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UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
IRA Capital Preservation
Portfolio
Institutional Class Shares
Institutional Service Class Shares
Statement of Additional Information
February 28, 2000
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectus of the portfolio dated
February 28, 2000, as supplemented from time to time. You may obtain a
prospectus for the portfolio by contacting the UAM Funds at the address listed
above.
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Table Of Contents
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Description of Permitted Investments.............................. 1
What Investment Strategies May the Portfolio Use?................ 1
Debt Securities.................................................. 1
Derivatives...................................................... 8
Foreign Securities............................................... 16
Investment Companies............................................. 18
Repurchase Agreements............................................ 19
Restricted Securities............................................ 19
Securities Lending............................................... 19
When Issued Transactions......................................... 20
Wrapper Agreements................................................ 20
Investment Policies of the Portfolio.............................. 23
Fundamental Policies............................................. 24
Non-Fundamental Policies......................................... 24
Management Of The Fund............................................ 25
Principal Shareholders............................................ 26
Investment Advisory and Other Services............................ 27
Investment Adviser............................................... 27
Distributor...................................................... 28
Service And Distribution Plans................................... 29
Administrative Services.......................................... 31
Custodian........................................................ 33
Independent Accountants.......................................... 33
Brokerage Allocation and Other Practices.......................... 33
Selection of Brokers............................................. 33
Simultaneous Transactions........................................ 33
Brokerage Commissions............................................ 33
Capital Stock and Other Securities................................ 34
Purchase, Redemption and Pricing of Shares........................ 36
Net Asset Value Per Share........................................ 36
Purchase of Shares............................................... 36
Redemption of Shares............................................. 37
Exchange Privilege............................................... 39
Transfer Of Shares............................................... 39
Performance Calculations.......................................... 40
Total Return..................................................... 40
Yield............................................................ 41
Comparisons...................................................... 41
Financial Statements.............................................. 42
Glossary.......................................................... 42
Bond Ratings...................................................... 43
Moody's Investors Service, Inc................................... 43
Standard & Poor's Ratings Services............................... 45
Duff & Phelps Credit Rating Co................................... 48
Fitch IBCA Ratings............................................... 49
Comparative Benchmarks............................................ 51
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Description of Permitted Investments
WHAT INVESTMENT STRATEGIES MAY THE PORTFOLIO USE?
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The portfolio currently intends to use the securities and investment
strategies listed below in seeking its objectives; however, it may at any time
invest in any of the investment strategies described in this SAI. This SAI
describes each of these investments/strategies and their risks. The portfolio
may not notify shareholders before employing new strategies, unless it expects
such strategies to become principal strategies. The investments that are
italicized are principal strategies and you can find more information on these
techniques in the prospectus of the portfolio. You can find more information
concerning the limits on the ability of the portfolio to use these investments
in "What Are the Investment Strategies of the Portfolio?"
. Debt securities.
. Futures.
. Options.
. Swaps.
. Investment companies.
. Repurchase agreements.
. Restricted securities.
. Securities lending.
. When issued securities.
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 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 the section called
"Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities.
Unlike treasury securities, the full faith and credit of the U.S. government
generally do not back agency securities. Agency securities are typically
supported in one of three ways:
. by the right of the issuer to borrow from the U.S. Treasury;
. by the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. by the credit of the sponsoring agency.
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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 portfolio.
Corporate Bonds
Corporations issue bonds and notes to raise money for working capital or for
capital expenditures such as plant construction, equipment purchases and
expansion. In return for the money loaned to the corporation by investors, the
corporation promises to pay investors interest, and repay the principal amount
of the bond or note.
Mortgage-Backed Securities
Mortgage-backed securities are interests in pools of mortgage loans that
various governmental, government-related and private organizations assemble as
securities for sale to investors. Unlike most debt securities, which pay
interest periodically and repay principal at maturity 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
treasury securities, which means the full faith and credit of the U.S.
government backs them. GNMA guarantees the timely payment of principal and
interest on securities issued by institutions approved by GNMA and backed by
pools of FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the
market value or yield of mortgage-backed securities or the value of portfolio
shares. To buy GNMA securities, the portfolio may have to pay a premium over
the maturity value of the underlying mortgages, which the portfolio may lose
if prepayment occurs.
Federal National Mortgage Association (FNMA)
FNMA is a government-sponsored corporation owned entirely by private
stockholders. FNMA is regulated by the Secretary of Housing and Urban
development. FNMA purchases conventional mortgages from a list of approved
sellers and service providers, including state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Securities issued by FNMA are agency securities,
which means FNMA, but not the U.S. government, guarantees their timely payment
of principal and interest.
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Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the U.S. government whose stock is
owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970 to
increase the availability of mortgage credit for residential housing. FHLMC
issues Participation Certificates (PCs) which represent interests in
conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of
interest and timely or ultimate collection of principal, but PCs are not
backed by the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. In addition to guaranteeing
the mortgage-related security, such issuers may service and/or have originated
the underlying mortgage loans. Pools created by these issuers generally offer
a higher rate of interest than pools created by GNMA, FNMA & FHLMC because
they are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities
Yield characteristics of mortgage-backed securities differ from those of
traditional debt securities in a variety of ways, the most significant
differences are mortgage-backed securities:
. payments of interest and principal are more frequent (usually monthly);
and
. falling interest rates generally cause individual borrowers to pay off
their mortgage earlier than expected forcing the portfolio to reinvest the
money at a lower interest rate.
In addition to risks associated with changes in interest rates described in
"Factors Affecting the Value of Debt Securities," a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, the portfolio may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed securities.
Commercial Mortgage-Backed Securities
These securities reflect an interest in, and are secured by, mortgage loans on
commercial real property. The market for commercial mortgage-backed securities
developed more recently and in terms of total outstanding principal amount of
issues is relatively small compared to the market for residential single-
family mortgage-backed securities. Many of the risks of investing in
commercial mortgage-backed securities reflect the risks of investing in the
real estate securing the underlying mortgage loans. These risks reflect the
effects of local and other economic conditions on real estate markets, the
ability of tenants to make loan payments, and the ability of a property to
attract and retain tenants. Commercial mortgage-backed securities may be less
liquid and exhibit greater price volatility than other types of mortgage-
related or asset-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
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backed by automobile receivables may not have a proper security interest in
all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
The portfolio may also invest in residual interests in asset-backed
securities, which is the excess cash flow remaining after making required
payments on the securities and paying related administrative expenses. The
amount of residual cash flow resulting from a particular issue of asset-backed
securities depends in part on the characteristics of the underlying assets,
the coupon rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying
assets.
Collateralized Mortgage Obligations (CMOs)
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, CMOs usually pay interest and prepay principal
monthly. 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.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in and are secured by mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and
in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed
securities. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans. These risks reflect the effects of local and other
economic conditions on real estate markets, the ability of tenants to make
loan payments, and the ability of a property to attract and retain tenants.
Commercial mortgage-backed securities may be less liquid and exhibit greater
price volatility than other types of mortgage-related or asset-backed
securities.
Short-Term Investments
To earn a return on uninvested assets, meet anticipated redemptions, or for
temporary defensive purposes, the portfolio may invest a portion of its assets
in the short-term securities listed below, U.S. government securities and
investment-grade corporate debt securities. Unless otherwise specified, a
short-term debt security has a maturity of one year or less.
Bank Obligations
The portfolio will only invest in a security issued by a commercial bank if
the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the adviser believes the security
is of an investment quality comparable with other debt securities that the
portfolio may purchase.
Time Deposits
Time deposits are non-negotiable deposits, such as savings accounts or
certificates of deposit, held by a financial institution for a fixed term with
the understanding that the depositor can withdraw its money only by giving
notice to the
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institution. However, there may be early withdrawal penalties depending upon
market conditions and the remaining maturity of the obligation. The portfolio
may only purchase time deposits maturing from two business days through seven
calendar days.
Certificates of Deposit
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or savings and loan association for a definite
period of time and earning a specified return.
Banker's Acceptance
A banker's acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction
(to finance the import, export, transfer or storage of goods).
Commercial Paper
Commercial paper is a short-term obligation with a maturity ranging from 1 to
270 days issued by banks, corporations and other borrowers. Such investments
are unsecured and usually discounted. The portfolio may invest in commercial
paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, or, if not
rated, issued by a corporation having an outstanding unsecured debt issue
rated A or better by Moody's or by S&P. See "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 portfolio's investments in pay-in-kind, delayed and zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements.
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These securities may include treasury securities that have had their interest
payments ("coupons") separated from the underlying principal ("corpus") by
their holder, typically a custodian bank or investment brokerage firm. Once
the holder of the security has stripped or separated corpus and coupons, it
may sell each component separately. The principal or corpus is then sold at a
deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. Typically, the coupons are sold separately or
grouped with other coupons with like maturity dates and sold bundled in such
form. The underlying treasury security is held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are owned ostensibly by the bearer or holder thereof), in
trust on behalf of the owners thereof. Purchasers of stripped obligations
acquire, in effect, discount obligations that are economically identical to
the zero coupon securities that the Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," the portfolio can record its beneficial ownership of the coupon
or corpus directly in the book-entry record-keeping system.
Terms to Understand
Maturity
Every debt security has a stated maturity date when the issuer must repay the
amount it borrowed (principal) from investors. Some debt securities, however,
are callable, meaning the issuer can repay the principal earlier, on or after
specified dates (call dates). Debt securities are most likely to be called
when interest rates are falling because the issuer can refinance at a lower
rate, similar to a homeowner refinancing a mortgage. The effective maturity of
a debt security is usually its nearest call date.
The portfolio that invests in debt securities has no real maturity. Instead,
it calculates its weighted average maturity. This number is an average of the
stated maturity of each debt security held by the portfolio, with the maturity
of each security weighted by the percentage of the assets of the portfolio it
represents.
Duration
Duration is a calculation that seeks to measure the price sensitivity of a
debt security, or the portfolio that invests in debt securities, to changes in
interest rates. It measures sensitivity more accurately than maturity because
it takes into account the time value of cash flows generated over the life of
a debt security. Future interest payments and principal payments are
discounted to reflect their present value and then are multiplied by the
number of years they will be received to produce a value expressed in years --
the duration. Effective duration takes into account call features and sinking
fund prepayments that may shorten the life of a debt security.
An effective duration of 4 years, for example, would suggest that for each 1%
reduction in interest rates at all maturity levels, the price of a security is
estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
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Factors Affecting the Value of Debt Securities
The total return of a debt instrument is composed of two elements: the
percentage change in the security's price and interest income earned. The
yield to maturity of a debt security estimates its total return only if the
price of the debt security remains unchanged during the holding period and
coupon interest is reinvested at the same yield to maturity. The total return
of a debt instrument, therefore, will be determined not only by how much
interest is earned, but also by how much the price of the security and
interest rates change.
Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities, which
may cause your share price to fall. Lower rates motivate people to pay off
mortgage-backed and asset-backed securities earlier than expected. The
portfolio may then have to reinvest the proceeds from such prepayments at
lower interest rates, which can reduce its yield. The unexpected timing of
mortgage and asset-backed prepayments caused by the variations in interest
rates may also shorten or lengthen the average maturity of the portfolio. If
left unattended, drifts in the average maturity of the portfolio can have the
unintended effect of increasing or reducing the effective duration of the
portfolio, which may adversely affect the expected performance of the
portfolio.
Extension Risk
The other side of prepayment risk occurs when interest rates are rising.
Rising interest rates can cause the portfolio's average maturity to lengthen
unexpectedly due to a drop in mortgage prepayments. This would increase the
sensitivity of the portfolio to rising rates and its potential for price
declines. Extending the average life of a mortgage-backed security increases
the risk of depreciation due to future increases in market interest rates. For
these reasons, mortgage-backed securities may be less effective than other
types of U.S. government securities as a means of "locking in" interest rates.
Credit Rating
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term Treasury securities, such as 3-month
treasury bills, are considered "risk free." Corporate 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 Treasuries securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment
to this "risk premium." Since an issuer's outstanding debt carries a fixed
coupon, adjustments to the risk premium must occur in the price, which effects
the yield to maturity of the bond. If an issuer defaults or becomes unable to
honor its financial obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the adviser may determine that it is of
investment-grade. The adviser may retain securities that are downgraded, if it
believes that keeping those securities is warranted.
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Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared
with investment-grade bonds, junk bonds carry a greater degree of risk and are
less likely to make payments of interest and principal. Market developments
and the financial and business condition of the corporation issuing these
securities influences their price and liquidity more than changes in interest
rates, when compared to investment-grade debt securities. Insufficient
liquidity in the junk bond market may make it more difficult to dispose of
junk bonds and may cause the portfolio to experience sudden and substantial
price declines. A lack of reliable, objective data or market quotations may
make it more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial
strength. The portfolio currently use ratings compiled by Moody's Investor
Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), Duff &
Phelps Rating Co. and Fitch IBCA. Credit ratings are only an agency's opinion,
not an absolute standard of quality, and they do not reflect an evaluation of
market risk. 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 portfolio buys it. A rating
agency may change its credit ratings at any time. The adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. The portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings.
DERIVATIVES
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Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Investors can use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. They may also invest in
derivatives to protect it from broad fluctuations in market prices, interest
rates or foreign currency exchange rates. Investing in derivatives for these
purposes is known as "hedging." When hedging is successful, the portfolio will
have offset any depreciation in the value of its portfolio securities by the
appreciation in the value of the derivative position. Although techniques
other than the sale and purchase of derivatives could be used to control the
exposure of the portfolio to market fluctuations, the use of derivatives may
be a more effective means of hedging this exposure.
Types of Derivatives
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
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"initial margin" with a futures broker, known as a futures commission
merchant, when they enter into the contract. Initial margin deposits are
typically equal to a percentage of the contract's value. After they open a
futures contract, the parties to the transaction must compare the purchase
price of the contract to its daily market value. If the value of the futures
contract changes in such a way that a party's position declines, that party
must make additional "variation margin" payments so that the margin payment is
adequate. On the other hand, the value of the contract may change in such a
way that there is excess margin on deposit, possibly entitling the party that
has a gain to receive all or a portion of this amount. This process is known
as "marking to the market."
Although the actual terms of a futures contract calls for the actual delivery
of and payment for the underlying security, in many cases the parties may
close the contract early by taking an opposite position in an identical
contract. If the sale price upon closing out the contract is less than the
original purchase price, the person closing out the contract will realize a
loss. If the sale price upon closing out the contract is more that the
original purchase price, the person closing out the contract will realize a
gain. The opposite is also true. If the purchase price upon closing out the
contract is more than the original sale price, the person closing out the
contract will realize a loss. If the purchase price upon closing out the
contract is less than the original sale price, the person closing out the
contract will realize a gain.
The portfolio will incur commission expenses in either opening, closing or
possibly opening and closing futures positions.
Options
An option is a contract between two parties for the purchase and sale of a
financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the
right to sell the security). Options have various types of underlying
instruments, including specific securities, indices of securities prices,
foreign currencies, interest rates and futures contracts. Options may be
traded on an exchange (exchange-traded-options) or may be customized
agreements between the parties (over-the-counter or "OTC options"). Like
futures, a financial intermediary, known as a clearing corporation,
financially backs exchange-traded options. However, OTC options have no such
intermediary and are subject to the risk that the counter-party will not
fulfill its obligations under the contract.
Purchasing Put and Call Options
When the portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the portfolio pays the current market price for the option (known as
the "option premium"). The portfolio may purchase put options to offset or
hedge against a decline in the market value of its securities ("protective
puts") or to benefit from a decline in the price of securities that it does
not own. The portfolio would ordinarily realize a gain if, during the option
period, the value of the underlying securities decreased below the exercise
price sufficiently to cover the premium and transaction costs. However, if the
price of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. The portfolio would normally purchase call options in
anticipation of an increase in the market value of securities it owns or wants
to buy. The portfolio would ordinarily realize a gain if, during the option
period, the value of the underlying instrument exceeded the exercise price
plus the premium paid and related transaction costs. Otherwise, the portfolio
would realize either no gain or a loss on the purchase of the call option.
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The purchaser of an option may terminate its position by:
. Allowing it to expire and losing its entire premium;
. Exercising the option and either selling (in the case of a put option) or
buying (in the case of a call option) the underlying instrument at the
strike price; or
. Closing it out in the secondary market at its current price.
Selling (Writing) Put and Call Options
When the portfolio writes a call option it assumes an obligation to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. Similarly, when
the portfolio writes a put option it assumes an obligation to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. The portfolio may
terminate its position in an exchange-traded put option before exercise by
buying an option identical to the one it has written. Similarly, it may cancel
an over-the-counter option by entering into an offsetting transaction with the
counter-party to the option.
The portfolio could try to hedge against an increase in the value of
securities it would like to acquire by writing a put option on those
securities. If security prices rise, the portfolio would expect the put option
to expire and the premium it received to offset the increase in the security's
value. If security prices remain the same over time, the portfolio would hope
to profit by closing out the put option at a lower price. If security prices
fall, the portfolio may lose an amount of money equal to the difference
between the value of the security and the premium it received. Writing covered
put options may deprive the portfolio of the opportunity to profit from a
decrease in the market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing
put options, except that call writers expect to profit if prices remain the
same or fall. The portfolio could try to hedge against a decline in the value
of securities it already owns by writing a call option. If the price of that
security falls as expected, the portfolio would expect the option to expire
and the premium it received to offset the decline of the security's value.
However, the portfolio must be prepared to deliver the underlying instrument
in return for the strike price, which may deprive it of the opportunity to
profit from an increase in the market price of the securities it holds.
The portfolio is permitted only to write covered options. The portfolio can
cover a call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract;
or
. In the case of an index, the portfolio of securities that corresponds to
the index.
The portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
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. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
. Maintaining the entire exercise price in liquid securities.
Options on Securities Indices
Options on securities indices are similar to options on securities, except that
the exercise of securities index options requires cash settlement payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security.
Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the option
by the holder, the contract market clearing house establishes a corresponding
short position for the writer of the option (in the case of a call option) or a
corresponding long position (in the case of a put option). If the option is
exercised, the parties will be subject to the futures contracts. In addition,
the writer of an option on a futures contract is subject to initial and
variation margin requirements on the option position. Options on futures
contracts are traded on the same contract market as the underlying futures
contract.
The buyer or seller of an option on a futures contract may terminate the option
early by purchasing or selling an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.
The portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It also
may purchase such put options in order to hedge a long position in the
underlying futures contract. The portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures contracts,
such as in anticipation of favorable market conditions.
The portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If the
price of the futures contract at expiration were below the exercise price, the
portfolio would retain the option premium, which would offset, in part, any
decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase of
the futures contracts, except that, if the market price declines, the portfolio
would pay more than the market price for the underlying instrument. The premium
received on the sale of the put option, less any transaction costs, would reduce
the net cost to the portfolio.
Combined Positions
The portfolio may purchase and write options in combination with each other, or
in combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the portfolio could
construct a combined position whose risk and return characteristics are similar
to selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the portfolio could
write a call option at one strike price and buy a call option at a lower price
to reduce the risk of the written call option in the event of a
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substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
Swaps, Caps, Collars and Floors
Swap Agreements
A swap is a financial instrument that typically involves the exchange of cash
flows between two parties on specified dates (settlement dates), where the cash
flows are based on agreed-upon prices, rates, indices, etc. The nominal amount
on which the cash flows are calculated is called the notional amount. Swaps are
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors, such as interest rates,
foreign currency rates, mortgage securities, corporate borrowing rates, security
prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of the portfolio and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate, currency,
or other factors that determine the amounts of payments due to and from the
portfolio. If a swap agreement calls for payments by the portfolio, the
portfolio must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement would
be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the prior
written consent of the other party. The portfolio may be able to eliminate its
exposure under a swap agreement either by assignment or by other disposition, or
by entering into an offsetting swap agreement with the same party or a similarly
creditworthy party. If the counter-party is unable to meet its obligations under
the contract, declares bankruptcy, defaults or becomes insolvent, the portfolio
may not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a portfolio's
gains or losses. In order to reduce the risk associated with leveraging, a
portfolio will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the portfolio enters into a swap agreement
on a net basis, it will segregate assets with a daily value at least equal to
the excess, if any, of the portfolio's accrued obligations under the swap
agreement over the accrued amount the portfolio is entitled to receive under the
agreement. If the portfolio enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of the
portfolio's accrued obligations under the agreement.
Interest Rate Swaps -- Interest rate swaps are financial instruments that
involve the exchange on one type of interest rate for another type of interest
rate cash flow on specified dates in the future. Some of the different types of
interest rate swaps are "fixed-for floating rate swaps," "termed basis swaps"
and "index amortizing swaps." Fixed-for floating rate swap involve the exchange
of fixed interest rate cash flows for floating rate cash flows. Termed basis
swaps entail cash flows to both parties based on floating interest rates, where
the interest rate indices are different. Index amortizing swaps are typically
fixed-for floating swaps where the notional amount changes if certain conditions
are met.
Like a traditional investment in a debt security, a portfolio could lose money
by investing in an interest rate swap if interest rates change adversely. For
example, if the portfolio enters into a swap where it agrees to exchange a
floating rate of interest for a fixed rate of interest, the portfolio may have
to pay more money than it receives. Similarly, if the portfolio enters into a
swap where it agrees to exchange a fixed rate of interest for a floating rate of
interest, the portfolio may receive less money than it has agreed to pay.
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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 portfolio than if it had not entered into any
derivatives transactions. Derivatives may magnify the portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities the
portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could expose
the portfolio to greater risks.
Correlation of Prices
The portfolio's ability to hedge its securities through derivatives depends on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant securities. In the case of poor
correlation, the price of the securities the portfolio is hedging may not move
in the same amount, or even in the same direction as the hedging instrument. The
adviser will try to minimize this risk by investing only in those contracts
whose behavior it expects to resemble the portfolio securities it is trying to
hedge. However, if the portfolio's prediction of interest and currency rates,
market value, volatility or other economic factors is incorrect, the portfolio
may lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. a difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets. \
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the adviser's expectation that the price of the underlying security would rise,
but the price were to fall instead, the portfolio could be required to purchase
the security upon exercise at a price higher than the current market price.
Volatility and Leverage
The prices of derivatives are volatile (i.e., they may change rapidly,
substantially and unpredictably) and are influenced by a variety of factors,
including:
. actual and anticipated changes in interest rates;
. fiscal and monetary policies; and
. national and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum amount
that the price of a derivative may vary from the settlement price of that
derivative at the end of trading on the previous day. Once the price of a
derivative reaches this value, a portfolio may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during a
given day and does not limit potential gains or losses. Derivative prices have
occasionally moved to the daily limit for several consecutive trading days,
preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in an
immediate and substantial loss (as well as gain) to the portfolio and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The portfolio may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
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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 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.
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Investment Funds
Some emerging countries currently prohibit direct foreign investment in the
securities of their companies. Certain emerging countries, however, permit
indirect foreign investment in the securities of companies listed and traded on
their stock exchanges through investment funds that they have specifically
authorized. Investments in these investment funds are subject to the provisions
of the 1940 Act. Shareholders of a UAM Fund that invests in such investment
funds will bear not only their proportionate share of the expenses of the UAM
Fund (including operating expenses and the fees of the adviser), but also will
bear indirectly bear similar expenses of the underlying investment funds. In
addition, these investment funds may trade at a premium over their net asset
value.
Risks of Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition to
the risks inherent in U.S. investments.
Political and Economic Factors
Local political, economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments may affect the value of foreign
investments. Listed below are some of the more important political and economic
factors that could negatively affect an investment in foreign securities:
. The economies of foreign countries may differ from the economy of the
United States in such areas as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, budget deficits
and national debt;
. Foreign governments sometimes participate to a significant degree, through
ownership interests or regulation, in their respective economies. Actions
by these governments could significantly influence the market prices of
securities and payment of dividends;
. The economies of many foreign countries are dependent on international
trade and their trading partners and they could be severely affected if
their trading partners were to enact protective trade barriers and economic
conditions;
. The internal policies of a particular foreign country may be less stable
than in the United States. Other countries face significant external
political risks, such as possible claims of sovereignty by other countries
or tense and sometimes hostile border clashes; and
. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or
control foreign investments in its securities markets. These restrictions
could limit the portfolio's ability to invest in a particular country or
make it very expensive for the portfolio to invest in that country. Some
countries require prior governmental approval, limit the types or amount of
securities or companies in which a foreigner can invest. Other countries
may restrict the ability of foreign investors to repatriate their
investment income and capital gains.
Information and Supervision
There is generally less publicly available information about foreign companies
than companies based in the United States. For example, there are often no
reports and ratings published about foreign companies comparable to the ones
written about United States companies. Foreign companies are typically not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to United States
companies. The lack of comparable information makes investment decisions
concerning foreign countries more difficult and less reliable than domestic
companies.
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Stock Exchange and Market Risk
The adviser anticipates that in most cases an exchange or over-the-counter (OTC)
market located outside of the United States will be the best available market
for foreign securities. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as the markets in the United
States. Foreign stocks markets tend to differ from those in the United States in
a number of ways:
. They are generally not as developed or efficient as, and more volatile,
than those in the United States;
. They have substantially less volume;
. Their securities tend to be less liquid and to experience rapid and erratic
price movements;
. Commissions on foreign stocks are generally higher and subject to set
minimum rates, as opposed to negotiated rates;
. Foreign security trading, settlement and custodial practices are often less
developed than those in U.S. markets; and
. They may have different settlement practices, which may cause delays and
increase the potential for failed settlements.
Taxes
Certain foreign governments levy withholding taxes on dividend and interest
income. Although in some countries it is possible for the portfolio to recover a
portion of these taxes, the portion that cannot be recovered will reduce the
income the portfolio receives from its investments. The portfolio does not
expect such foreign withholding taxes to have a significant impact on
performance.
Emerging Markets
Investing in emerging markets may magnify the risks of foreign investing.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may:
. Have relatively unstable governments;
. Present greater risks of nationalization of businesses, restrictions on
foreign ownership and prohibitions on the repatriation of assets;
. Offer less protection of property rights than more developed countries; and
. Have economies that are based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer
from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of holdings difficult or impossible at times.
INVESTMENT COMPANIES
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The portfolio may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by the portfolio. Like other shareholders, the portfolio
would pay its proportionate share of those fees. Consequently, shareholders of
the portfolio would pay not only the management fees of the portfolio, but also
the management fees of the investment company in which the
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portfolio invests. The portfolio 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 portfolio to invest the greater of
5% of its total assets or $2.5 million in the UAM DSI Money Market Portfolio,
provided that the investment is:
. For cash management purposes;
. Consistent with the portfolio's investment policies and restrictions; and
. The adviser to the investing portfolio waives any fees it earns on the
assets of the portfolio that are invested in the UAM DSI Money Market
Portfolio.
The portfolio will bear expenses of the UAM DSI Money Market Portfolio on the
same basis as all of its other shareholders.
REPURCHASE AGREEMENTS
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In a repurchase agreement, an investor agrees to buy a security (underlying
security) from a securities dealer or bank that is a member of the Federal
Reserve System (counter-party). At the time, the counter-party agrees to
repurchase the underlying security for the same price, plus interest. Repurchase
agreements are generally for a relatively short period (usually not more than 7
days). The portfolio normally uses repurchase agreements to earn income on
assets that are not invested.
When the portfolio enters into a repurchase agreement it will:
. Pay for the underlying securities only upon physically receiving them or
upon evidence of their receipt in book-entry form; and
. Require the counter party to add to the collateral whenever the price of
the repurchase agreement rises above the value of the underlying security
(i.e., it will require the borrower 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 portfolio's right to sell the
security may be restricted. In addition, the value of the security might decline
before the portfolio can sell it and the portfolio might incur expenses in
enforcing its rights.
RESTRICTED SECURITIES
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The portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under the
supervision of the Board, the Adviser determines the liquidity of such
investments by considering all relevant factors. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of the
portfolio's investment limitations. The price realized from the sales of these
securities could be more or less than those originally paid by the portfolio or
less than what may be considered the fair value of such securities.
SECURITIES LENDING
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The portfolio may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When the portfolio lends its
securities, it will follow the following guidelines:
. The borrower must provide collateral at least equal to the market value of
the securities loaned;
. The collateral must consist of cash, an irrevocable letter of credit issued
by a domestic U.S. bank or securities issued or guaranteed by the U. S.
government;
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. The borrower must add to the collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis);
. It must be able to terminate the loan at any time;
. It must receive reasonable interest on the loan (which may include the
portfolio investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements. When
the portfolio lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, the
portfolio could:
. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
WHEN ISSUED TRANSACTIONS
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A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, the
portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or deliver securities until
a later date. Typically, no income accrues on securities the portfolio has
committed to purchase before the securities are delivered, although the
portfolio may earn income on securities it has in a segregated account. The
portfolio will only enter into these types of transactions with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The portfolio uses when-issued, delayed-delivery and forward delivery
transactions to secure what it considers an advantageous price and yield at the
time of purchase. When the portfolio engages in when-issued, delayed-delivery
and forward delivery transactions, it relies on the other party to consummate
the sale. If the other party fails to complete the sale, the portfolio may miss
the opportunity to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, the portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes place
also may be higher than those obtained in the transaction itself. Because the
portfolio does not pay for the security until the delivery date, these risks are
in addition to the risks associated with its other investments.
The portfolio will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. The portfolio will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
WRAPPER AGREEMENTS
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Wrapper agreements are used in order to stabilize the NAV of the portfolio.
Each wrapper agreement obligates the wrapper provider to maintain the "book
value" of a portion of the portfolio's assets (covered assets) up to a
specified maximum dollar amount, upon the occurrence of certain specified
events. Generally, the book value of the covered assets is clear (1)
purchase price plus interest on the covered assets accrued at a rate
specified on the wrapper agreement (crediting rate) less an adjustment to
reflect any defaulted securities. The crediting rate used in computing book
value is calculated by a formula specified in the wrapper agreement and as
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adjusted periodically. In the event of wrapper agreements purchased by the
portfolio, the crediting rate is the actual interest earned on the covered
assets, or an index-based approximation thereof, plus or minus an
adjustment for an amount receivable from or payable to the wrapper provider
based on fluctuations in the market value of the covered assets. As a
result, while the crediting rate will generally reflect movements to the
market rates of interest it may at any time be more or less than these
rates or the actual marked income earned on the covered assets. The
crediting rate may also be impaired by defaulted securities and by
increases and decreases of the amount of covered assets as a result of
contributions and withdrawals tied to the purchase and redemption or
shares. In no event will the crediting rate fall below zero percent under
the wrapper agreements entered into by the portfolio.
Wrapper providers are banks, insurance companies and other financial
institutions. The number of wrapper providers has been increasing in recent
years. As of April 1998, there were approximately fifteen wrapper providers
rated in one of the top two long-term rating categories by Moody's, S&P or
another NRSRO. The cost of wrapper agreements is typically 0.10% to 0.26%
per dollar of covered assets per annum.
Generally, under the terms of a wrapper agreement, if the market value
(plus accrued interest on the underlying securities) of the covered assets
is less than their book value at the time the covered assets are liquidated
in order to provide proceeds for withdrawals of portfolio interests
resulting from redemption of shares by IRA Owners, the wrapper provider
becomes obligated to pay to the portfolio the difference. Conversely, the
portfolio becomes obligated to make a payment to the wrapper provider if it
is necessary for the portfolio to liquidate covered assets at a price above
their book value in order to make withdrawal payments (Withdrawals
generally will arise when the portfolio must pay shareholders who redeem
shares.) Because it is anticipated that each wrapper agreement will cover
all covered assets up to a specified dollar amount, if more than one
wrapper provider becomes obligated to pay to the portfolio the difference
between book value and market value (plus accrued interest on the
underlying securities), each wrapper provider will be obligated to pay an
amount as designated by their contract according to the withdrawal
hierarchy specified by the Adviser in the wrapper agreement. Thus, the
portfolio will not have the option of choosing which wrapper agreement to
draw upon in any such payment situation.
The terms of the wrapper agreements vary concerning when these payments
must actually be made between the portfolio and the wrapper provider. In
some cases, payments may be due upon disposition of covered assets, other
wrapper agreements provide for settlement of payments only upon termination
of the wrapper agreement or total liquidation of the covered assets.
The portfolio expects that the use of wrapper agreements by the portfolio
will under most circumstances permit the portfolio to maintain a constant
NAV and to pay dividends that will generally reflect over time both the
interest income of, and market gains and losses on, the covered assets held
by the portfolio less the expenses of the portfolio. However, there can be
no guarantee that the portfolio will maintain a constant NAV or that any
shareholder will realize the same investment return as might be realized by
investing directly in the portfolio assets other than the wrapper
agreements. For example, a default by the issuer of a portfolio Security or
a wrapper provider on its obligations might result in a decrease in the
value of the portfolio assets and, consequently, the shares. The wrapper
agreements generally do not protect the portfolio from loss if an issuer of
portfolio securities defaults on payments of interest or principal.
Additionally, a portfolio shareholder may realize more or less than the
actual investment return on the portfolio Securities. Furthermore, there
can be no assurance that the portfolio will be able at all times to obtain
wrapper agreements. Although it is the current intention of the portfolio
to obtain such agreements covering all of its assets (with the exceptions
noted), the portfolio may elect not to cover some or all of its assets with
wrapper agreements should wrapper agreements become unavailable or should
other conditions such as cost, in the Adviser's sole discretion, render
their purchase inadvisable.
If, in the event of a default of a wrapper provider, the portfolio were
unable to obtain a replacement wrapper agreement, participants redeeming
shares might experience losses if the market value of the portfolio's
20
<PAGE>
assets no longer covered by the wrapper agreement is below book value. The
combination of the default of a wrapper provider and an inability to obtain
a replacement agreement could render the portfolio and the portfolio unable
to achieve their investment objective of maintaining a stable NAV. If the
governing board determines that a wrapper provider is unable to make
payments when due, the Board may assign a fair value to the wrapper
agreement that is less than the difference between the book value and the
market value (plus accrued interest on the underlying securities) of the
applicable covered assets and the portfolio might be unable to maintain NAV
stability.
Some wrapper agreements require that the portfolio maintain a specified
percentage of its total assets in short-term investments (liquidity
reserve). These short-term investments must be used for the payment of
withdrawals from the portfolio and portfolio expenses. To the extent the
liquidity reserve falls below the specified percentage of total assets, the
portfolio is obligated to direct all net cash flow to the replenishment of
the liquidity reserve. The obligation to maintain a liquidity reserve may
result in a lower return for the portfolio than if these funds were
invested in longer-term debt securities. The liquidity reserve required by
all wrapper agreements is not expected to exceed 2-10% of the portfolio's
total assets.
Wrapper agreements may also require that the covered assets have a
specified duration or maturity, consist of specified types of securities or
be of a specified investment quality. The portfolio will purchase wrapper
agreements whose terms in this regard are consistent with the portfolio's
investment objective and policies.
Wrapper agreements may also require the disposition of securities whose
ratings are downgraded below a certain level. This may limit the
portfolio's ability to hold such downgraded securities.
Wrapper agreements are structured with a number of different features.
Wrapper agreements purchased by the portfolio are of these basic types, (1)
non-participating, (2) participating and (3) "hybrid". In addition, the
wrapper agreements will either be of fixed-maturity or open-end maturity
("evergreen"). The portfolio enters into particular types of wrapper
agreements depending upon their respective cost to the portfolio and the
wrapper provider's creditworthiness, as well as upon other factors. Under
most circumstances, it is anticipated that the portfolio will enter into
participating wrapper agreements of open-end maturity and hybrid wrapper
agreements.
Types of Wrapper Agreements
Non-Participating Wrapper Agreement
Under a non-participating wrapper agreement, the wrapper provider becomes
obligated to make a payment to the portfolio whenever the portfolio sells
covered assets at a price below book value to meet withdrawals of a type
covered by the wrapper agreement (a "Benefit Event"). Conversely, the
portfolio becomes obligated to make a payment to the wrapper provider
whenever the portfolio sells covered assets at a price above their book
value in response to a Benefit Event. In neither case is the crediting rate
adjusted at the time of the Benefit Event. Accordingly, under this type of
wrapper agreement, while the portfolio is protected against decreases in
the market value of the covered assets below book value, it does not
realize increases in the market value of the covered assets above book
value; those increases are realized by the wrapper providers.
Participating Wrapper Agreement
Under a participating wrapper agreement, the obligation of the wrapper
provider or the portfolio to make payments to each other typically does not
arise until all of the covered assets have been liquidated. Instead of
payments being made on the occurrence of each Benefit Event, these
obligations are a factor in the periodic adjustment of the crediting rate.
Hybrid Wrapper Agreement
Under a hybrid wrapper agreement, the obligation of the wrapper provider on
the portfolio to make payments does not arise until withdrawals exceed a
21
<PAGE>
specified percentage of the covered assets, after which time payment
covering the difference between market value and book value will occur. For
example, a 50/50 hybrid wrap on $100XXX of securities would provide for a
participating wrapper XXX in place for the first $50 million of withdrawals
which might lead to adjustments in the crediting rate, with a non-
participating wrapper in place for the next $50 million of withdrawals,
with those withdrawals not creating any adjustment to the crediting rate.
Fixed-Maturity Wrapper Agreement
A fixed-maturity wrapper agreement terminates at a specified date, at which
settlement of any difference between book value and market value of the
covered assets occurs. A fixed-maturity wrapper agreement tends to ensure
that the covered assets provide a relatively fixed rate of return over a
specified period of time through bond immunization, which targets the
duration of the covered assets to the remaining life of the wrapper
agreement.
Evergreen Wrapper Agreement
An evergreen wrapper agreement has no fixed-maturity date on which payment
must be made, and the rate of return on the covered assets accordingly
tends to vary. Unlike the rate of return under a fixed-maturity wrapper
agreement, the rate of return on assets covered by an evergreen wrapper
agreement tends to more closely track prevailing market interest rates and
thus tends to rise when interest rates rise and fall when interest rates
fall. An Evergreen wrapper agreement may be converted into a fixed-maturity
wrapper agreement that will mature in the number of years equal to the
duration of the covered assets.
Additional Risks of Wrapper Agreements
In the event of the default of a wrapper provider, the portfolio could
potentially lose the book value protections provided by the wrapper
agreements with that wrapper provider. However, the impact of such a
default on the portfolio as a whole may be minimal or non-existent if the
market value of the covered assets thereunder is greater than their book
value at the time of the default, because the wrapper provider would have
no obligation to make payments to the portfolio under those circumstances.
In addition, the portfolio may be able to obtain another wrapper agreement
from another wrapper provider to provide book value protections with
respect to those covered assets. The cost of the replacement wrapper
agreement might be higher than the initial wrapper agreement due to market
conditions or if the market value (plus accrued interest on the underlying
securities) of those covered assets is less than their book value at the
time of entering into the replacement agreement. Such cost would also be in
addition to any premiums previously paid to the defaulting wrapper
provider. If the portfolio were unable to obtain a replacement wrapper
agreement, participants redeeming shares might experience losses if the
market value of the portfolio's assets no longer covered by the wrapper
agreement is below book value. The combination of the default of a wrapper
provider and an inability to obtain a replacement agreement could render
the portfolio and the portfolio unable to achieve its investment objective
of seeking to maintain a stable NAV.
With respect to payments made under the wrapper agreements between the
portfolio and the wrapper provider, some wrapper agreements, as noted in
the portfolio's prospectus, provide that payments may be due upon
disposition of the covered assets, while others provide for payment only
upon the total liquidation of the Covered assets or upon termination of the
wrapper agreement. In none of these cases, however, would the terms of the
wrapper agreements specify which portfolio securities are to be disposed of
or liquidated. Moreover, because it is anticipated that each wrapper
agreement will cover all covered assets up to a specified dollar amount, if
more than one wrapper provider becomes obligated to pay to the portfolio
the difference between book value and market value (plus accrued interest
on the underlying securities), each wrapper provider will pay a pro-rata
amount in proportion to the maximum dollar amount of coverage provided.
Thus, the portfolio will not have the option of choosing which wrapper
agreement to draw upon in any such payment situation. Under the terms of
most wrapper agreements the wrapper provider will have the right to
terminate the wrapper agreement in the event that material changes are made
in the portfolio's investment objectives or limitations or the nature of
the portfolio's operations. In such event, the portfolio may be obligated
to pay the wrapper provider termination fees. The portfolio will have the
right to terminate a wrapper agreement for any reason. Such right, however,
may also be subject to the payment of termination fees. In the event of
termination of a wrapper agreement or conversion of an Evergreen Wrapper
Agreement to a fixed-maturity, some wrapper agreements may require that the
duration of some portion of the portfolio's securities be reduced to
correspond to the fixed maturity at termination date and that such
securities maintain a higher credit rating than is normally required,
either of which requirements might adversely affect the return of the
portfolio.
Investment Policies of the Portfolio
The portfolio 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
portfolio will not consider changes in values, net assets or other circumstances
when determining whether the investment complies with its investment
limitations.
22
<PAGE>
FUNDAMENTAL POLICIES
- --------------------------------------------------------------------------------
The following investment limitations are fundamental, which means the portfolio
cannot change them without approval by the vote of a majority of the outstanding
voting securities of the portfolio, as defined by the 1940 Act. The portfolio
will not:
The portfolio will not:
. Make any investment that is inconsistent with its classification as a
diversified investment management company under the 1940 Act.
. Concentrate its investments in securities of issuers primarily engaged in
any particular industry (other 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:
The portfolio will not:
. Purchase on margin or sell short except that the portfolio may purchase
futures as described in the prospectus and this SAI.
. Invest more than 10% of its total assets in the securities of other
investment companies.
. Invest more than 5% of its total assets in the securities of any one
investment company.
. Acquire more than 3% of the voting securities of any other investment
company.
. Invest more than an aggregate of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale (restricted
securities) or securities for which there are no readily available markets
(illiquid securities).
Borrowing
The portfolio may borrow from banks and enter into reverse repurchase agreements
in an amount up to 33 1/3% of its total assets, taken at market value. The
portfolio may also borrow an additional 5% of its total assets from banks or
others for temporary or emergency purposes, such as the redemption of portfolio
shares. The portfolio may purchase additional securities so long as borrowings
do not exceed 5% of its total assets. The portfolio may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities.
23
<PAGE>
Asset Coverage
The portfolio will cover its derivatives according to guidelines established
by the SEC so as to avoid creating a "senior security" (as defined in the 1940
act) in connection with use of such instruments. Accordingly, the portfolio
will either own the securities underlying the derivative or will segregate
with its custodian cash or liquid securities in an amount at all times equal
to the portfolio's commitment with respect to these instruments or contracts.
Assets that are segregated for purposes of proving cover need not be
physically segregated in a separate account provided that the custodian notes
on its books that such securities are segregated. The portfolio will also
cover its use of wrapper agreements to the extent necessary to avoid creating
a "senior security" (as defined in the 1940 act) in connection with its
purchase of such agreements.
Management Of The Fund
The governing board manages the business of the Fund. The governing board
elects officers to manage the day-to-day operations of the Fund and to execute
policies the board has formulated. The Fund pays each board member who is not
also an officer or affiliated person (independent board member) a $150
quarterly retainer fee per active portfolio and a $2,000 meeting fee. In
addition, the Fund reimburses each independent board member for travel and
other expenses incurred while attending board meetings. The $2,000 meeting fee
and expense reimbursements are aggregated for all of the board members and
allocated proportionately among the portfolios of the UAM Funds Complex. The
Fund does not pay board members that are affiliated with the fund for their
services as board members. UAM, its affiliates or SEI pay the Fund's officers.
The following table lists the board members and officers of the Fund and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Fund and total compensation received from the
UAM Funds Complex. The UAM Funds Complex is currently comprised of 51
portfolios. Those people with an asterisk (*) beside their name are
"interested persons" of the Fund as that term is defined in the 1940 Act. Mr.
English does have an investment advisory relationship with Investment
Counselors of Maryland, an investment adviser to one of the portfolios in the
UAM Funds Complex. However, the Fund does not believe that the relationship is
a material business relationship, and, therefore, does not consider him to be
an "interested person" of the Fund. If these circumstances change, the Board
will determine whether any action is required to change the composition of the
Board.
<TABLE>
<CAPTION>
Aggregate
Aggregate Compensation
Compensation From the Fund
From the Fund Complex as of
Name, Address, Position Principal Occupations During the as of October October 31,
DOB with Fund Past 5 years 31, 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Bennett, Jr. Board President of Squam Investment Management $7,137 $10,625
College Road -- RFD 3 Member Company, Inc. and Great Island Investment
Meredith, NH 03253 Company, Inc.; President of Bennett Management
1/26/29 Company from 1988 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy J. Dunn Board Financial Officer of World Wildlife Fund since $7,137 $10,625
1250 24/th/ St., NW Member January 1999; Vice President for Finance and
Washington, DC 20037 Administration and Treasurer of Radcliffe College
8/14/51 from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Humenuk Board Executive Vice President and Chief Administrative $7,137 $10,625
100 King Street West Member Officer of Philip Services Corp.; Formerly, a
P.O. Box 2440, LCD-1 Partner in the Philadelphia office of the law
Hamilton Ontario, firm Dechert Price & Rhoads and a Director of
Canada L8N-4J6 Hofler Corp.
4/21/42
- ------------------------------------------------------------------------------------------------------------------------------------
Philip D. English Board President and Chief Executive Officer of Broventure $7,137 $10,625
16 West Madison Street Member Company, Inc.; Chairman of the Board of Chektec
Baltimore, MD 21201 Corporation and Cyber Scientific, Inc.
8/5/48
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
Aggregate
Aggregate Compensation
Compensation From the Fund
From the Fund Complex as of
Name, Address, Position Principal Occupations During the as of October October 31,
DOB with Fund Past 5 years 31, 1999 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James P. Pappas* Board President of UAM Investment Services, Inc. since 0 0
211 Congress Street Member March 1999; Vice President UAM Trust Company since
Boston, MA 02110 January 1996; Principal of UAM Fund Distributors,
2/24/53 Inc. since December 1995; Vice President of UAM
Investment Services, Inc. from January 1996 to March
1999 and a Director and Chief Operating Officer of CS
First Boston Investment Management from 1993-1995.
------------------------------------------------------------------------------------------------------------------------------
Norton H. Reamer* Board Chairman, Chief Executive Officer and a Director of 0 0
One International Place Member; United Asset Management Corporation; Director,
Boston, MA 02110 President Partner or Trustee of each of the Investment
3/21/35 and Chairman Companies of the Eaton Vance Group of Mutual Funds.
------------------------------------------------------------------------------------------------------------------------------
Peter M. Whitman, Jr.* Board President and Chief Investment Officer of Dewey 0 0
One Financial Center Member Square Investors Corporation since 1988; Director and
Boston, MA 02111 Chief Executive Officer of H.T. Investors, Inc.,
7/1/43 formerly a subsidiary of Dewey Square.
------------------------------------------------------------------------------------------------------------------------------
William H. Park Vice Executive Vice President and Chief Financial 0 0
One International Place President Officer of United Asset Management Corporation.
Boston, MA 02110
9/19/47
------------------------------------------------------------------------------------------------------------------------------
Gary L. French Treasurer President of UAMFSI and UAMFDI; Treasurer of the 0 0
211 Congress Street Fidelity Group of Mutual Funds from 1991 to 1995;
Boston, MA 02110 held various other offices with Fidelity Investments
7/4/51 from November 1990 to March 1995.
------------------------------------------------------------------------------------------------------------------------------
Robert R. Flaherty Assistant Vice President of UAMFSI; Manager of Fund 0 0
211 Congress Street Treasurer Administration and Compliance of Chase Global Fund
Boston, MA 02110 Services Company from 1995 to 1996; Senior Manager of
9/18/63 Deloitte & Touche LLP from 1985 to 1995,
------------------------------------------------------------------------------------------------------------------------------
Robert J. DellaCroce Assistant Director, Mutual Fund Operations - SEI Investments; 0 0
SEI Investments Treasurer Senior Manager at Arthur Andersen prior to 1994.
One Freedom Valley Rd.
Oaks, PA 19456
12/17/63
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Principal Shareholders
As of February 1, 2000, the following persons or organizations held of record
or beneficially 5% or more of the shares of a portfolio:
<TABLE>
<CAPTION>
Name and Address of Shareholder Percentage of Shares Owned Class
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & CO INC 78.59% Institutional
Reinvest Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson Lutkin Jenretre Securities Corporation Inc. 8.32% Institutional
P.O. Box 2052
Jersey City, NJ 07303-2052
--------------------------------------------------------------------------------------------------------------------------
UAM Trust CO CUST 5.95% Institutional
IRA R/O Rolf Stamm
12427 High Drive
Leawood, KS 66209-1330
</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 February 1,
2000, the directors and officers of the Fund owned less than 1% of the
outstanding shares of the portfolio.
25
<PAGE>
ability to vote a majority of the shares of the portfolio on any matter
requiring the approval of shareholders of the portfolio. As of February 1,
2000, the directors and officers of the Fund owned less than 1% of the
outstanding shares of the portfolio.
Investment Advisory and Other Services
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Dwight Asset Management Company, a Delaware corporation located at 125 College
Street, Burlington, Vermont 05401, is the investment adviser to the portfolio.
The adviser manages and supervises the investment of the portfolio's assets on
a discretionary basis. The adviser, an affiliate of United Asset Management
Corporation, has provided investment management services to corporations,
pension and profit-sharing plans, 401(k) and thrift plans since 1983. For its
services, the portfolio pays the adviser a fee of 0.50% of its average net
assets.
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 Fund has filed the Investment Advisory Agreement with
the SEC as part of its registration statement on Form N-1A.
Service Performed by Adviser
The adviser:
. Manages the investment and reinvestment of the portfolio's assets;
. Continuously reviews, supervises and administers the investment program of
the portfolio; and
. Determines what portion of the portfolio's assets will be invested in
securities and what portion will consist of cash.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence on
the part of the adviser in the performance of its obligations and duties under
the Investment Advisory Agreement, (2) reckless disregard by the adviser of
its
26
<PAGE>
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
. (2) (a) majority of the Members or (b) a majority of the shareholders of
the portfolio.
Terminating an Investment Advisory Agreement
The Fund may terminate an Investment Advisory Agreement at any time, without
the payment of any penalty if:
. A majority of the portfolio's shareholders vote to do so 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 Fund.
An Investment Advisory Agreement will automatically and immediately terminate
if it is assigned.
Advisory Fees
For its services, the portfolio pays its adviser a fee equal to of the
average daily net assets of the portfolio. Due to the effect of fee waivers by
the adviser, the actual percentage of average net assets that the portfolio
pays in any given year may be different from the rate set forth in its
contract with the adviser. For the last three fiscal years, the portfolio
paid the following in management fees to the adviser:
<TABLE>
<CAPTION>
Investment Advisory Investment Advisory Total Investment
Fees Paid Fees Waived Advisory Fees
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IRA Capital Preservation Portfolio
1999 $0 $410 $0
</TABLE>
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI is the Fund's distributor. The Fund offers its shares continuously.
While UAMFDI will use its best efforts to sell shares of the Fund, it is not
obligated to sell any particular amount of shares. UAMFDI receives no
compensation for its services, and any amounts it may receive under a Service
and Distribution Plan are passed through in their entirety to third parties.
UAMFDI, an affiliate of UAM, is located at 211 Congress Street, Boston,
Massachusetts 02110.
27
<PAGE>
SERVICE AND DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan and a Shareholder Servicing Plan (the
"Plans") for the portfolio's Institutional Service Class Shares pursuant to
Rule 12b-1 under the 1940 Act.
Shareholder Servicing Plan
The Shareholder Servicing Plan (Service Plan) permits the Fund to compensate
broker-dealers or other financial institutions (Service Agents) that have
agreed with UAMFDI to provide administrative support services to Institutional
Service Class shareholders that are their customers. Under the Service Plan,
Institutional Service Class Shares may pay service fees at the maximum annual
rate of 0.25 of the average daily net asset value of such shares held by the
Service Agent for the benefit of its customers. The Fund pays these fees out
of the assets allocable to the portfolio's 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 Fund and the Service Agent, provided that any such additional
shareholder services must constitute a permissible non-banking activity in
accordance with the then current regulations of, and interpretations
thereof by, the Board of Governors of the Federal Reserve System, if
applicable.
Rule 12b-1 Distribution Plan
The Distribution Plan permits the portfolio to pay UAMFDI or others for
certain distribution, promotional and related expenses involved in marketing
its Institutional Service Class Shares. Under the Distribution Plan,
Institutional Service Class Shares may pay distribution fees at the maximum
annual rate of 0.75% of the average daily net asset value of such shares held
by the Service Agent for the benefit of its customers. These expenses
include, among other things:
. Advertising the availability of services and products.
. Designing materials to send to customers and developing methods of making
such materials accessible to customers.
. Providing information about the product needs of customers.
. Providing facilities to solicit Fund sales and to answer questions from
prospective and existing investors about the Fund.
28
<PAGE>
. Receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information.
. Displaying and making available sales literature and prospectuses.
. Acting as liaison between shareholders and the Fund, including obtaining
information from the Fund and providing performance and other information
about the Fund.
In addition, the 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 Fund'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.
The Fund will not reimburse the Distributor or others for distribution
expenses incurred in excess of the amount permitted by the Plans.
Subject to seeking best price and execution, the Fund may buy or sell
portfolio securities through firms that receive payments under the Plans.
UAMFDI, at its own expense, may pay dealers for aid in distribution or for aid
in providing administrative services to shareholders.
Distribution Plan Expenses
- --------------------------------------------------------------------------------
IRA Capital Preservation Portfolio $0
1999
Approving, Amending and Terminating the Fund's Distribution Arrangements
Shareholders of the portfolio have approved the Plans. The Plans also were
approved by the governing board of the Fund, including a majority of the
members of the board who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (Plan
Members), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Continuing the Plans
The Plans continue in effect from year to year so long as they are approved
annually by a majority of the Fund's board members and its Plan Members. To
continue the Plans, the board must determine whether such continuation is in
the best interest of the Institutional Service Class shareholders and that
there is a reasonable likelihood of the Plans providing a benefit to the
Class. The Fund's board has determined that the Fund's distribution
arrangements are likely to benefit the Fund and its shareholders by enhancing
the Fund's ability to efficiently service the accounts of its Institutional
Service Class shareholders.
Amending the Plans
A majority of the Fund's governing board and a majority of its the Plan
Members must approve any material amendment to the Plans. Likewise, any
amendment materially increasing the maximum percentage payable under the Plans
must be approved by a majority of the outstanding voting securities of the
Class, as well as by a majority of the Plan Members.
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.
29
<PAGE>
Miscellaneous
So long as the Plans are in effect, the non-interested board members will
select and nominate the Plan Members of the Fund.
The Fund and UAMFDI intend to comply with the Conduct Rules of the National
Association of Securities Dealers relating to investment company sales
charges. with these rules.
Pursuant to the Plans, the board reviews, at least quarterly, a written report
of the amounts expended under each agreement with Service Agents and the
purposes for which the expenditures were made.
Additional Non-12b-1 Shareholder Servicing Arrangements
In addition to payments by the Fund under the Plans, UAM and any of its
affiliates, may, at its own expense, compensate a Service Agent or other
person for marketing, shareholder servicing, record-keeping and/or other
services performed with respect to the Fund, the portfolio or any class of
shares of the portfolio. The person making such payments may do so out of its
revenues, its profits or any other source available to it. Such services
arrangements, when in effect, are made generally available to all qualified
service providers. The adviser may also compensate its affiliated companies
for referring investors to the portfolio.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Fund, UAMFSI manages,
administers and conducts the general business activities of the Fund. As a
part of its responsibilities, UAMFSI provides and oversees the provision by
various third parties of administrative, fund accounting, dividend disbursing
and transfer agent services for the Fund. UAMFSI, an affiliate of UAM, has its
principal office at 211 Congress Street, Boston, Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Fund will be borne by the Fund or other
parties, including:
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and Board Members who are not officers,
directors, shareholders or employees of an affiliate of UAM, including
UAMFSI, UAMFDI or the adviser.
. SEC fees and state Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund.
30
<PAGE>
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Fund stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Fund expenses.
The Fund Administration Agreement continues in effect from year to year if the
Board specifically approves such continuance every year. The Board or UAMFSI
may terminate the Fund Administration Agreement, without penalty, on not less
than ninety (90) days' written notice. The Fund Administration Agreement
automatically terminates upon its assignment by UAMFSI without the prior
written consent of the Fund.
UAMFSI will from time to time employ other people to assist it in performing
its duties under the Fund Administration Agreement. Such people may be
officers and employees who are employed by both UAMFSI and the Fund. UAMFSI
will pay such people for such employment. The Fund will not incur any
obligations with respect to such people.
Administration and Transfer Agency Services Fees
The portfolio pays a four-part fee to UAMFSI as follows:
1. In exchange for administrative services, the portfolio pays a fee to UAMFSI
calculated at the annual rate of:
. $19,500 for the first operational class; plus
. $3,750 for each additional class; plus
. A fee calculated from the aggregate net assets of each portfolio at
the following rates:
<TABLE>
Annual Rate
- --------------------------------------------------------------------------------------------------
<S> <C>
IRA Capital Preservation Portfolio 0.063%
</TABLE>
2. The portfolio also pays a fee to UAMFSI for sub-administration and other
services provided by SEI. The fee, which UAMFSI pays to SEI, is calculated
at the annual rate of:
. Not more than $35,000 for the first operational class; plus
. $5,000 for each additional operational class; plus
. 0.03% of their pro rata share of the combined assets of the UAM Funds
Complex.
3. An annual base fee that UAMFSI pays to DST Systems, Inc. for its services
as transfer agent and dividend-disbursing agent equal to $10,500 for the
first operational class and $10,500 for each additional class.
4. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational class
and $2,500 for each additional class.
For the last three fiscal years the portfolio paid the following in
administration and sub-administration fees:
<TABLE>
<CAPTION>
Total Administration
Administrators Fee Sub-Administrators Fee Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IRA Capital Preservation Portfolio $2,472 $5,874 $8,346
1999
</TABLE>
31
<PAGE>
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York 11245,
provides for the custody of the Fund's assets pursuant to the terms of a
custodian agreement with the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountant for 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 portfolio. The Investment Agreement also directs the adviser to use
its best efforts to obtain the best execution with respect to all transactions
for the portfolio. The adviser may select brokers based on research,
statistical and pricing services they provide to the adviser. Information and
research provided by a broker will be in addition to, and not instead of, the
services the adviser is required to perform under the Investment Advisory
Agreement. In so doing, the portfolio may pay higher commission rates than
the lowest rate available when the adviser believes it is reasonable to do so
in light of the value of the research, statistical, and pricing services
provided by the broker effecting the transaction.
It is not the practice of the Fund to allocate brokerage or effect principal
transactions with dealers based on sales of shares that a broker-dealer firm
makes. However, the Fund may place trades with qualified broker-dealers who
recommend the Fund or who act as agents in the purchase of Fund shares for
their clients.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser makes investment decisions for the portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
adviser to engage in a simultaneous transaction, that is, buy or sell the same
security for more than one client. The adviser strives to allocate such
transactions among its clients, including the portfolio, in a fair and
reasonable manner. Although there is no specified formula for allocating such
transactions, the Fund's governing board periodically reviews the various
allocation methods used by the adviser.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
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 portfolio will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When the portfolio executes
transactions in the over-the-counter market, it will deal with primary market
makers unless prices that are more favorable are otherwise obtainable.
Commissions Paid
For the last three fiscal years, the portfolio paid the following in brokerage
commissions:
Brokerage Commissions
- --------------------------------------------------------------------------------
IRA Capital Preservation Portfolio $0
1999
Capital Stock and Other Securities
The Fund
The Fund was organized under the name "The Regis Fund II" as a Delaware
business trust on May 18, 1994. On October 31, 1995, the Fund changed its name
to "UAM Funds Trust." The Fund's principal executive office is located at 211
Congress Street, Boston, MA 02110; however, shareholders should direct all
correspondence to the address listed on the cover of this SAI.
Description Of Shares And Voting Rights
The Fund's Agreement and Declaration of Trust permits the Fund to issue an
unlimited number of shares of beneficial interest, without par value. The
Board has the power to designate one or more series (portfolios) or classes of
shares of beneficial interest without shareholder approval. The Board has
authorized three classes of shares: Institutional Class, Institutional Service
Class, and Advisor Class. Not all of the portfolios issue all of the classes.
Description of Shares
When issued and paid for, the shares of each series and class of the Fund are
fully paid and nonassessable, and have no pre-emptive rights or preference as
to conversion, exchange, dividends, retirement or other features. The shares
of the Fund have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of board members can elect
100% of the board if they choose to do so. On each matter submitted to a vote
of the shareholders, a shareholder is entitled to one vote for each full share
held (and a fractional vote for each fractional share held), then standing in
his name on the books of the Fund. Shares of all classes will vote together as
a single class except when otherwise required by law or as determined by the
Board.
If the Fund is liquidated, the shareholders of each portfolio or any class
thereof are entitled to receive the net assets belonging to that portfolio, or
in the case of a class, belonging to that portfolio and allocable to that
class. The Fund will distribute is net assets to its shareholders in
proportion to the number of shares of that portfolio or class thereof held by
them and recorded on the books of the Fund. A majority of the Board may
authorize the liquidation of any portfolio or class at any time.
33
<PAGE>
The Fund will not hold annual meetings except when required to by the 1940 Act
or other applicable law.
Class Differences
The Board has authorized three classes of shares, Institutional, Institutional
Service and Advisor. The three classes represent interests in the same assets
of the portfolio and, except as discussed below, are identical in all
respects.
. Institutional Service Shares bear certain expenses related to shareholder
servicing and the distribution of such shares and have exclusive voting
rights with respect to matters relating to such distribution expenditures.
. Advisor Shares bear certain expenses related to shareholder servicing and
the distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. Advisor
Shares also charge a sales load on purchases.
. Each class of shares has different exchange privileges.
Distribution and shareholder servicing fees reduce a class's:
. Net income;
. 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, the fund will
automatically reinvest all dividends in additional shares of the portfolio at
NAV (as of the business day following the record date). Shareholders may
change their dividend and distributions option by writing to the fund at least
three days before the record date for income dividend or capital gain
distribution.
The fund sends account statements to shareholders whenever it pays an income
dividend or capital gains distribution.
FEDERAL TAXES
The portfolio 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 the portfolio itself generally will be relieved
of federal income and excise taxes. If the portfolio 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.
The portfolio's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends it received from U.S. domestic
corporations may be eligible, in the hands of such shareholders, for the
corporate dividends received deduction, subject to certain holding period
requirements and debt financing limitations.
34
<PAGE>
Purchase, Redemption and Pricing of Shares
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
Calculating NAV
The purchase and redemption price of the shares of a portfolio is equal to the
NAV of the portfolio. The Fund calculates the NAV of a portfolio by
subtracting its liabilities from its total assets and dividing the result by
the total number of shares outstanding. For purposes of this calculation:
. Liabilities include accrued expenses and dividends payable; and
. Total assets include the market value of the securities held by the
portfolio, plus cash and other assets plus income accrued but not yet
received.
Each portfolio normally calculates its NAV as of the close of trading on the
NYSE every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
How the Fund Values it Assets
Debt Securities
Debt securities are valued according to the broadest and most representative
market, which will ordinarily be the over-the-counter market. Debt securities
may be valued based on prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost when the governing board determines that amortized cost reflects fair
value.
Other Assets
The value of other assets and securities for which no quotations are readily
available (including restricted securities) is determined in good faith at
fair value using methods determined by the governing board.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. To do so, the Service Agent must receive your investment order
before the close of trading on the NYSE and must transmit it to the fund
before the close of its business day to receive that day's share price. The
fund must receive proper payment for the order by the time the portfolio
calculates its NAV on the following business day. Service Agents are
responsible to their customers and the
35
<PAGE>
Fund for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
Shareholders can buy full and fractional (calculated to three decimal places)
shares of a portfolio. The fund will not issue certificates for fractional
shares and will only issue certificates for whole shares upon the written
request of a shareholder.
The Fund may reduce or waive the minimum for initial and subsequent investment
for certain fiduciary accounts, such as employee benefit plans or under
circumstances, where certain economies can be achieved in sales of the
portfolio's shares.
Who May Invest in the Portfolio
As described in the portfolio's prospectus, with certain exceptions, the
portfolio offers its shares to investors who wish to invest in the portfolio
through certain individual retirement accounts. From time to time, the
portfolio may allow certain shareholders, including affiliates of its
investment adviser, to buy shares of the portfolio through an account that
does not qualify as an individual retirement account described above. The
portfolio may also offer its shares through fund supermarkets, fund networks
and various other similar third-party service providers that maintain
shareholder accounts on behalf of the portfolio. The portfolio recognizes
that such service providers cannot guarantee that shares of the portfolio will
be sold only through individual retirement accounts.
In-Kind Purchases
At its discretion, the Fund may permit shareholders to purchase shares of the
portfolio with securities, instead of cash. If the Fund allows a shareholder
to make an in-kind purchase, it will value such securities according to the
policies described under "How the Fund Values it Assets" at the next
determination of net asset value after acceptance. The Fund will issue shares
of the portfolio at the NAV of the portfolio determined as of the same time.
The Fund will only acquire securities through an in-kind purchase for
investment and not for immediate resale. The Fund will only accept in-kind
purchases if the transaction meets the following conditions:
. The securities are eligible investments for the portfolio;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and that
there are no restrictions on their resale imposed by the 1933 Act or
otherwise;
. All dividends, interest, subscription, or other rights pertaining to such
securities become the property of the portfolio and are delivered to the
fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all securities
of the same issuer held by the portfolio cannot exceed 5% of the net assets
of the portfolio. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for federal income tax purposes depending upon the cost of securities
or local currency exchanged. Investors interested in such exchanges should
contact the adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the
portfolio.
36
<PAGE>
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 Fund and UAMSSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and they may be liable for
any losses if they fail to do so. These procedures include requiring the
investor to provide certain personal identification at the time an account is
opened and before effecting each transaction requested by telephone. In
addition, all telephone transaction requests will be recorded and investors
may be required to provide additional telecopied written instructions of such
transaction requests. The Fund or UAMSSC may be liable for any losses due to
unauthorized or fraudulent telephone instructions if the Fund or the UAMSSC
does not employ the procedures described above. Neither the Fund nor the
UAMSSC will be responsible for any loss, liability, cost or expense for
following instructions received by telephone that it reasonably believes to be
genuine.
37
<PAGE>
Signature Guarantees
The Fund requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should specify
the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person
who has authorized a redemption from your account and to protect your account,
the Fund and its sub-transfer agent from fraud.
The Fund will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that
participates in a signature guarantee program. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. You can get a complete definition of eligible guarantor
institutions by calling 1-877-826-5465. Broker-dealers guaranteeing
signatures must be a member of a clearing corporation or maintain net capital
of at least $100,000. Credit unions must be authorized to issue signature
guarantees.
Other Redemption Information
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will pay
your redemption proceeds earlier as applicable law so requires.
When the Fund 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
portfolio 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 portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class shares of UAM Funds do not
charge a sales commission or charge of any kind for exchanges.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The
governing board of the Fund may restrict the exchange privilege at any time.
Such instructions may include limiting the amount or frequency of exchanges
and may be for the purpose of assuring such exchanges do not disadvantage the
Fund and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of the portfolio to another person by making
a written request to the Fund. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign
38
<PAGE>
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 portfolio measures its performance by calculating its yield and total
return. Yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The portfolio calculates its
current yield and average annual total return information according to the
methods required by the SEC. The performance is calculated separately for
each Class of the portfolio. Dividends paid by the portfolio with respect to
each Class will be calculated in the same manner at the same time on the same
day and will be in the same amount, except that service fees, distribution
charges and any incremental transfer agency costs relating to Institutional
Service Class Shares will be borne exclusively by that class.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in the portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a stated
period. An average annual total return is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period.
The fund calculates the average annual total return of the portfolio by
finding the average annual compounded rates of return over one, five and ten-
year periods that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount was
completely redeemed at the end of each one, five and ten-year period and the
deduction of all applicable Fund expenses on an annual basis. Since
Institutional Service Class Shares bear additional service and distribution
expenses, their average annual total return will generally be lower than that
of the Institutional Class Shares.
The fund calculates these figures according to the following formula:
P (1 + T)/n/ = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1,
5 or 10 year periods (or fractional portion thereof).
39
<PAGE>
Set forth in the table below are the portfolio's average annual returns for
the one-year period and the five-year period ended October 31, 1999 and the
shorter of the ten-year period ended October 30, 1999 or the period from the
portfolio's inception date through October 31, 1999.
<TABLE>
<CAPTION>
Shorter of
10 Years or Since
One Year Five Years Inception 30-Day Yield Inception Date
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IRA Capital Preservation Portfolio N/A N/A 1 .12% 6.69% 8/30/99
Institutional Class Shares#
--------------------------------------------------------------------------------------------------------------------------------
Institutional Service Class* N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# The Institutional Class is has been operation for less than one yea..
* The Institutional Service Class is currently not operational.
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in the portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds. As
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during the
base period. Since Institutional Service Class shares bear additional service
and distribution expenses, their yield will generally be lower than that of
the Institutional Class Shares.
Yield is obtained using the following formula:
Yield = 2[((a-b)/(cd)+1)/6/-1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period.
COMPARISONS
- --------------------------------------------------------------------------------
The portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices as further
described in this SAI. This information may also be included in sales
literature and advertising.
To help investors better evaluate how an investment in the portfolio might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated
above) to performance as reported by other investments, indices and averages.
Please see "Comparative Benchmarks" for publications, indices and averages
that may be used.
In assessing such comparisons of performance, an investor should keep in mind:
40
<PAGE>
. that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the
portfolio;
. that the indices and averages are generally unmanaged; and
. that the items included in the calculations of such averages may not be
identical to the formula used by the portfolio to calculate its
performance; and
. that shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that the portfolio will continue this
performance as compared to such other averages.
Financial Statements
The following documents are included in the portfolio's October 31, 1999
Annual Report:
. Financial statements for the fiscal year ended October 31, 1999.
. Financial highlights for the respective periods presented
. The report of PricewaterhouseCoopers LLP.
Each of the above-referenced documents is incorporated by reference into this
SAI. However, no other parts of the portfolio's Annual Reports are
incorporated by reference herein. Shareholders may get copies of the
portfolio's Annual Reports free of charge by calling the UAM Funds at the
telephone number appearing on the front page of this SAI.
Glossary
All terms that this SAI does not otherwise define, have the same meaning in
the SAI as they do in the prospectus(es) of the portfolios.
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Adviser means the investment adviser of the portfolio.
Board Member refers to a single member of the Fund's Board.
Board refers to the Fund's Board of Trustees as a group.
SEI is SEI Investments Mutual Funds Services, the Fund's sub-administrator.
Distribution Plan refers to the Distribution Plan the Fund has adopted for its
Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.
Fund refers to UAM Funds Trust.
Governing Board, see Board.
NAV is the net asset value per share of a portfolio.
NYSE is the New York Stock Exchange. Also known as "The Exchange" or "The Big
Board," the NYSE is located on Wall Street and is the largest exchange in the
United States.
41
<PAGE>
Plan member refers to members of the board who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Plans.
Plans refers to the Distribution and Shareholder Servicing Plans the Fund has
adopted for its Service Class Shares pursuant to Rule 12b-1 under the 1940
Act.
SEC is the Securities and Exchange Commission. The SEC is the federal agency
that administers most of the federal securities laws in the United States. In
particular, the SEC administers the 1933 Act, the 1940 Act and the 1934 Act.
Service Plan refers to the Shareholder Servicing Plan the Fund has adopted for
its Service Class Shares pursuant to Rule 12b-1 under the 1940 Act.
Service Class means the Institutional Service Class shares of a portfolio.
UAM Funds Complex includes UAM Funds, Inc., UAM Funds Trust, UAM Funds Inc. II
and all of their portfolios.
UAM is United Asset Management Corporation.
UAMFDI is UAM Fund Distributors, Inc., the Fund's distributor.
UAMFSI is UAM Fund Services, Inc., the Fund's administrator.
UAMSSC is UAM Fund Shareholders Servicing Center, the Fund's sub-shareholder-
servicing agent.
Bond Ratings
Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
Preferred Stock Ratings
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well-
maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classification, earnings and
asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that which is rated "baa" is considered to be a medium--
grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present
but may be questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
caa An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to
indicate the future status of payments.
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ca An issue which is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
plus (+) or
minus (-) Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Debt Ratings - Taxable Debt & Deposits Globally
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than the Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
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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:
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.
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.
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C A subordinated debt or preferred stock obligation rated 'C'
is CURRENTLY HIGHLY VULNERABLE to non-payment. The 'C'
rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action taken, but
payments on this obligation are being continued. A 'C' will
also be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently
paying.
D An obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period
has not expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an
obligation are jeopardized.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are not
addressed in the credit rating. Examples include: obligation
linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as
interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as
inverse floaters.
N.R. This indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or
that Standard & Poor's does not rate a particular obligation
as a matter of policy.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to
meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these
obligations is extremely strong.
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.
DUFF & PHELPS CREDIT RATING CO.
- --------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury
debt.
AA+/AA/ High credit quality. Protection factors are strong. Risk is
AA- modest but may vary slightly from time
to time because of economic conditions.
A+/A/A- Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic
stress.
BBB+/BBB Below-average protection factors but still considered
BBB- sufficient for prudent investment. Considerable variability
in risk during economic cycles.
BB+/BB/ Below investment grade but deemed likely to meet obligations
BB- when due. Present or prospective financial protection
factors fluctuate according to industry conditions. Overall
quality may move up or down frequently within this category.
B+/B/B- Below investment grade and possessing risk that obligation
will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are
narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
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Short-Term Debt
High Grade
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or interest
payments.
FITCH IBCA RATINGS
- --------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case
of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
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.
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<PAGE>
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 is 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 IBCA does not rate the issuer or issue in
question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
Comparative Benchmarks
(alphabetically)
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. --
analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of change, over time in
the price of goods and services in major expenditure groups.
Donoghue's Money Fund Average -- is an average of all major money market
fund yields, published weekly for 7 and 30-day yields.
Dow Jones Industrial Average - a price-weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are listed on
the New York Stock Exchange. It has been a widely followed indicator of the
stock market since October 1, 1928.
Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper, Inc., Morningstar, Inc., The New
York Times, Personal Investor, The Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance
over specified time periods.
Historical data supplied by the research departments of First Boston
Corporation, J.P. Morgan & Co, Inc., Salomon Smith Barney, Merrill Lynch &
Co., Inc., Lehman Brothers, Inc. and Bloomberg L.P.
IBC's Money Fund Average/All Taxable Index - an average of all major money
market fund yields, published weekly for 7- and 30-day yields.
IFC Investable Composite Index - an unmanaged market capitalization-
weighted index maintained by the International Finance Corporation. This
index consists of over 890 companies in 26 emerging equity markets, and is
designed to measure more precisely the returns 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:
------------------------
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Lehman Brothers Aggregate Bond Index - an unmanaged fixed income market value-
weighted index that combines the Lehman Government/Corporate Index and the
Lehman Mortgage-Backed Securities Index, and includes treasury issues, agency
issues, corporate bond issues and mortgage backed securities. It includes
fixed rate issuers of investment grade (BBB) or higher, with maturities of at
least one year and outstanding par values of at least $100 million for U.S.
government issues and $25 million for others.
Lehman Brothers Corporate Bond Index - an unmanaged index of all publicly
issued, fixed-rate, nonconvertible investment grade domestic corporate debt.
Also included are yankee bonds, which are dollar-denominated SEC registered
public, noncovertible debt issued or guaranteed by foreign sovereign
governments, municipalities, or governmental agencies, or international
agencies.
Lehman Brothers Government Bond Index -an unmanaged treasury bond index
including all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues, and the Agency Bond Index (all publicly issued
debt of U.S. government agencies and quasi-federal corporations, and corporate
debt guaranteed by the U.S. government). In addition to the aggregate index,
sub-indices cover intermediate and long term issues.
Lehman Brothers Government/Corporate Bond Index -- an unmanaged fixed income
market value-weighted index that combines the Government and Corporate Bond
Indices, including U.S. government treasury securities, corporate and yankee
bonds. All issues are investment grade (BBB) or higher, with maturities of
at least one year and outstanding par value of at least $100 million of U.S.
government issues and $25 million for others. Any security downgraded during
the month is held in the index until month end and then removed. All returns
are market value weighted inclusive of accrued income.
Lehman Brothers High Yield Bond Index - an unmanaged index of fixed rate, non-
investment grade debt. All bonds included in the index are dollar
denominated, noncovertible, have at least one year remaining to maturity and
an outstanding par value of at least $100 million.
Lehman Brothers Intermediate Government/Corporate Index - an unmanaged fixed
income, market value-weighted index that combines the Lehman Brothers
Government Bond Index (intermediate-term sub-index) and four corporate bond
sectors.
Lehman Brothers Mortgage-Backed Securities Index - an unmanaged index of all
fixed-rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage 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.
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Certain Lipper, Inc. indices/averages used by the UAM Funds may include, but
are not limited to, the following:
Lipper Short-Intermediate Investment Grade Debt Funds Average -- is an average
of 100 funds that invest at least 65% of assets in investment grade debt
issues (BBB or higher) with dollar-weighted average maturities of one to five
years or less. (Taxable Fixed-Income category)
Lipper Balanced Fund Index - an unmanaged index of open-end equity funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%. (Equity category)
Lipper Equity Income Fund Index - an unmanaged index of equity funds which
seek relatively high current income and growth of income through investing 60%
or more of the portfolio in equities. (Equity category)
Lipper Equity Mid Cap Fund Index - an unmanaged index of funds that by
prospectus or portfolio practice invest primarily in companies with market
capitalizations less than $5 billion at the time of purchase. (Equity
category)
Lipper Equity Small Cap Fund Index - an unmanaged index of funds by prospectus
or portfolio practice invest primarily in companies with market
capitalizations less than $1 billion at the time of purchase. (Equity
category)
Lipper Growth Fund Index - an unmanaged index composed of the 30 largest funds
by asset size which invest in companies with long-term earnings expected to
grow significantly faster than the earnings of the stocks represented in the
major unmanaged stock indices. (Equity category)
Lipper Mutual Fund Performance Analysis and Lipper -Fixed Income Fund
Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestments of all distributions, exclusive
of any applicable sales charges.
Merrill Lynch 1-4.99 Year Corporate/Government Bond Index -- is an unmanaged
index composed of U.S. treasuries, agencies and corporates with maturities
from 1 to 4.99 years. Corporates are investment grade only (BBB or higher).
Merrill Lynch 1-3 Year Treasury Index - an unmanaged index composed of U.S.
treasury securities with maturities from 1 to 3 years.
Morgan Stanley Capital International EAFE Index -- arithmetic, market value-
weighted averages of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk and total return for equity funds.
NASDAQ Composite Index -- is a market capitalization, price only, unmanaged
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as national market System traded foreign common
stocks and ADRs.
Nekkei Stock Average - a price weighted index of 225 selected leading stocks
listed on the First Section of the Tokyo Stock Exchange.
New York Stock Exchange composite or component indices -- capitalization-
weighted unmanaged indices of all industrial, utilities, transportation and
finance stocks listed on the New York Stock Exchange.
Russell U.S. Equity Indexes:
----------------------------
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<PAGE>
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 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 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 Index - an unmanaged index which measures the performance of the
2,5000 smallest companies in the Russell 3000 Index, which represents
approximately 17% of the total market capitalization of the Russell 3000
Index.
Russell 3000(R) Growth Index - measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.
Russell 3000(R) Value Index - measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Value or the Russell 2000 Value indexes.
Russell 1000(R) Growth Index - measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 1000(R) Value Index - measures the performance of those Russell 1000
with lower price-to-book ratios and lower forecasted growth values.
Russell 2000(R) Growth Index - measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2000(R) Value Index - measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
Russell Top 200 Growth Index - measures the performance of those Russell Top
200 companies with higher price-to-book ratios and higher forecasted growth
values. The stocks re also members of the Russell 1000 Growth index.
Russell Top 200 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 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 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 Growth Index - measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2500 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 Midcap400.
S&P Small Cap 600 Index - an unmanaged index comprised of 600 domestic stocks
chosen for market size, liquidity, and industry group representation. The
index is comprised of stocks from the industrial, utility, financial, and
transportation sectors. It is gaining wide acceptance as the preferred
benchmark for both active and passive management due to its low turnover and
greater liquidity. Approximately $8 billion is indexed to the S&P SmallCap
600.
S&P SuperComposite 1500 - combines the S&P 500, MidCap 400, and SmallCap 600
indices, representing 87% of the total U.S. equity market capitalization.
S&P 100 Index - known by its ticker symbol OEX, this index measures large
company U.S. stock market performance. This market capitalization-weighted
index is made up of 100 major, blue chip stocks across diverse industry
groups.
S&P/BARRA Growth and Value Indices - are constructed by dividing the
securities in the S&P 500 Index according to price-to-book ratio. The Value
index contains the companies with the lower price-to-book ratios; while the
companies with the higher price-to-book ratios are contained in the Growth
index.
S&P REIT Composite Index - launched in 1997, this benchmark tracks the market
performance of U.S. Real Estate Investment Trusts, known as REITS. The REIT
Composite consists of 100 REITs chosen for their liquidity and importance in
representing a diversified real estate portfolio. The Index covers over 80%
of the securitized U.S. real estate market.
S&P Utilities Stock Price Index - a market capitalization weighted index
representing three utility groups and, with the three groups, 43 of the
largest utility companies listed on the New York Stock Exchange, including 23
electric power companies, 12 natural gas distributors and 8 telephone
companies.
Standard & Poor's CANADA Indices:
---------------------------------
S&P/TSE Canadian MidCap Index - measures the performance of the mid-size
company segment of the Canadian equity market.
S&P/TSE Canadian SmallCap Index - Measures the small company segment of the
Canadian equity market.
Standard & Poor's Global Indices:
---------------------------------
S&P Global 1200 Index - aims to provide investors with an investable
portfolio. This index, which covers 29 countries and consists of seven
regional components, offers global investors an easily accessible, tradable
set of stocks and particularly suits the new generation of index products,
such as exchange-traded funds (ETFs).
S&P Euro and S&P Euro Plus Indices - the S&P Euro Index covers the Eurobloc
countries; the Euro Plus Index includes the Euro markets as well as Denmark,
Norway, Sweden and Switzerland. The S&P Euro Plus Index contains
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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.
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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.
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