compliance Officer of UAMFDI (broker-dealer) since February 2000; Assistant
Boston, MA 02110 Vice President of Scudder Kemper Investments (financial services) from May
12/23/63 1992 to February 1998.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Position
Name, Address, with
Date of Birth Company Principal Occupations During the Past 5 years
======================================================================================================================
<S> <C> <C>
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments (financial services) since
SEI Investments Treasurer June 1994; Senior Manager at Arthur Andersen (accounting firm) prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
</TABLE>
PRINCIPAL SHAREHOLDERS
As of August 21, 2000, the following persons or organizations held of
record or beneficially 5% or more of the shares of the Fund:
<TABLE>
<S> <C>
Name and Address of Shareholder Percentage of Shares Owned
=====================================================================================================================
Michigan State Univ Foundation 54.54%
4700 S Hagadorn Road Ste 220
East Lansing, MI 48823-5354
--------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 9.00%
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Any shareholder listed above as owning 25% or more of the outstanding
shares of a portfolio may be presumed to "control" (as that term is defined
in the 1940 Act) the portfolio. Shareholders controlling the portfolio
could have the ability to vote a majority of the shares of the portfolio on
any matter requiring the approval of shareholders of the portfolio. As of
August 21, 2000, the directors and officers of the Company owned less than
1% of the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
--------------------------------------------------------------------------------
Thompson, Siegel & Walmsley, Inc., a Virginia corporation located at 5000
Monument Avenue, Richmond, Virginia 23230, is the investment adviser to the
Fund. The adviser manages and supervises the investment of the Fund's
assets on a discretionary basis. The adviser, an affiliate of United Asset
Management Corporation, has provided investment management services to
corporations, pension and profit-sharing plans, 401(k) and thrift plans,
trusts, estates and other institutions and individuals since 1970.
The adviser is a subsidiary of UAM. UAM is a holding company incorporated
in Delaware in December 1980 for the purpose of acquiring and owning firms
engaged primarily in institutional investment management. Since its first
acquisition in August 1983, UAM has acquired or organized more than 50 UAM
Affiliated Firms. UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name, with their own leadership and individual
investment philosophy and approach. Each UAM Affiliated Firm manages its
own business independently on a day-to-day basis. Investment strategies
employed and securities selected by UAM
27
<PAGE>
Affiliated Firms are separately chosen by each of them. Several UAM
Affiliated Firms also act as investment advisers to separate series or
portfolios of the UAM Funds Complex.
Investment Advisory Agreement
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Company 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 Fund's assets;
. Continuously reviews, supervises and administers the investment
program of the Fund; and
. Determines what portion of the Fund's assets will be invested in
securities and what portion will consist of cash.
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 Board Members who are not parties to the
Investment Advisory Agreement or interested persons of any such party;
and
. By a majority of the Board Members or by a majority of the shareholders
of the Fund.
Terminating an Investment Advisory Agreement
The Company may terminate an Investment Advisory Agreement at any time,
without the payment of any penalty if:
. A majority of the Fund's shareholders vote to do so or a majority of
Board Members vote to do so; and
. It gives the adviser 60 days' written notice.
The adviser may terminate the Investment Advisory Agreement at any time,
without the payment of any penalty, upon 90 days' written notice to the
Company.
An Investment Advisory Agreement will automatically and immediately
terminate if it is assigned.
28
<PAGE>
Advisory Fees
For its services, the Fund pays its adviser a fee calculated at an annual
rate of 1.00% of its average daily net assets. Due to the effect of fee
waivers by the adviser, the actual percentage of average net assets that
the Fund pays in any given year may be different from the rate set forth in
its contract with the adviser. For the last three fiscal years, the Fund
paid the following in advisory fees to the adviser:
<TABLE>
<CAPTION>
Fiscal Year End Investment Advisory Fees Paid Investment Advisory Fees Waived Total Investment Advisory Fee
========================================================================================================================
<S> <C> <C> <C>
4/30/00 $677,348 $0 $677,348
------------------------------------------------------------------------------------------------------------------------
4/30/99 $991,649 $0 $991,649
------------------------------------------------------------------------------------------------------------------------
4/30/98 $730,085 $0 $730,085
</TABLE>
DISTRIBUTOR
--------------------------------------------------------------------------------
UAMFDI serves as the distributor for each portfolio of the Company. The
Company offers its shares continuously. While UAMFDI will use its best
efforts to sell shares of the Fund, it is not obligated to sell any
particular amount of shares. UAMFDI, an affiliate of UAM, is located at 211
Congress Street, Boston, Massachusetts 02110. UAMFDI receives no
compensation for its services as distributor of the Institutional Class
Shares.
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 services performed with respect to the Company or a fund.
The person making such payments may do so out of its revenues, its profits
or any other source available to it. Such servicing arrangements, when in
effect, are made generally available to all qualified service providers.
The adviser may also compensate its affiliated companies for referring
investors to the Fund.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Administrator
Pursuant to the Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI bears all expenses incurred in connection with the performance of
its services under the Fund Administration Agreement. UAMFSI may, at its
own expense, employ other people to assist it in performing its duties
under the Fund Administration Agreement. Such people may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such people for such employment. The Company will not incur any obligations
with respect to such people. Other expenses incurred in the operation of
the Company will be borne by the Company or other parties, including:
. Taxes, interest, brokerage fees and commissions;
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser;
. SEC fees and state Blue-Sky fees;
. EDGAR filing fees;
. Processing services and related fees;
29
<PAGE>
. 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 each portfolio of the
Company;
. Printing and production costs of shareholders' reports and corporate
meetings;
. Cost and expenses of Company stationery and forms;
. Costs of special telephone and data lines and devices;
. Trade association dues and expenses; and
. Any extraordinary expenses and other customary expenses.
The Fund Administration Agreement continues in effect from year to year if
the Board specifically approves such continuance every year. The Board or
UAMFSI may terminate the Fund Administration Agreement, without penalty, on
not less than ninety (90) days' written notice. The Fund Administration
Agreement automatically terminates upon its assignment by UAMFSI without
the prior written consent of the Company.
Administration and Transfer Agency Fees
The Fund pays a four-part fee to UAMFSI as follows:
1. An annual fee to UAMFSI for administration services calculated as
follows:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. 0.043% of the aggregate net assets of the Fund.
2. An annual fee to UAMFSI for sub-administration and other services,
which UAMFSI pays to SEI, calculated as follows:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM
Funds Complex.
3. An annual fee to UAMFSI for transfer agent and dividend-disbursing
services, which UAMFSI pays to DST Systems, Inc. calculated as
follows:
. $10,500 for the first operational class; and
. $10,500 for each additional class.
4. An annual fee to UAMFSI, which UAMFSI pays to UAMSSC for its services
as sub-shareholder-servicing agent, calculated as follows:
. $7,500 for the first operational class; and
. $2,500 for each additional class.
For the last three fiscal years the Fund paid the following in
administration fees:
30
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year End Total Administration Fee
=========================================================================================================================
<S> <C>
4/30/00 $168,807
-------------------------------------------------------------------------------------------------------------------------
4/30/99 $81,645
-------------------------------------------------------------------------------------------------------------------------
4/30/98 $29,248
</TABLE>
CUSTODIAN
-------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Fund's assets pursuant to the terms
of a custodian agreement with the Company.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as independent accountant for each portfolio of the Company.
CODE OF ETHICS
--------------------------------------------------------------------------------
The Company, its distributor and its investment advisers have adopted a
code of ethics under Rule 17j-1 of the 1940 Act that permits personnel
subject to their particular code of ethics to invest in securities,
including securities that may be purchased or held by the Fund.
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
-------------------------------------------------------------------------------
The Investment Advisory Agreement authorizes the adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Fund. The Investment Advisory Agreement also directs the
adviser to use its best efforts to obtain the best execution with respect
to all transactions for the Fund. The adviser may select brokers based on
research, statistical and pricing services they provide to the adviser.
Information and research provided by a broker will be in addition to, and
not instead of, the services the adviser is required to perform under the
Investment Advisory Agreement. In so doing, the Fund may pay higher
commission rates than the lowest rate available when the adviser believes
it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction.
For the fiscal year ended April 30, 2000, neither the Fund nor the adviser
directed any of the Funds brokerage transactions to a broker because of
research services provided.
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.
As of April 30, 2000 the Fund held 14,600 shares, $1,182,749.00 worth of
shares, of BNP Paribas and 14,300 shares, $594,208.49 of Dresdner Bank, two
of its regular brokers or dealers as defined in rule 10b-1 of the 1940 Act.
SIMULTANEOUS TRANSACTIONS
--------------------------------------------------------------------------------
The adviser makes investment decisions for the Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The adviser strives to allocate
such transactions among its clients, including the Fund, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's Board periodically reviews the various
allocation methods used by the adviser.
31
<PAGE>
BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Commissions Paid
For the last three fiscal years, the Fund has paid the following in
brokerage commissions.
<TABLE>
<CAPTION>
Fiscal Year End Brokerage Commissions
=========================================================================================================================
<S> <C>
4/30/00 $362,939
-------------------------------------------------------------------------------------------------------------------------
4/30/99 $601,391
-------------------------------------------------------------------------------------------------------------------------
4/30/98 $344,507
</TABLE>
Capital Stock and Other Securities
The Company
The Company was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Company changed
its name to "UAM Funds Trust." The Company's principal executive office is
located at 211 Congress Street, Boston, MA 02110; however, shareholders
should direct all correspondence to the address listed on the cover of this
SAI. The Company is an open-end, management investment company and the Fund
is diversified. This means that with respect to 75% of its total assets,
the Fund may not invest more than 5% of its total assets in the securities
of any one issuer (other than U. S. government securities).
Description of Shares and Voting Rights
The Company's Agreement and Declaration of Trust permits the Company to
issue an unlimited number of shares of beneficial interest, without par
value. The Board has the power to designate one or more series (portfolios)
or classes of shares of beneficial interest without shareholder approval.
Description of Shares
When issued and paid for, the shares of each series and class of the
Company are fully paid and non-assessable, and have no pre-emptive rights
or preference as to conversion, exchange, dividends, retirement or other
features. The shares of the Company have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Board members can elect 100% of the Board if they choose to do
so. On each matter submitted to a vote of the shareholders, a shareholder
is entitled to one vote for each full share held (and a fractional vote for
each
32
<PAGE>
fractional share held), then standing in his name on the books of a
portfolio. Shares of all classes will vote together as a single class
except when otherwise required by law or as determined by the Board.
If the Company is liquidated, the shareholders of each 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 Company 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 portfolio. A
majority of the Board may authorize the liquidation of any portfolio or
class at any time.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional,
Institutional Service and Advisor. Not all of the portfolios issue all of
the classes. The three classes represent interests in the same assets of a
portfolio and, except as discussed below, are identical in all respects.
. Institutional Shares do not bear any expenses for shareholder
servicing and the distribution of such shares pursuant to a
distribution plan or other 12b-1 plan;
. Institutional Service Shares bear certain expenses related to
shareholder servicing and the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
distribution expenditures; and
. Advisor Shares bear certain expenses related to shareholder servicing
and the distribution of such shares and have exclusive voting rights
with respect to matters relating to such distribution expenditures.
Advisor Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. Dividends; and
. NAV to the extent the portfolio has undistributed net income.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital
agains:
. 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, all dividends and
distributions will automatically be reinvested in additional shares of the
Fund at NAV (as of the business day following the record date).
Shareholders may change their dividend and distributions option by writing
to the Fund at least three days before the record date for income dividend
or capital gain distribution.
Each portfolio sends account statements to shareholders whenever it pays an
income dividend or capital gains distribution.
Federal Taxes
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income
to shareholders each year so that it generally will be relieved of federal
income and
33
<PAGE>
excise taxes. If the Fund were to fail to make sufficient distributions in
a year, it would be subject to corporate income taxes and/or excise taxes.
In addition, if the shortfall were large enough, the Fund could be
disqualified as a regulated investment company. If the Fund were to fail to
so qualify: (1) it would be taxed at regular corporate rates without any
deduction for distributions to shareholder; and (2) its shareholders would
be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
Moreover, if the Fund were to fail to make sufficient distributions in a
year, the Fund would be subject to corporate income taxes and/or excise
taxes in respect of the shortfall or, if the shortfall is large enough, the
Fund could be disqualified as a regulated investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of
their ordinary taxable income for the calendar year and capital gain net
income (excess of capital gains over capital losses) for the one year
period ending October 31 of such calendar year and 100% of any such amounts
that were not distributed in the prior year. The Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year if such dividends are actually paid during January
of the following year.
At April 30, 2000, the Fund had a capital loss carryover of approximately
$6,385,172 for federal income tax purposes that will expire on April 30,
2007.
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of the Fund is equal to its
NAV. The Fund calculates its NAV by subtracting its liabilities from its
total assets and dividing the result by the total number of shares
outstanding. For purposes of this calculation:
. Liabilities include accrued expenses, dividends payable and other
liabilities; and
. Total assets include the market value of the securities held by the
Fund, plus cash and other assets plus income accrued but not yet
received.
The Fund normally calculates its NAV as of the close of trading on the NYSE
every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Company 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 the U.S.
dollar quoted by any major bank or by a broker.
34
<PAGE>
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 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 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 Fund
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the Company for timely transmission of
all subscription and redemption requests, investment information,
documentation and money.
Shareholders can buy full and fractional (calculated to three decimal
places) shares of the Fund. The Company will not issue certificates for
fractional shares and will only issue certificates for whole shares upon
the written request of a shareholder.
The Company may reduce or waive the minimum for initial and subsequent
investment for certain fiduciary accounts, such as employee benefit plans
or under circumstances, where certain economies can be achieved in sales of
the Fund's shares.
In-Kind Purchases
At its discretion, the Company may permit shareholders to purchase shares
of the Fund with securities, instead of cash. If the Company allows a
shareholder to make an in-kind purchase, it will value such securities
according to the policies described under "How the Company Values it
Assets" at the next determination of net asset value after acceptance. The
Company will issue shares of the Fund at the NAV of the Fund determined as
of the same time.
The Company will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Company will only accept in-
kind purchases if the transaction meets the following conditions:
. The securities are eligible investments for the Fund;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and
that there are no restrictions on their resale imposed by the 1933 Act
or otherwise;
. All dividends, interest, subscription, or other rights pertaining to
such securities become the property of the Fund and are delivered to
the Fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all
securities of the same issuer held by the Fund cannot exceed 5% of its
net assets. 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.
35
<PAGE>
REDEMPTION OF SHARES
------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the Fund's investments.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of
shares or dollar amount the shareholder wishes to redeem signed by all
registered owners of the shares in the exact names in which they are
registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts,
guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
By Telephone
Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to
receive redemption proceeds. To change an account in this manner, you
must submit a written request signed by each shareholder, with each
signature guaranteed.
. Redeem shares represented by a certificate.
The Company and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable
for any losses if they fail to do so. These procedures include requiring
the investor to provide certain personal identification at the time an
account is opened and before effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written
instructions of such transaction requests. The Company or UAMSSC may be
liable for any losses due to unauthorized or fraudulent telephone
instructions if the Company or UAMSSC does not employ the procedures
described above. Neither the Company nor 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 Board determines that it would be detrimental to the best interests
of remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Fund in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of securities received in payment of
redemptions.
The Company 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 Board believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the
Fund. If the Fund pays redemption proceeds with securities instead of cash,
it will value such securities as set forth under "How the Company Values
its Assets." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
36
<PAGE>
Signature Guarantees
The Company requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should
specify the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your
account, the Company and its sub-transfer agent from fraud.
The Company requires signature guarantees for the following redemptions:
. Redemptions where the proceeds are to be sent to someone other than
the registered shareowner(s);
. Redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. Share transfer requests.
The Company will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. You can get a complete definition of eligible
guarantor institutions by calling 1-877-826-5465. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will
pay your redemption proceeds earlier as applicable law so requires.
The Company may suspend redemption privileges or postpone the date of
payment:
. When the NYSE and custodian bank are closed;
. When trading on the NYSE is restricted;
. 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 Fund to dispose of securities owned by it, or to fairly
determine the value of its assets; or
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
-------------------------------------------------------------------------------
The exchange privilege is only available with respect to UAM Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do
not charge a sales commission or charge of any kind for exchanges.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The Board may restrict the exchange privilege at any time. Such
instructions may include limiting the amount or frequency of exchanges and
may be for the purpose of assuring such exchanges do not disadvantage other
mutual funds in the UAM Funds Complex and their shareholders.
37
<PAGE>
TRANSFER OF SHARES
-------------------------------------------------------------------------------
Shareholders may transfer shares of the Fund to another person by making a
written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
Performance Calculations
The Fund 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 Fund calculates its
current yield and average annual total return information according to the
methods required by the SEC.
TOTAL RETURN
-------------------------------------------------------------------------------
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative
total return if performance had been constant over the entire period.
The Fund's average annual total return is calculated 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 expenses on an annual basis. Since
Adviser Class Shares and 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.
Total return is calculated 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).
The table lists the Fund's average annual returns for the one-year period
ended April 30, 2000 and the period from the Fund's inception date through
April 30, 2000.
<TABLE>
<CAPTION>
One Year Since Inception Inception Date
=======================================================================================================================
<S> <C> <C>
23.12% 8.72% 1/02/97
</TABLE>
YIELD
-------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds.
As this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
38
<PAGE>
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 Adviser Class Shares and 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.
Comparison
--------------------------------------------------------------------------------
The Fund's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Company or
the Fund may discuss various measures of performance as reported by various
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices
and averages. Please see "Comparative Benchmarks" for publications, indices
and averages that may be used.
In assessing such comparisons of performance, an investor should keep in
mind:
. That the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
Fund;
. That the indices and averages are generally unmanaged;
. That the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its performance;
and
. That shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
FINANCIAL STATEMENTS
The following documents are included in the Fund's April 30, 2000 Annual
Report:
. Financial statements for the fiscal year ended April 30, 2000;
. Financial highlights for the respective periods presented; and
. The report of PricewaterhouseCoopers LLP.
39
<PAGE>
Each of the above-referenced documents is incorporated by reference into
this SAI. However, no other parts of the Fund's Annual Report is
incorporated by reference herein. Shareholders may get copies of the Fund's
Annual Report free of charge by calling the UAM Funds at the telephone
number appearing on the front page of this SAI.
GLOSSARY
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus of the Fund.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the Fund.
Board Member refers to a single member of the Company's Board.
Board refers to the Company's Board of Trustees as a group.
Company refers to UAM Funds Trust.
Independent Board Member refers Board Members that are not Interested Board
Members.
Interested Board Member refers to an "interested person" (as defined by the
1940 Act) of the Company. A Board Member may by an interested person of the
Company because they are affiliated with one of the Company's investment
advisers, United Asset Management Corporation or the Company's principal
underwriter.
NAV is the net asset value per share of the Fund.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The
Big Board."
Fund refers to the TS&W International Octagon Portfolio, which is a series
of the Company.
SEC is the Securities and Exchange Commission. The SEC is the federal
agency that administers most of the federal securities laws in the United
States. In particular, the SEC administers the 1933 ACT, the 1940 ACT and
the 1934 ACT.
SEI is SEI Investments Mutual Funds Services, the Company's sub-
administrator.
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 Company's principal underwriter.
UAMFSI is UAM Fund Services, Inc., the Company's administrator.
UAMSSC is UAM Fund Shareholder Servicing Center, Inc., the Company's sub-
shareholder-servicing agent.
BOND RATINGS
Moody's Investors Service, Inc
--------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue that is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment
within the universe of preferred stocks.
40
<PAGE>
aa An issue that 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 that is rated "a" is considered to be an upper-
medium grade preferred stock. While risks are judged to
be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate
levels.
baa An issue that 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 that 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 that is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa An issue that is rated "caa" is of poor standing. Such
issues may be in default or there may be some other
element of danger with respect to principal of interest.
ca An issue that is rated "ca" is speculative in a high
degree. Such issues are often in default or have other
marked shortcomings.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in minus
(-) 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 that 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 that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than the
Aaa securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds that 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.
41
<PAGE>
Ba Bonds that 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 that 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 that 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 that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals)
Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals
that begin when facilities are completed, or (d) payments
to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of
condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics:
. Leading market positions in well-established
industries.
. Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
. Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
. Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of
the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate
liquidity is maintained.
42
<PAGE>
Prime-3 Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and
market compositions may be more pronounced. Variability
in earnings and profitability may result in changes in
the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Standard & Poor's Ratings Services
--------------------------------------------------------------------------------
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. Accordingly,
in the case of junior debt, the rating may not conform exactly with the
category definition.
AAA An obligation rated 'AAA' has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely
strong.
AA An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity
to meet its financial commitment on the obligation is
very strong.
A An obligation rated 'A' is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated 'BB,' 'B,' 'CCC,' 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment
than other speculative issues. However, it faces major
ongoing uncertainties or exposures to adverse business,
financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated 'B' is more vulnerable to nonpayment
than obligations rated 'BB', but the obligor currently
has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
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CCC An obligation rated 'CCC' is currently vulnerable to non-
payment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic
conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the
obligations.
CC An obligation rated 'CC' is currently highly vulnerable
to nonpayment.
C A subordinated debt or preferred stock obligation rated
'C' is CURRENTLY HIGHLY VULNERABLE to non-payment. The
'C' rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action
taken, but payments on this obligation are being
continued. A 'C' will also be assigned to a preferred
stock issue in arrears on dividends or sinking fund
payments, but that is currently paying.
D An obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation
are not made on the date due even if the applicable grace
period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are not
addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment
risk - such as interest-only or principal-only mortgage
securities; and obligations with unusually risky interest
terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that
there is insufficient information on which to base a
rating, or that Standard & Poor's does not rate a
particular obligation as a matter of policy. Debt
obligations of issues outside the United States and its
territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor and do not take into
account currency exchange and related uncertainties.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the
highest category by Standard & Poor's. The obligor's
capacity to meet its financial commitment on the
obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely
strong.
A-2 A short-term obligation rated 'A-2' is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate
protection parameters. However, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B A short-term obligation rated 'B' is regarded as having
significant speculative characteristics. The obligor
currently has the capacity to meet its financial
commitment on the obligation; however, it faces major
ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on
the obligation.
C A short-term obligation rated 'C' is currently vulnerable
to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.
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D A short-term obligation rated 'D' is in payment default.
The 'D' rating category is used when payments on an
obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard
& Poors' believes that such payments will be made during
such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are
jeopardized.
Local Currency and Foreign Currency Risks
Country risks considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
currency obligations may be lower than its capacity to repay obligations in
its local currency due to the sovereign government's own relatively lower
capacity to repay external versus domestic debt. These sovereign risk
considerations are incorporated in the debt ratings assigned to specific
issues. Foreign currency issuer ratings are also distinguished from local
currency issuer ratings to identity those instances where sovereign risks
make them different for the same issuer.
Fitch Ratings
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in
case of exceptionally strong capacity for timely payment
of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong
capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation
of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity
may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a
possibility of credit risk developing, particularly as
the result of adverse economic change over time; however,
business or financial alternatives may be available to
allow financial commitments to be met. Securities rated
in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent
upon a sustained, favorable business and economic
environment.
CCC,CC,C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic
developments. A `CC' rating indicates that default of
some kind appears probable. `C' ratings signal imminent
default.
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DDD,DD,D Default. The ratings of obligations in this category are
based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the
obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision,
the following serve as general guidelines. "DDD"
obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued
interest. "D" indicates potential recoveries in the range
of 50%-90%, and "D" the lowest recovery potential, i.e.,
below 50%.
Entities rated in this category have defaulted on
some or all of their obligations. Entities rated "DDD"
have the highest prospect for resumption of performance
or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are
generally undergoing a formal reorganization or
liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding
obligations, while entities rated "D" have a poor
prospect for repaying all obligations.
International Short-Term Credit Ratings
F1 Highest credit quality. Indicates the Best capacity for
timely payment of financial commitments; may have an
added "+" to denote any exceptionally strong credit
feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of
safety is not as great as in the case of the higher
ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-
investment grade.
B Speculative. Minimal capacity for timely payment of
financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C High default risk. Default is a real possibility.
Capacity for meeting financial commitments that is highly
uncertain and 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 does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
COMPARATIVE BENCHMARKS
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.
46
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Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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 Brothers Indices:
-----------------------
Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market
value-weighted index that combines the Lehman Government/Corporate Index
and the Lehman Mortgage-Backed Securities Index, and includes treasury
issues, agency issues, corporate bond issues and mortgage backed
securities. It includes fixed rate issues of investment grade (BBB) or
higher, with maturities of at least one year and outstanding par values of
at least $150 million.
Lehman Brothers Credit Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate
debt. Also included are yankee bonds, which are dollar-denominated SEC
registered public, nonconvertible debt issued or guaranteed by foreign
sovereign governments, municipalities, or governmental agencies, or
international agencies.
Lehman Brothers Government Bond Index - an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower
bonds and foreign-targeted issues, and the Agency Bond Index (all publicly
issued debt of U.S. government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. government). In addition to the
aggregate index, sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index - an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and
yankee bonds. All issues are investment grade (BBB) or higher, with
maturities of at least one year and outstanding par value of at least $150
million. Any security downgraded during the month is held in the index
until month end and then removed. All returns are market value weighted
inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate,
non-investment grade debt. All bonds included in the index are dollar
denominated, nonconvertible, have at least one year remaining to maturity
and an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged
fixed income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and Lehman Corporate
Bond Index (intermediate-term sub-index).
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of
all fixed-rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), and Federal National Mortgage Association (FNMA).
Lipper, Inc./Lipper Indices/Lipper Averages
-------------------------------------------
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The Lipper Indices are equally weighted indices for typically the 30
largest mutual funds within their respective portfolio investment
objectives. The indices are currently grouped in six categories: U.S.
Diversified Equity with 12 indices; Equity with 27 indices, Taxable Fixed-
Income with 20 indices, Tax-Exempt Fixed-Income with 28 indices, Closed-End
Funds with 16 indices, and Variable Annuity Funds with 18 indices.
In September, 1999, Lipper, Inc. introduced its new portfolio-based mutual
fund classification method in which peer comparisons are based upon
characteristics of the specific stocks in the underlying funds, rather than
upon a broader investment objective stated in a prospectus. Certain of
Lipper, Inc.'s classifications for general equity funds' investment
objectives were changed while other equity objectives remain unchanged.
Changing investment objectives include Capital Appreciation Funds, Growth
Funds, Mid-Cap Funds, Small-Cap Funds, Micro-Cap Funds, Growth & Income
Funds, and Equity Income Funds. Unchanged investment objectives include
Sector Equity Funds, World Equity Funds, Mixed Equity Funds, and certain
other funds including all Fixed Income Funds and S&P(R) Index Funds.
Criteria for the Lipper Indices are: 1) component funds are largest in
group; 2) number of component funds remains the same (30); 3) component
funds are defined annually; 4) can be linked historically; and 5) are used
as a benchmark for fund performance.
Criteria for the Lipper Averages are: 1) includes all funds in the group in
existence for the period; 2) number of component funds always changes; 3)
universes are dynamic due to revisions for new funds, mergers,
liquidations, etc.; and 4) will be inaccurate if historical averages are
linked.
Certain Lipper, Inc. indices/averages used by the UAM Funds may include,
but are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an
average of 100 funds that invest at least 65% of assets in investment grade
debt issues (BBB or higher) with dollar-weighted average maturities of one
to five years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds
whose primary objective is to conserve principal by maintaining at all
times a balanced portfolio of both stocks and bonds. Typically, the
stock/bond ratio ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing
60% or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest
funds by asset size which invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions,
exclusive of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an
unmanaged index composed of U.S. treasuries, agencies and corporates with
maturities from 1 to 4.99 years. Corporates are investment grade only (BBB
or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market
value-weighted averages of the performance of over 900 securities listed on
the stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
48
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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.
Nikkei Stock Average - a price weighted index of 225 selected leading
stocks listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indices:
---------------------------
Russell 3000(R) Index - measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
Russell 1000(R) Index - an unmanaged index which measures the performance
of the 1,000 largest companies in the Russell 3000 Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Russell 2000(R) Index -- an unmanaged index which measures the
performance of the 2,000 smallest companies in the Russell 3000 Index,
which represents approximately 8% of the total market capitalization of the
Russell 3000 Index.
Russell Top 200(TM) Index - measures the performance of the 200 largest
companies in the Russell 1000 Index, which represents approximately 74% of
the total market capitalization of the Russell 1000 Index.
Russell Mid-Cap(TM) Index -- measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represents approximately 26% of
the total market capitalization of the Russell 1000 Index.
Russell 2500(TM) Index - an unmanaged index which measures the
performance of the 2,500 smallest companies in the Russell 3000 Index,
which represents approximately 17% of the total market capitalization of
the Russell 3000 Index.
Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indices.
Russell 3000(R) Value Index - measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value indices.
Russell 1000(R) Growth Index - measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 1000(R) Value Index - measures the performance of those Russell
1000 with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2000(R) Value Index - measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Top 200(TM) Growth Index - measures the performance of those
Russell Top 200 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Top 200(TM) Value Index - measures the performance of those
Russell Top 200 companies with lower price-to-book ratios and lower
forecasted growth values. The stocks are also members of the Russell 1000
Value index.
Russell Midcap(TM) Growth Index - measures the performance of those
Russell Midcap companies with higher price-to-book ratios and higher
forecasted growth values. The stocks are also members of the Russell 1000
Growth index.
Russell Midcap(TM) Value Index - measures the performance of those
Russell Midcap companies with lower price-to-book ratios and lower
forecasted growth values. The stocks are also members of the Russell 1000
Value index.
49
<PAGE>
Russell 2500(TM) Growth Index - measures the performance of those Russell
2500 companies with higher price-to-book ratios and higher forecasted
growth values.
Russell 2500(TM) Value Index - measures the performance of those Russell
2500 companies with lower price-to-book ratios and lower forecasted growth
values.
Ryan Labs 5 Year GIC Master Index - an arithmetic mean of market rates of
$1 million GIC contracts held for five years. The market rates are
representative of a diversified, investment grade portfolio of contracts
issued by credit worthy insurance companies. The index is unmanaged and
does not reflect any transaction costs. Direct investment in the index is
not possible.
Standard & Poor's U.S. Indices:
------------------------------
In October, 1999, Standard & Poor's and Morgan Stanley Capital
International launched a new global industry classification standard
consisting of 10 economic sectors aggregated from 23 industry groups, 59
industries, and 123 sub-industries covering almost 6,000 companies
globally. The new classification standard will be used with all of their
respective indices. Features of the new classification include 10 economic
sectors, rather than the 11 S&P currently uses. Sector and industry
gradations are less severe. Rather than jumping from 11 sectors to 115
industries under the former S&P system, the new system progresses from 10
sectors through 23 industry groups, 50 industries and 123 sub-industries.
S&P 500 Index - an unmanaged index composed of 400 industrial stocks, 40
financial stocks, 40 utilities stocks and 20 transportation stocks. Widely
regarded as the standard for measuring large-cap U.S. stock market
performance. It is used by 97% of U.S. money managers and pension plan
sponsors. More than $1 trillion is indexed to the S&P 500.
S&P MidCap 400 Index -- consists of 400 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market-value
weighted index with each stock affecting the index in proportion to its
market value. It is used by over 95% of U.S. managers and pension plan
sponsors. More than $25 billion is indexed to the S&P MidCap 400.
S&P SmallCap 600 Index - an unmanaged index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group
representation. The index is comprised of stocks from the industrial,
utility, financial, and transportation sectors. It is gaining wide
acceptance as the preferred benchmark for both active and passive
management due to its low turnover and greater liquidity. Approximately $8
billion is indexed to the S&P SmallCap 600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap
600 indices, representing 87% of the total U.S. equity market
capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by grouping the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the
market performance of U.S. Real Estate Investment Trusts, known as REITS.
The REIT Composite consists of 100 REITs chosen for their liquidity and
importance in representing a diversified real estate Fund. The Index covers
over 80% of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including
23 electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
<PAGE>
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
--------------------------------
S&P Global 1200 Index - aims to provide investors with an investable Fund.
This index, which covers 29 countries and consists of seven regional
components, offers global investors an easily accessible, tradable set of
stocks and particularly suits the new generation of index products, such as
exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as
Denmark, Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
200 constituents, and the S&P Euro Index, a subset of Euro Plus, contains
160 constituents. Both indices provide geographic and economic diversity
over 11 industry sectors.
S&P/TSE 60 Index - developed with the Toronto Stock Exchange, is designed
as the new Canadian large cap benchmark and will ultimately replace the
Toronto 35 and the TSE 100.
S&P/TOPIX 150 - includes 150 highly liquid securities selected from each
major sector of the Tokyo market. It is designed specifically to give
portfolio managers and derivative traders an index that is broad enough to
provide representation of the market, but narrow enough to ensure
liquidity.
S&P Asia Pacific 100 Index - includes highly liquid securities from each
major economic sector of major Asia-Pacific equity markets. Seven
countries--Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore,
and Taiwan --are represented in the new index.
S&P Latin America 40 Index - part of the S&P Global 1200 Index, includes
highly liquid securities from major economic sectors of Mexican and South
American equity markets. Companies from Mexico, Brazil, Argentina, and
Chile are represented in the new index.
S&P United Kingdom 150 Index - includes 150 highly liquid securities
selected from each of the new S&P sectors. The S&P UK 150 is designed to be
broad enough to provide representation of the market, but narrow enough to
ensure liquidity.
Salomon Smith Barney Global excluding U.S. Equity Index - an unmanaged
index comprised of the smallest stocks (less than $1 billion market
capitalization) of the Extended Market Index, of both developed and
emerging markets.
Salomon Smith Barney One to Three Year Treasury Index - an unmanaged index
comprised of U.S. treasury notes and bonds with maturities of one year or
greater, but less than three years.
Salomon Smith Barney Three-Month T-Bill Average -- the average for all
treasury bills for the previous three-month period.
Salomon Smith Barney Three-Month U.S. Treasury Bill Index - a return
equivalent yield average based on the last three 3-month Treasury bill
issues.
Savings and Loan Historical Interest Rates -- as published by the U.S.
Savings and Loan League Fact Book.
Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates --
historical measure of yield, price and total return for common and small
company stock, long-term government bonds, U.S. treasury bills and
inflation.
Target Large Company Value Index - an index comprised of large companies
with market capitalizations currently extending down to approximately $1.9
billion that are monitored using a variety of relative value criteria in
order to capture the most attractive value opportunities available. A high
quality profile is required and companies undergoing adverse financial
pressures are eliminated.
U.S. Three-Month Treasury Bill Average - the average return for all
treasury bills for the previous three month period.
Value Line Composite Index -- composed of over 1,600 stocks in the Value
Line Investment Survey.
Wilshire Real Estate Securities Index - a market capitalization-weighted
index of publicly traded real estate securities, including real estate
investment trusts, real estate operating companies and partnerships. The
index is used by the institutional investment community as a broad measure
of the performance of public real estate equity for asset allocation and
performance comparison.
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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.
52
