Exhibit 99.1
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RISK FACTORS
UAM's management may make "forward-looking" statements in the Form 10-K
to which the document is filed as an exhibit, in other documents filed with the
SEC (including those documents incorporated by reference into the Form 10-K), in
press releases, and in discussions with analysts, investors and others. These
statements include:
o descriptions of UAM's operational plans,
o expectations about future earnings and other results of operations,
o views of future industry or market conditions, and
o other statements that include words like "may," "expects,"
"believes," and "intends," and that describe opinions about future
events.
Investors should not rely on these statements as though they were
guarantees. These statements are current only when they are made. UAM's
management has no obligation to revise or update these statements based on
future developments. Known and unknown risks may cause UAM's actual results and
performances to be materially different from those expressed or implied by these
statements. Some of these risks are identified and explained below.
MOST OF UAM'S REVENUES ARE BASED ON THE MARKET VALUE OF MANAGED ASSETS AND,
THEREFORE, WILL RISE AND FALL WITH CHANGES IN THE ECONOMY AND FINANCIAL MARKETS
Most of the revenues of UAM's affiliated firms are investment advisory
fees, which are based primarily on the market value of assets under management.
Consequently, UAM's financial results depend directly on changes in the economy
and financial markets. These changes can be extremely volatile and are difficult
to predict.
However, changes in the financial markets may also have an inverse
effect on assets under management. First, when prices in financial markets rise,
U.S. employers may make net withdrawals from their defined benefit plans. The
Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal
Revenue Code of 1986 (the "Tax Code") require employers to fund their plans
sufficiently to generate the benefits they have promised, based on actuarial
calculations. However, the Tax Code also discourages employers from overfunding
these plans by limiting tax deductions for contributions to fully funded plans.
UAM believes that the high investment returns experienced in the 1980s and 1990s
have caused many defined benefit plans to reach or exceed their full funding
limits. Therefore, many employers may have ceased to contribute additional cash
to these plans, even though these employers may be withdrawing assets from the
plans to pay benefits as they become due.
Second, many investors wish to maintain a particular balance in their
portfolios among various asset classes and investment styles. Over time, if
funds allocated to one asset class outperform the rest of the portfolio, the
portfolio may become overweighted in that asset class. If the investor has not
changed its optimal asset allocation, the investor may rebalance the portfolio
by withdrawing funds from the asset class that outperformed and redistributing
those funds among the other asset classes and styles in the portfolio. In this
way, an advisor that manages in one particular asset class or style may
experience negative client cash flows after relative performance was positive,
and positive client cash flows after relative performance was negative.
THE INVESTMENT MANAGEMENT BUSINESS IS HIGHLY COMPETITIVE
UAM's affiliated firms compete to manage domestic and international
investment portfolios for corporate benefit plans, mutual funds, government and
union benefit plans, individuals, endowments, and foundations. UAM believes that
the most important factors affecting competition in the investment management
industry are:
o the abilities and reputations of investment managers,
o stability of a firm's workforce, especially of portfolio managers,
o an effective marketing force with broad access to channels of distribution,
o differences in the investment performance of investment management firms,
o adherence to particular investment styles,
o quality of client service,
o the development of new investment strategies,
o resources to invest in information technologies, and
o public recognition of trade names in retail markets
UAM's affiliated firms face many competitors, including public and
private investment advisers, as well as affiliates of securities broker-dealers,
commercial banks, investment banks, and insurance companies. Barriers to entry
are low, and firms in the investment management business are relatively
long-lived.
Institutional clients typically may terminate investment management
contracts without penalty upon 30-days' notice. Mutual funds typically may
terminate investment management contracts without penalty upon 60-days' notice,
and retail clients may redeem investments in mutual funds at any time.
THE INVESTMENT MANAGEMENT BUSINESS IS SUSCEPTIBLE TO INTERNAL SHIFTS AND
FREQUENTLY REQUIRES FIRMS TO ADAPT
Firms typically position themselves to provide investment management
services within certain asset classes (equities, debt, real estate, etc.) and
investment styles (value, growth, sector rotation, etc.). Periodic shifts in the
investment management industry may favor firms with strength in particular areas
and firms that have the ability to adjust to these shifts.
For example, the implementation of the European Monetary Union includes
the elimination of the national currencies and the coordination of economic
policy of the 11 member countries. These developments may cause several shifts
in the industry including:
o The preferred basis for equity asset allocation may shift from
regional and country selection to industry selection;
o Investors in member countries may be more willing to invest in
equity and debt securities from other member countries since there
will no longer be exchange rate risk; and
o Investors may no longer require certain hedging techniques that seek to
reduce exchange rate risk.
As another example, the press release attached as Exhibit 99.1 to the
Company's Form 8-K filed on January 22, 1998, describes a shift in the market
for institutionally managed real estate. Many investors now seek management
through investment vehicles like real estate investment trusts that offer
liquidity and public pricing, rather than investment vehicles like group trusts
that offer a more traditional form of long-term management.
UAM'S AFFILIATED FIRMS DEPEND SIGNIFICANTLY ON KEY EMPLOYEES
Individual investment managers at UAM's affiliated firms often have
regular direct contact with clients, which may cause the clients to base their
relationships largely on trust in that individual manager. Some clients could
withdraw assets if an affiliated firm loses a key investment manager. UAM's
success depends on its ability to attract, retain, and motivate sufficient
numbers of qualified managers at its affiliated firms.
In most cases, key managers have signed long-term employment contracts
and have agreed not to provide investment advisory services to any of their
firm's clients for a period after their employment ends. Also, UAM uses a
combination of short-term and long-term financial incentives to help its firms
retain these individuals. UAM depends on the enforceability of these employment
and non-competition agreements. However, these methods do not guarantee that
these individuals will remain with UAM's firms for the specified term of the
agreements or for any further term. The market for investment managers is
extremely competitive. Increasingly, in the industry, investment managers are
moving among different firms and starting new firms.
UAM'S GROWTH STRATEGY DEPENDS, IN PART, ON A SUCCESSFUL ACQUISITION PROGRAM
To date, UAM has acquired substantial ownership interests in over 50
investment management firms. UAM intends to continue this acquisition program in
the future, although more selectively than in the past. The success of this
program depends on UAM's ability to identify suitable firms and to negotiate
agreements on acceptable terms. Success also depends on UAM's ability to finance
acquisitions through additional borrowing, by issuing additional stock in
private or public transactions, or through internally generated cash flow.
The market for acquisition of interests in investment management firms
is highly competitive. There are several other holding companies that invest in
investment management firms. In addition, many domestic and foreign commercial
and investment banks, insurance companies, and investment management firms
maintain active acquisition programs, and many of these companies have longer
operating histories and significantly greater resources than UAM.
Over the past few years, because of competition for acquisitions,
prices for firms have increased, and therefore the expected returns on these
investments have decreased. Further, as the total assets managed by UAM's
affiliated firms rises, this program may require larger or more frequent
acquisitions in order to continue to have a material effect on UAM's financial
results.
UAM'S REPORTED NET EARNINGS MAY BE AFFECTED BY CHANGES IN ITS AMORTIZATION OF
CLIENT CONTRACTS
When UAM acquires an investment advisory firm in a purchase business
transaction, UAM's balance sheet gains a new intangible asset - the cost
assigned to investment advisory contracts acquired. UAM amortizes this amount on
a straight-line basis over the estimated weighted average useful life of the
contracts. Determinations of these estimates consider historical patterns of
terminations by clients and the size and age of the contracts. If actual client
terminations occur significantly sooner than originally estimated or in certain
other circumstances, generally accepted accounting principles require that UAM
amortize the remaining asset over the revised estimated (shorter) life. This
acceleration of amortization further lowers UAM's reported net earnings during
the revised estimated life of the contracts.
In addition, UAM regularly analyzes the value of investment advisory
contracts. Many factors can affect the value of these contracts, including
changes in advisory fee rates, strategic planning at the affiliated firm,
realignment of client and consultant relationships, and performance in managing
assets. In its analysis, UAM compares the carrying value of the contracts
against the estimated undiscounted future cash flows associated with the
contracts. If the undiscounted future cash flows are not sufficient to recover
the carrying value of the asset, accounting principles require that UAM adjust
the carrying cost of the contracts to their estimated fair value. Such an
adjustment, known to accountants as an "impairment" charge, would lower UAM's
reported net earnings. The press release attached as Exhibit 99.1 to UAM's Form
8-K filed on January 22, 1998, describes a charge in the fourth quarter of
fiscal year 1997 resulting from the impairment of client contracts at two of
UAM's affiliated firms.
THE IRS IS SEEKING ADJUSTMENTS TO SEVERAL OF UAM'S FEDERAL INCOME TAX RETURNS
The Notes to Consolidated Financial Statements which are included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
describe UAM's method for amortizing investment advisory contracts for tax
purposes in years prior to 1993 and the method permitted by the Revenue
Reconciliation Act of 1993 (the "93 Act") for subsequent years. The Internal
Revenue Service ("IRS") has audited UAM's federal income tax returns for 1984
through 1992 and is challenging UAM's amortization prior to the 93 Act. The
Notes
address this audit and the IRS's position in more detail. UAM believes that it
will prevail in the audit. However, if the IRS prevails in all aspects, UAM
would owe approximately $56,000,000, plus interest, in additional tax.
UAM DELEGATES AUTHORITY TO MAKE DECISIONS OVER THE OPERATIONS OF ITS AFFILIATED
FIRMS
As sole or principal stockholder, UAM has the power to elect and remove
directors of its affiliated firms and to veto any major actions that the firm
may take. However, UAM authorizes the principals of the affiliated firms to
manage their own day-to-day operations, including employee matters, investment
management policies and fee structures, product development, marketing, client
relationships, compensation programs, and compliance activities. Indeed, UAM
itself is not registered as an investment adviser either with the SEC or with
any state or foreign regulatory agency and therefore cannot render investment
advisory services except through its affiliated firms which are properly
registered. Accordingly, UAM has only limited ability to alter or coordinate the
investment management practices and policies of its affiliated firms.
THE YEAR 2000 ISSUE AFFECTS UAM'S COMPUTER HARDWARE AND SOFTWARE
Many computer programs use two digits, rather than four, to identify
the year in a date. These programs cannot accurately process dates after
December 31, 1999. This failure may cause systems to crash and may cause
programs to generate erroneous results when they process data. This issue
affects personal computers, mainframe computers, networks, and other information
technology systems. This issue also affects any equipment that contains embedded
software (non-IT systems), including telephone lines, elevators, and other
infrastructure. All companies that use or rely on IT systems or non-IT systems
face this issue.
In 1997, UAM started a program to assess its IT systems, to modify,
upgrade or replace all hardware or software that is not Year 2000 compliant, and
to develop a contingency plan in case its IT systems or its business partners'
IT systems are not Year 2000 compliant by January 1, 2000. This program also
addresses UAM's exposure to non-IT systems that may not be Year 2000 compliant.
UAM is assessing its non-IT systems, seeking assurance from the providers of
these systems that they are or soon will be Year 2000 compliant, and developing
a contingency plan in case these non-IT systems are not Year 2000 compliant by
January 1, 2000. UAM hired an outside consultant to assist UAM and its
affiliated firms with the development and implementation of this program. The
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of UAM's Form 10-K for the year ended December 31, 1998,
provides more detailed information on this program.
UAM expects to complete this program by June 30, 1999, and expects that
the cost will not be material. However, UAM cannot guarantee that this program
will achieve full and timely Year 2000 compliance, particularly with respect to
its business partners and non-IT systems that are not owned by UAM or under its
control. A failure by UAM, any of its affiliated firms, any of its business
partners, or any of its providers of non-IT system to achieve full and timely
compliance could have a material adverse effect on UAM's business and financial
results.
ADOPTION OF THE NEW "EURO" CURRENCY AFFECTS UAM'S COMPUTER HARDWARE AND SOFTWARE
On January 1, 1999, 11 countries in the European Monetary Union adopted
the "Euro" as their common currency. Existing national currencies in these
countries will cease to be legal tender on July 1, 2002. Many computer programs
do not recognize the "Euro."
In 1998, UAM, together with its affiliated firms, started a program to
assess its computer hardware and software and to revise or replace any systems
that do not recognize the "Euro." In some cases, UAM's affiliated firms have
coordinated these changes with changes required by their Year 2000 Program. UAM
expects to complete this program in a timely manner and does not expect the
costs will be material. However, UAM cannot guarantee that this program will be
completely successful, and a failure to successfully revise or replace these
systems could have a material adverse effect on UAM's business and financial
results.