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MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED ASSET MANAGEMENT CORPORATION
 
    The revenues of UAM's affiliated firms are derived from fees for investment
advisory services provided to institutional and other clients. Investment
advisory fees are generally a function of the overall fee rate charged to each
account and the level of assets under management by the affiliated firms. A
minor portion of revenues is generated when firms consummate transactions for
client portfolios. Assets under management can be affected by the addition of
new client accounts or client contributions to existing accounts, withdrawals of
assets from or terminations of client accounts and investment performance, which
may depend on general market conditions.
 
AMORTIZATION OF COST ASSIGNED TO CONTRACTS ACQUIRED AND OPERATING CASH FLOW
(NET INCOME PLUS AMORTIZATION AND DEPRECIATION)
 
    Cost assigned to contracts acquired, net of accumulated amortization, 
represented approximately 66% of the Company's total assets as of December 
31, 1996. Amortization of cost assigned to contracts acquired, which is a 
non-cash charge, represented 15% of the Company's operating expenses. 
Recording the cost assigned to contracts acquired as an asset, with the 
resulting amortization as an operating expense, reflects the application of 
generally accepted accounting principles to acquisitions by UAM of investment 
management firms in transactions accounted for as purchases. The principal 
assets acquired are the investment advisory contracts which evidence the 
firms' ongoing relationships with their clients.
 
    Although the contracts acquired are typically terminable on 30-days notice,
analyses conducted by independent consultants retained by UAM to assist the
Company in allocating the purchase price among the assets acquired and the
experience of UAM's firms to date have indicated that: (1) contracts are usually
relatively long-lived; (2) the duration of contracts can be reasonably
estimated; and (3) the value of the cost assigned to contracts acquired can be
estimated based on the present value of its projected income
stream.
 
    The cost assigned to contracts acquired is amortized on a straight-line
basis over the estimated weighted average useful life of the contracts of
individual firms acquired. These lives are estimated through statistical
analysis of historical patterns of terminations and the size and age of the
contracts acquired as of the acquisition date.
 
    When actual terminations differ from the statistical patterns developed, or
upon the occurrence of certain other events, the Company updates the lifing
analyses discussed above. If the update indicates that any of the estimates of
the average remaining lives should be shortened, the remaining cost assigned to
contracts acquired will be amortized over the shorter life commencing in the
year in which the new estimate is determined. There has been no material effect
on the Company's financial position or results of operations as a result of
these updates.
 
    Cost assigned to contracts acquired is amortized as an operating expense. It
does not, however, require the use of cash and therefore, management believes
that it is important to distinguish this expense from other operating expenses
in order to evaluate the performance of the Company. Amortization of cost
assigned to contracts acquired per share referred to below has been calculated
by dividing total amortization by the same number of shares used in the fully
diluted earnings-per-share calculation.
 
    For purposes of this discussion, Operating Cash Flow is defined as net
income plus amortization and depreciation, as reflected in the Company's
Consolidated Statement of Cash Flows. Management uses Operating Cash Flow not to
the exclusion of net income, but rather as an additional important measure of
the Company's performance.
 
RESULTS OF OPERATIONS
 
    The 1995 and 1994 results of operations have been restated to reflect the
two-for-one common stock split effective June 7, 1996 and the August 1996
acquisitions of Rogge Global Partners Plc and Clay Finlay Inc., which were
accounted for as pooling of interests transactions.

1996 COMPARED TO 1995

    Revenues increased 20% to $883,267,000 in 1996 from $734,353,000 in 1995.
This increase is the result of purchase business combinations during both 1996
and 1995, as well as positive portfolio performance achieved by UAM's affiliated
firms. The revenues of Provident Investment Counsel, Pilgrim Baxter & Associates
and OSV Partners, acquired February 15, 1995, April 28, 1995, and April 22,
1996, respectively, have been included since their acquisition dates. In
addition, the fourth quarter of 1996 included non-recurring revenues
approximating $12,000,000 which primarily related to the redemption of the
Company's minority interest in Aldrich Eastman Waltch.

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    UAM's assets under management reached $171.0 billion at December 31, 1996, a
net increase of $28.9 billion compared to $142.1 billion as originally reported
at December 31, 1995. Acquisitions of assets under management totaling $11.8
billion and investment performance of $20.4 billion during the year were
partially offset by negative net client cash flow of $3.3 billion. This net
client cash flow had a positive effect on revenues due to the replacement of
lower-fee business with higher-fee business.
 
    Compensation increased 19% to $431,877,000 from $362,516,000 and other 
operating expenses increased 20% to $138,450,000 from $115,454,000, 
reflecting the acquisitions described above and higher operating expenses and 
compensation earned by employees of existing affiliated firms in accordance 
with revenue sharing plans. Amortization of cost assigned to contracts 
acquired rose 9% to $101,935,000 from $93,192,000 primarily due to a full 
year of contract amortization for Provident Investment Counsel and Pilgrim 
Baxter & Associates.
 
    Interest expense decreased to $43,289,000 from $45,880,000 in 1995 due to
the decrease in the Company's average debt levels.
 
    Income before income tax expense increased 44% to $171,248,000 from
$119,010,000, reflecting the net result of the events discussed above. Net
income for 1996 increased 45% to $97,822,000 from $67,256,000 in 1995.
 
    Fully diluted earnings per share for 1996 increased 37% to $1.33 compared to
$.97 in 1995. This increase reflects the higher net income and the effect of the
Company's common stock repurchased, partially offset by the impact of the
issuance of shares of common stock, the Company's higher common stock price and
the hypothetical exercise of warrants and stock options on the calculation of
earnings per share under the modified treasury stock method. The fourth quarter
1996 non-recurring items, as discussed above, increased earnings per share $.10
for both the year and quarter ended December 31, 1996. Amortization of cost
assigned to contracts acquired on a per-share basis increased to $1.38 in 1996
from $1.28 in 1995 primarily as a result of the acquisitions described above.
 
    Operating Cash Flow increased 25% to $211,371,000 from $169,008,000 in 1995
as a result of the circumstances discussed above.

1995 COMPARED TO 1994
 
    Revenues increased 41% to $734,353,000 in 1995 from $521,369,000 in 1994.
This increase is the result of purchase business combinations during both 1995
and 1994, as well as the overall increase in revenues due to positive portfolio
performance achieved by UAM's affiliated firms, partially offset by the effect
of net client cash outflows. The revenues of Provident Investment Counsel and
Pilgrim Baxter & Associates have been included since their acquisition dates,
February 15, 1995 and April 28, 1995, respectively. In addition, the revenues
from the acquisitions of Suffolk Capital Management, Inc. and JMB Institutional
Realty, acquired July 14, 1994 and December 2, 1994, respectively, have been
included for a full year in 1995.
 
    During 1995, UAM experienced a net increase in assets under management of
$38.1 billion to a total of $142.1 billion at December 31, 1995, as originally
reported. Acquisitions totaling $19.6 billion and investment performance of
$27.2 billion were partially offset by net client cash outflows of $8.7 billion.

    Compensation increased 39% to $362,516,000 from $261,031,000 and other 
operating expenses increased 33% to $115,454,000 from $86,895,000, reflecting 
the acquisitions described above and higher operating expenses and 
compensation earned by employees of existing affiliated firms in accordance 
with revenue sharing plans. Amortization of cost assigned to contracts 
acquired rose 69% to $93,192,000 from $55,121,000 primarily due to the 
acquisitions of Provident Investment Counsel and Pilgrim Baxter & Associates 
and a full year of amortization for Suffolk Capital Management and JMB 
Institutional Realty.

    Interest expense increased to $45,880,000 from $13,494,000 in 1994 due to
the increase in both the Company's average debt levels and interest rates
charged on senior debt.
 
    Income before income tax expense increased 13% to $119,010,000 from
$105,493,000, reflecting the net result of the events discussed above. Net
income for 1995 increased 11% to $67,256,000 from $60,385,000 in 1994.
 
    Fully diluted earnings per share for 1995 increased 7% to $.97 compared 
to $.91 in 1994. This increase reflects the higher net income and the effect 
of the Company's common stock repurchased, partially offset by the impact of 
the issuance of shares of common stock, the Company's higher common stock 
price and the hypothetical exercise of warrants and stock options on the 
calculation of earnings per share under the modified treasury stock method. 
Amortization of cost assigned to contracts acquired on a per-share basis 
increased to $1.28 in 1995 from $.83 in 1994 primarily as a result of the 
acquisitions described above.
 
    Operating Cash Flow increased 39% to $169,008,000 from $121,979,000 in 1994
as a result of the circumstances discussed above.

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FINANCIAL CONDITION AND LIQUIDITY
 
    The Company generated $211,371,000 of Operating Cash Flow in 1996. The
primary use of this Operating Cash Flow was to finance the $55,478,000 cash
portion of acquisition activity, to repurchase shares of the Company's common
stock for $43,718,000, and to pay dividends to shareholders totaling
$40,204,000. As of December 31, 1996, the Company had working capital of
$176,751,000 and had the full $500,000,000 available under its line of credit.
The Company intends to finance $244,250,000 of subordinated debt due in 1997 by
utilizing this line of credit (see Note 3 to the Consolidated Financial
Statements included in this Annual Report).
 
    Management believes that the Company's existing capital, together with
Operating Cash Flow and borrowings available under its revolving line of credit,
will provide the Company with sufficient resources to meet its present and
reasonably foreseeable future cash needs. Management expects that the principal
need for financial resources will be to acquire additional investment management
firms, to fund commitments due or potentially due to former owners of affiliated
firms, to pay shareholder dividends, and to repurchase shares of the Company's
common stock, which will require cash, the issuance of additional UAM
securities, or some combination thereof.
 
EFFECTS OF INFLATION
 
    The Company's business is not capital intensive. Management believes that
financial results as reported would not be significantly affected had such
results been adjusted to reflect the effects of inflation and price changes.
 
    Increases or decreases in interest rates affect UAM's costs of operations
chiefly through increasing or decreasing the interest expense related to the
Company's assumption of debt. To mitigate the risks associated with increases in
interest rates, UAM has entered into and plans to continue to enter into
interest-rate protection agreements (see Notes 1 and 3 to the Consolidated
Financial Statements included in this Annual Report). Rates of interest on the
Senior Notes and a portion of existing subordinated debt are fixed. Increases
and decreases in interest rates may also affect market prices of assets managed
by the Company's affiliated firms. Changes in such prices may affect the
affiliated firms' revenues, and therefore UAM's consolidated revenues.
 
FORWARD-LOOKING STATEMENTS
 
    When used in this Annual Report, in future filings with the Securities 
and Exchange Commission or in press releases or other written or oral 
communications, the words or phrases "can be," "expects," "may affect," "may 
depend," "believes," "estimate" or similar expressions are intended to 
identify "forward-looking statements" within the meaning of the Private 
Securities Litigation Reform Act of 1995. The Company cautions readers not to 
place undue reliance on any such forward-looking statements, which speak only 
as of the date made. Various factors including the performance of the 
financial markets and general economic conditions, future acquisitions, and 
competitive and regulatory factors could cause actual results for future 
periods to differ materially from those anticipated.
 
    The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements.

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