As filed with the Securities and Exchange Commission on January 9, 1998
1933 Act Registration No. 333-26087
1940 Act Registration No. 811-7757
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3
MITCHELL HUTCHINS PORTFOLIOS
(formerly PaineWebber Select Fund)
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of shares of beneficial interest is being registered
by this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Mitchell Hutchins Portfolios
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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MITCHELL HUTCHINS PORTFOLIOS:
Form N-1A Cross Reference Sheet
PART A ITEM NO. AND CAPTION PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis The Portfolios at a Glance; Expense
Table
3. Condensed Financial Performance
Information
4. General Description of The Portfolios at a Glance;
Registrant Investment Objectives & Policies;
Investment Philosophy & Process;
Investments of the Portfolios and the
Underlying Funds; General Information
5. Management of the Fund Management; General Information
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Cover Page; Flexible Pricing(SERVICE-
Securities MARK); Dividends & Taxes; General
Information
7. Purchase of Securities Being Flexible Pricing(SERVICEMARK); How to
Offered Buy Shares; Other Services;
Determining the Shares' Net Asset
Value
8. Redemption or Repurchase How to Sell Shares; Other Services
9. Pending Legal Proceedings Not Applicable
PART B ITEM NO. AND CAPTION STATEMENT OF ADDITIONAL INFORMATION
CAPTION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Other Information
History
13. Investment Objective and Portfolios - Investment Policies and
Policies Restrictions; Underlying Funds -
Investment Policies; Underlying Funds
- Hedging and Other Strategies Using
Derivative Instruments; Portfolio
Transactions
14. Management of the Fund Trustees and Officers; Principal
Holders of Securities
15. Control Persons and Principal Trustees and Officers; Principal
Holders of Securities Holders of Securities
16. Investment Advisory and Investment Advisory and Distribution
Other Services Arrangements
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Conversion of Class B Shares; Other
Securities Information
19. Purchase, Redemption and Reduced Sales Charges, Additional
Pricing of Securities Being Exchange and Redemption Information
Offered and Other Services; Valuation of
Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Distribution
Arrangements
22. Calculation of Performance Performance Information
Data
23. Financial Statements To Be Supplied
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PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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MITCHELL HUTCHINS PORTFOLIOS
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS - JANUARY -, 1998
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The Mitchell Hutchins Portfolios ("Portfolios") seek to achieve their investment
objectives by investing in a number of other PaineWebber mutual funds. The
Portfolios are newly organized and have no operating history.
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO seeks long-term growth of
capital by investing the majority of its assets in equity mutual funds.
MITCHELL HUTCHINS MODERATE PORTFOLIO seeks total return by investing
its assets in a combination of equity and bond mutual funds.
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO seeks income and, secondarily,
growth of capital by investing the majority of its assets in bond
mutual funds.
This Prospectus concisely sets forth information that a prospective investor
should know about the Portfolios before investing. Please read it carefully and
retain a copy of this Prospectus for future reference.
A Statement of Additional Information dated January _, 1998 has been filed with
the Securities and Exchange Commission and is legally part of this Prospectus.
The Statement of Additional Information can be obtained without charge, and
further inquiries can be made, by contacting an individual Portfolio, your
investment executive at PaineWebber or one of its correspondent firms or by
calling toll-free 1-800-647-1568.
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE PORTFOLIOS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO
PROVIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN
OFFER TO SELL SHARES OF THE PORTFOLIOS IN ANY JURISDICTION WHERE THE PORTFOLIOS
OR THEIR DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PAGE
The Portfolios at a Glance....................................................3
Expense Table.................................................................6
Investment Objectives & Policies.............................................10
Investment Philosophy & Process..............................................14
Performance..................................................................15
Investments of the Portfolios and the Underlying Funds.......................17
Flexible Pricing (Servicemark)...............................................25
How To Buy Shares............................................................30
How To Sell Shares...........................................................32
Other Services...............................................................32
Management...................................................................33
Determining the Shares' Net Asset Value......................................36
Dividends & Taxes............................................................36
General Information..........................................................38
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THE PORTFOLIOS AT A GLANCE
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Mitchell Hutchins Portfolios are managed so that each Portfolio can serve as a
core part of a larger investment program. The Portfolios are intended as a
simple and efficient approach to help investors meet retirement and other
long-term goals. Although the Portfolios may make adjustments in response to
market conditions, the Portfolios are not market timing vehicles.
Each Portfolio invests in a number of PaineWebber mutual funds ("Underlying
Funds") suited to that Portfolio's particular investment objective. Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), the Portfolios' investment
adviser, allocates each Portfolio's assets among Underlying Funds using
fundamental and quantitative analysis. Mitchell Hutchins expects to adjust that
allocation no more frequently than quarterly, under normal conditions, and only
within predetermined ranges that attempt to maintain broad diversification. As a
result, under normal conditions, there should be no sudden large-scale changes
in the allocation of a Portfolio's investments among Underlying Funds.
When selling shares, investors should be aware that they may receive more or
less for their shares than they originally paid for them. As with any mutual
fund, there is no assurance that the Portfolios will achieve their goals.
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO
GOAL: To increase the value of an investment by investing the majority of its
assets in long-term, growth-oriented equity mutual funds.
INVESTMENT OBJECTIVE: Long-term growth of capital.
WHO SHOULD INVEST: Investors in their accumulation years, who can accept greater
volatility in the equity market in return for potentially higher returns.
MITCHELL HUTCHINS MODERATE PORTFOLIO
GOAL: To increase the value of an investment by investing its assets in a
combination of long-term, growth-oriented equity and income producing bond
mutual funds.
INVESTMENT OBJECTIVE: Total return.
WHO SHOULD INVEST: Investors who seek growth of capital in conjunction with
income.
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO
GOAL: To provide current income by investing the majority of its assets in
income-producing bond mutual funds and, secondarily, to increase the value of an
investment by providing some growth of capital.
INVESTMENT OBJECTIVE: Income and, secondarily, growth of capital.
WHO SHOULD INVEST: Investors who need current income from their investments but
want to offset some of the effects of inflation by seeking growth of capital as
a secondary goal.
RISKS
The performance of a Portfolio will directly reflect the investment performance
of the Underlying Funds it holds. As a result, the Portfolios' ability to meet
their investment objectives depends both on the allocation of their assets among
the various Underlying Funds and the ability of those Underlying Funds to meet
their investment objectives. An investment in a Portfolio is subject to all the
risks of an investment directly in the Underlying Funds it holds. These risks
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are discussed under "Investments of the Portfolios and the Underlying Funds,"
and some of the more significant risks are summarized below.
All the Portfolios hold Underlying Funds that invest primarily in equity
securities, although the specific Underlying Funds and the percentage of a
Portfolio's assets invested in each Underlying Fund varies. Equity securities
historically have shown greater growth potential than other types of securities,
but they have also shown greater volatility.
All the Portfolios hold Underlying Funds that invest primarily in bonds,
although the specific Underlying Funds and the percentage of a Portfolio's
assets invested in each Underlying Funds varies. Bonds are subject to interest
rate and credit risk. Interest rate risk is the risk that interest rates will
rise and bond prices will fall, lowering the value of the Underlying Fund's
investments. Credit risk is the risk that the issuer or guarantor may be unable
to pay interest or repay principal on the bond. Some Underlying Funds may invest
in bonds rated below investment grade, which are subject to greater risks of
default or price fluctuation than investment grade bonds and which are
considered predominantly speculative.
Some Underlying Funds are subject to the special risks of investing in foreign
equity securities or foreign bonds, which include possible adverse political,
social and economic developments abroad and differing characteristics of foreign
economies and markets. These risks are greater with respect to securities of
issuers located in emerging markets.
Each Underlying Fund (other than PaineWebber Cashfund) may use derivatives, such
as options, futures contracts, foreign currency contracts, swaps and similar
instruments, in investment activities. Each type of derivative instrument
presents its own special risks.
Investors may lose money by investing in a Portfolio; investments in the
Portfolios are not guaranteed.
MANAGEMENT
Mitchell Hutchins, an asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), is the investment adviser and administrator of the Portfolios.
Mitchell Hutchins also is the investment adviser and administrator of the
Underlying Funds other than PaineWebber Cashfund. PaineWebber serves as
investment adviser and administrator for PaineWebber Cashfund and has appointed
Mitchell Hutchins to serve as its sub-adviser and sub-administrator. Mitchell
Hutchins has appointed sub-advisers for certain other Underlying Funds.
MINIMUM INVESTMENT
To open an account, investors must invest $1,000; to add to an account,
investors need only invest $100.
HOW TO PURCHASE SHARES OF THE PORTFOLIOS
Shares of each Portfolio will be offered during an initial subscription period
currently scheduled to end on February 24, 1998. Each Portfolio currently
expects to commence investment operations thereafter on or about February 25,
1998.
Investors may choose among these classes of shares:
CLASS A SHARES
The price is the net asset value plus the initial sales charge; the maximum
sales charge is 4.5% (4% for Conservative Portfolio) of the public offering
price. Although investors pay an initial sales charge when they buy Class A
shares, the ongoing expenses for this class are lower than the ongoing expenses
of Class B and Class C shares.
CLASS B SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is immediately
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invested. However, Class B shares have higher ongoing expenses than Class A
shares. Depending upon how long they own the shares, investors also may have to
pay a sales charge when they sell Class B shares. This sales charge is called a
"contingent deferred sales charge" and applies when investors sell their Class B
shares within six years after purchase. After six years, Class B shares convert
to Class A shares, which have lower ongoing expenses and no contingent deferred
sales charge.
CLASS C SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a result, 100% of their purchase is immediately
invested. However, Class C shares have higher ongoing expenses than Class A
shares. A contingent deferred sales charge of 1% (0.75% for Conservative
Portfolio) is charged on shares sold within one year of purchase. Class C shares
never convert to another class of shares.
CLASS Y SHARES
Class Y shares are offered for sale only to limited groups of investors. The
price is the net asset value. Investors do not pay an initial sales charge when
they buy Class Y shares. As a result, 100% of their purchase is immediately
invested. Investors also do not pay a contingent deferred sales charge when they
sell Class Y shares. Class Y shares have lower ongoing expenses than any other
class of shares.
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EXPENSE TABLE
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The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Portfolios.
Each Portfolio pays a management fee and, for all classes of shares other than
Class Y shares, also pays 12b-1 service and distribution fees to Mitchell
Hutchins. Mitchell Hutchins has agreed to reimburse all other expenses of the
Portfolios with the exception of extraordinary expenses for the first year of
operations. Investors should note that they may invest directly in the
Underlying Funds and thereby avoid incurring the management fees and other
expenses paid by each Portfolio.
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SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
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Maximum Sales Charge on Purchases of Shares (as a % of 4.50%(1) None None None
offering price).........................................
Sales Charge on Reinvested Dividends (as a % of offering None None None None
price)..................................................
Maximum Contingent Deferred Sales Charge (as a % of offering
price or net asset value at the time of sale, whichever None 5% 1%(2) None
is less)................................................
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(1) 4.00% for Conservative Portfolio
(2) 0.75% for Conservative Portfolio
ANNUAL FUND OPERATING EXPENSES (as a % of average net
assets)(3)
AGGRESSIVE PORTFOLIO
Management Fees (after waivers).............................. 0.10% 0.10% 0.10% 0.10%
12b-1 Fees................................................... 0.25 1.00 1.00 None
Other Expenses (after reimbursements)........................ None None None None
Total Operating Expenses..................................... 0.35% 1.10% 1.10% 0.10%
MODERATE PORTFOLIO
Management Fees (after waivers).............................. 0.10% 0.10% 0.10% 0.10%
12b-1 Fees................................................... 0.25 1.00 1.00 None
Other Expenses (after reimbursements)........................ None None None None
Total Operating Expenses..................................... 0.35% 1.10% 1.10% 0.10%
CONSERVATIVE PORTFOLIO
Management Fees (after waivers).............................. 0.10% 0.10% 0.10% 0.10%
12b-1 Fees................................................... 0.25 1.00 0.75 None
Other Expenses (after reimbursements) ....................... None None None None
Total Operating Expenses..................................... 0.35% 1.10% 0.85% 0.10%
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======================
(3) Mitchell Hutchins has agreed to waive 0.25% of its management fee and
to reimburse "Other Expenses" for each Portfolio for the first year of
operations. This expense reimbursement does not include 12b-1 service
and distribution fees and extraordinary expenses. If this fee waiver
and expense reimbursement were not in effect the "Management Fee" would
be 0.35% and "Other Expenses" are estimated to be 0.63% for all classes
in each Portfolio. If these fee waivers and expense reimbursements were
not in effect, "Total Operating Expenses" for Classes A,B,C and Y are
expected to be 1.23% , 1.98%, 1.98% and 0.98%, 1.23%, 1.98% , 1.98% and
0.98% and 1.23%, 1.98%, 1.73% and 0.98%, for Aggressive Portfolio,
Moderate Portfolio and Conservative Portfolio, respectively, for each
Portfolio's first year of operations. Mitchell Hutchins and the
Portfolios expect to apply to the SEC to permit the Portfolios to share
expenses with the Underlying Funds. If approved, Mitchell Hutchins
anticipates that the expenses for the Portfolios will be lower than the
Portfolios would otherwise incur.
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CLASS A SHARES: Sales charge waivers and reduced sales charges are available.
Purchases of $1 million or more are not subject to an initial sales charge.
However, if these shares are sold by the shareholder within one year after
purchase, a contingent deferred sales charge of 1% is imposed on the offering
price or the net asset value of the shares at the time of sale, whichever is
less.
CLASS B SHARES: Sales charge waivers are available. The maximum 5% contingent
deferred sales charge applies to sales of shares during the first year after
purchase. The charge generally declines by 1% annually, reaching zero after six
years.
CLASS C SHARES: If shares are sold by the shareholder within one year after
purchase, a contingent deferred sales charge of 1% (0.75% for Conservative
Portfolio) is imposed on the offering price or the net asset value of the shares
at the time of sale, whichever is less.
CLASS Y SHARES: No initial or contingent deferred sales charge is imposed, nor
are Class Y shares subject to 12b-1 distribution or service fees. Class Y shares
may be purchased by participants in any investment program ("Program") sponsored
by PaineWebber, if Class Y shares are purchased through that program. The
Programs are subject to payment of an advisory fee of no more than 1.75% of
assets held through that Program. This account charge is not included in the
table because investors who are not Program participants are permitted to
purchase Class Y shares.
12b-1 distribution fees are asset-based sales charges. Long-term Class
B and Class C shareholders may pay more in direct and indirect sales charges
(including 12b-1 distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. 12b-1 fees have two components, as follows:
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
12b-1 services fees............ 0.25% 0.25% 0.25% None
12b-1 distribution fees........ 0.00% 0.75% 0.75%(1) None
(1) 0.50% for Conservative Portfolio
For more information, see "Management" and "Flexible Pricing(ServiceMark)."
The following table shows the expense ratios applicable to Class Y shareholders
of each Underlying Fund, based on operating expenses for its last fiscal year
ended before November 1, 1997 (except for High Income Fund and Investment Grade
Income Fund, for which the expense ratios are based on estimated operating
expenses for the current fiscal year because no Class Y shares were outstanding
during their last fiscal years). The Portfolios invest only in Class Y shares of
the Underlying Funds and, accordingly, pay no sales load or 12b-1 service or
distribution fees in connection with these investments. The Portfolios, however,
indirectly bear their pro rata share of the operating expenses applicable to
Class Y shareholders of the Underlying Funds. As a result, the investment
returns of each Portfolio will reflect the operating expenses of the Underlying
Funds that it holds.
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UNDERLYING PAINEWEBBER FUND EXPENSE RATIO OF CLASS Y
SHARES OF THE UNDERLYING
FUNDS (AS A PERCENTAGE OF
NET ASSETS)
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PAINEWEBBER GLOBAL FUNDS
PaineWebber Global Equity Fund 1.10%
PaineWebber Global Income Fund 0.94%
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UNDERLYING PAINEWEBBER FUND EXPENSE RATIO OF CLASS Y
SHARES OF THE UNDERLYING
FUNDS (AS A PERCENTAGE OF
NET ASSETS)
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PAINEWEBBER STOCK FUNDS
PaineWebber Growth Fund 1.00%
PaineWebber Growth and Income Fund 0.88%
PaineWebber Small Cap Fund 1.72%
PAINEWEBBER BOND FUNDS
PaineWebber High Income Fund 0.71%
PaineWebber Investment Grade Income Fund 0.69%
PaineWebber Low Duration U.S. Government Income Fund 0.99%
PaineWebber U.S. Government Income Fund 0.64%
PAINEWEBBER MONEY MARKET FUND
PaineWebber Cashfund(1) 0.63%
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(1) PaineWebber Cashfund offers only one class of shares but does not charge
any sales load or 12b-1 service or distribution fees.
The following table shows the expense ratios of the Portfolio (after waivers and
reimbursements) and those of the Class Y shares of the Underlying Funds, based
on a weighted average of the Class Y expense ratios of the Underlying Funds in
which each Portfolio currently expects to invest for its initial allocation
period. These expense ratios may be higher or lower depending on the actual
allocation of a Portfolio's assets among the Underlying Funds and the expenses
actually incurred by those Underlying Funds.
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MITCHELL HUTCHINS PORTFOLIO AGGREGATE ESTIMATED EXPENSE RATIO
OF THE PORTFOLIOS INCLUDING INDIRECT
EXPENSES OF CLASS Y SHARES OF THE
UNDERLYING FUNDS
(AS A PERCENTAGE OF NET ASSETS)
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Aggressive Portfolio
Class A 1.50%
Class B 2.25%
Class C 2.25%
Class Y 1.25%
Moderate Portfolio
Class A 1.31%
Class B 2.06%
Class C 2.06%
Class Y 1.06%
Conservative Portfolio
Class A 1.18%
Class B 1.93%
Class C 1.68%
Class Y 0.93%
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EXAMPLES OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various
costs and expenses incurred as shareholders of a Portfolio. These expenses
reflect the aggregate estimated expense ratio of each Portfolio, net of any
waivers and reimbursements, which includes the indirect estimated expenses of
the Underlying Funds. The assumed 5% annual return shown in the examples is
required by regulations of the Securities and Exchange Commission ("SEC")
applicable to all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF A PORTFOLIO MAY BE
MORE OR LESS THAN THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly,
on a $1,000 investment in a Portfolio, assuming a 5% annual return:
AGGRESSIVE PORTFOLIO
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
Class A..................................................... $60 $90
Class B (Assuming sale of all shares at end of period)...... $73 $100
Class B (Assuming no sale of shares)........................ $23 $70
Class C (Assuming sale of all shares at end of period)...... $33 $70
Class C (Assuming no sale of shares)........................ $23 $70
Class Y..................................................... $13 $40
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MODERATE PORTFOLIO
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
Class A..................................................... $58 $85
Class B (Assuming sale of all shares at end of period)...... $71 $95
Class B (Assuming no sale of shares)........................ $21 $65
Class C (Assuming sale of all shares at end of period)...... $31 $65
Class C (Assuming no sale of shares)........................ $21 $65
Class Y..................................................... $11 $34
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CONSERVATIVE PORTFOLIO
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
Class A..................................................... $52 $76
Class B (Assuming sale of all shares at end of period)...... $70 $91
Class B (Assuming no sale of shares)........................ $20 $61
Class C (Assuming sale of all shares at end of period)...... $25 $53
Class C (Assuming no sale of shares)........................ $17 $53
Class Y..................................................... $9 $30
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ASSUMPTIONS MADE IN THE EXAMPLES
o ALL CLASSES: Fee waivers and expense reimbursements for the first year;
reinvestment of all dividends and other distributions; allocation of each
Portfolio's assets among the Underlying Funds; and percentage amounts
listed under "Annual Fund Operating Expenses" remain the same for the
years shown.
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o CLASS A SHARES: Deduction of the maximum 4.5% (4.0% for Conservative
Portfolio) initial sales charge at the time of purchase.
o CLASS B SHARES: Deduction of the maximum applicable contingent deferred
sales charge at the time of sale, which declines over a period of six
years.
o CLASS C SHARES: Deduction of a 1% (0.75% for Conservative Portfolio)
contingent deferred sales charge for sales of shares within one year of
purchase.
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INVESTMENT OBJECTIVES & POLICIES
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The investment objectives of the Portfolios may not be changed without
shareholder approval. Each Portfolio seeks to achieve its investment objective
by investing within specified ranges among certain Underlying Funds. Each
Portfolio seeks to maintain different allocations between Underlying Funds that
are equity funds and Underlying Funds that are bond funds (including a money
market fund) depending on its investment objective.
Mitchell Hutchins allocates investments for each Portfolio among Underlying
Funds based on Mitchell Hutchins' outlook for the economy, financial markets and
the relative performance of the Underlying Funds. Based on Mitchell Hutchins'
recommendations, the board of trustees ("board") of the Portfolios has
established investment ranges that designate minimum and maximum percentages for
the allocation of each Portfolio's assets between equity funds and bond funds
and for the percentage of the Portfolio's assets that may be invested in a
particular Underlying Fund.
The table below sets forth for each Portfolio the initial equity/bond fund
allocation targets and the permissible investment ranges for the Underlying
Funds.
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UNDERLYING FUND AGGRESSIVE MODERATE CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO
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EQUITY/BOND TARGET * 80/20% 60/40% 20/80%
EQUITY FUNDS
PaineWebber Global Equity Fund 0%-30% 0%-20% 0%
PaineWebber Growth Fund 0%-10% 0%-20% 0%
PaineWebber Growth and Income Fund 20%-40% 20%-40% 10%-30%
PaineWebber Small Cap Fund 20%-40% 0%-20% 0%
BOND FUNDS
PaineWebber Global Income Fund 0%-10% 0%-20% 5%-15%
PaineWebber High Income Fund 0%-20% 0%-10% 0%
PaineWebber Investment Grade Income Fund 0%-10% 0%-20% 0%-20%
PaineWebber Low Duration U.S. Government Income Fund 0% 0%-10% 20%-40%
PaineWebber U.S. Government Income Fund 0% 0%-20% 20%-40%
PAINEWEBBER CASHFUND 0%-20% 0%-20% 0%-20%
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</TABLE>
* Each Portfolio may deviate from its equity/bond targets within ranges of ten
percent above or below the relevant target percentages.
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The Underlying Funds represent a broad spectrum of investments. The equity/bond
ranges and the investment ranges are based on the degree to which Mitchell
Hutchins expects the selected Underlying Funds, in combination, to be
appropriate for a Portfolio's particular investment objective. If appreciation
or depreciation in the value of an Underlying Fund's shares causes the
percentage of a Portfolio's assets invested in that Underlying Fund to exceed or
be less than the applicable investment range, Mitchell Hutchins will consider
whether to reallocate the assets of the Portfolio, but is not required to do so.
The Underlying Funds in which each Portfolio may invest, the equity/bond fund
targets and ranges and the investment ranges applicable to each Underlying Fund
may be changed by the Portfolios' board without shareholder approval.
Each Portfolio maintains cash reserves for meeting redemptions, expenses and in
connection with making new investments. The Portfolios may invest these cash
reserves in Cashfund or may invest directly in short-term U.S. government
securities, high grade short-term commercial paper and repurchase agreements.
When Mitchell Hutchins believes that unusual market or economic conditions
warrant a temporary defensive posture, each Portfolio may invest up to 100% of
its total assets in these securities or in Cashfund.
INVESTMENT OBJECTIVES AND POLICIES OF UNDERLYING FUNDS
The following is a concise description of the investment objectives and policies
of the Underlying Funds in which the Portfolios may invest. As with any mutual
fund, there is no assurance that any Underlying Fund will achieve its investment
objective. The Statement of Additional Information includes more information
about the investment policies of the Underlying Funds. Those policies also are
described more fully in the prospectus of each Underlying Fund. No offer is made
in this Prospectus of shares of any Underlying Fund.
GLOBAL EQUITY FUND
Global Equity Fund's investment objective is long-term growth of capital. The
Fund seeks to achieve this goal by investing primarily in equity securities
issued by companies in foreign countries, as well as in the United States. The
Fund normally invests in at least three countries, one of which is typically the
United States. The Fund normally invests at least 65% of its total assets in
equity securities of foreign and U.S. companies. The Fund may invest up to 35%
of its total assets in investment grade bonds issued by corporate or
governmental entities. The bonds in which the Fund invests have maturities no
longer than seven years. The Fund may assume a temporary defensive position by
investing all or a significant portion of its assets in securities of U.S. and
Canadian issuers or by holding cash or short-term money market investments.
Under normal circumstances, at least 80% of the Fund's total assets are invested
in equity securities or bonds of issuers in countries represented in the Morgan
Stanley Capital International World Index. This is a well-known index that
reflects developed and developing markets throughout the world.
GE Investment Management Incorporated serves as sub-adviser to Global Equity
Fund.
GLOBAL INCOME FUND
Global Income Fund's primary investment objective is high current income
consistent with prudent investment risk; capital appreciation is a secondary
objective. The Fund seeks to achieve these objectives by investing principally
in high-quality debt securities issued or guaranteed by foreign governments, by
the U.S. government, by their respective agencies or instrumentalities or by
supranational organizations, or issued by U.S. or foreign companies. The Fund's
portfolio consists primarily of debt securities rated within one of the two
highest grades assigned by a nationally recognized rating agency or, if unrated,
determined by Mitchell Hutchins to be of comparable quality. Normally, the Fund
invests at least 65% of its total assets in high-quality debt securities,
denominated in foreign currencies or U.S. dollars, of issuers located in at
least three of the following countries: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand, the United Kingdom and the United States. No more than
40% of the Fund's assets normally are invested in securities of issuers located
in any one country other than the United States.
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Global Income Fund may invest up to 35% of its total assets in debt securities
rated below the two highest grades assigned by a rating agency. Except as noted
below, these securities must be at least investment grade. Within this 35%
limitation, the Fund may invest up to 20% of its total assets in sovereign debt
securities rated below investment grade.
Global Income Fund is a non-diversified fund as defined in the 1940 Act and is
subject to greater risk than funds that have a broader range of investments.
GROWTH FUND
Growth Fund's investment objective is long-term capital appreciation. The Fund
seeks to achieve this objective by investing primarily in equity securities
issued by companies believed by Mitchell Hutchins to have substantial potential
for capital growth. Under normal circumstances, the Fund invests at least 65% of
its total assets in equity securities. The Fund may invest up to 35% of its
total assets in U.S. government bonds and in corporate bonds (including up to
10% in bonds and convertible securities rated below investment grade). Up to 25%
of the Fund's total assets may be invested in U.S. dollar-denominated equity
securities and bonds of foreign issuers that are traded on recognized U.S.
exchanges or in the U.S. over-the-counter ("OTC") market.
GROWTH AND INCOME FUND
Growth and Income Fund's investment objective is current income and capital
growth. The Fund seeks to achieve this objective by investing primarily in
dividend-paying equity securities believed by Mitchell Hutchins to have the
potential for rapid earnings growth. Normally, the Fund invests at least 65% of
its total assets in these equity securities. The Fund may invest up to 35% of
its total assets in equity securities not meeting these selection criteria, as
well as in U.S. government bonds, corporate bonds and money market instruments,
including up to 10% in convertible bonds rated below investment grade. Up to 25%
of the Fund's total assets may be invested in U.S. dollar-denominated equity
securities and bonds of foreign issuers that are traded on recognized U.S.
exchanges or in the U.S. OTC market.
SMALL CAP FUND
Small Cap Fund's investment objective is long-term capital appreciation. Under
normal circumstances, the Fund invests at least 65% of its total assets in
equity securities of small cap companies, which are defined as companies having
market capitalizations of up to $1 billion. The Fund may invest up to 35% of its
total assets in equity securities of companies that are larger than small cap
companies, as well as in U.S. government bonds, corporate bonds and money market
instruments, including up to 10% of total assets in convertible bonds rated
below investment grade. Up to 25% of the Fund's total assets may be invested in
U.S. dollar-denominated equity securities of foreign issuers traded on
recognized U.S. exchanges or in the U.S. OTC market.
HIGH INCOME FUND
High Income Fund's investment objective is to provide high income. The Fund
normally invests at least 65% of its total assets in high yield, high risk,
income producing, corporate bonds that, at the time of purchase, are rated B or
better by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"), or Moody's Investors Service, Inc. ("Moody's"), are comparably rated by
another rating agency or, if unrated, are considered to be of comparable quality
by Mitchell Hutchins. The Fund also may invest up to 35% of its total assets in
(1) bonds that are rated below B or comparable unrated bonds; (2) U.S.
government bonds; (3) preferred stocks; (4) equity securities (including common
stocks, warrants and rights); and (5) money market instruments, including
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repurchase agreements. Up to 25% of the Fund's total assets may be invested in
bonds and equity securities that are not paying current income. Up to 35% of the
Fund's net assets may be invested in securities of foreign issuers. However, no
more than 10% of the Fund's net assets may be invested in securities of foreign
issuers that are denominated and traded in currencies other than the U.S.
dollar.
INVESTMENT GRADE INCOME FUND
Investment Grade Income Fund's objective is to provide high current income
consistent with the preservation of capital and liquidity. The Fund normally
invests at least 65% of its total assets in U.S. government and investment grade
corporate bonds (including mortgage-backed securities). The Fund also may invest
up to 35% of its total assets in the following: (1) corporate bonds that are
rated below investment grade; (2) preferred stocks; (3) convertible securities;
(4) asset-backed securities; (5) commercial paper or variable amount master
notes whose issuers, at the time the security is purchased by the Fund, have
outstanding either long-term bonds that are rated investment grade by S&P or
Moody's or commercial paper rated in the highest rating category by S&P or
Moody's; and (6) other money market instruments, including repurchase
agreements.
Investment Grade Income Fund may invest in mortgage-backed securities only if
they are U.S. government issued or guaranteed or if, at the time of purchase,
they are investment grade. The Fund may invest in other asset-backed securities
only if, at the time of purchase, they are rated in one of the two highest
rating categories by S&P or Moody's. Also, the Fund may not invest more than 10%
of its total assets in interest-only and principal-only classes of
mortgage-backed securities.
Up to 20% of Investment Grade Income Fund's net assets may be invested in
certain foreign securities. These are: (1) U.S. dollar-denominated securities of
foreign issuers or of foreign branches of U.S. banks that are traded in the U.S.
securities markets; and (2) securities that are U.S. dollar-denominated but
whose value is linked to the value of foreign currencies.
U.S. GOVERNMENT INCOME FUND AND
LOW DURATION U.S. GOVERNMENT INCOME FUND
("LOW DURATION INCOME FUND")
U.S. Government Income Fund's investment objective is to provide high income
consistent with the preservation of capital and liquidity. Low Duration Income
Fund's investment objective is to achieve the highest level of income consistent
with the preservation of capital and low volatility of net asset value.
Low Duration Income Fund seeks to limit (but not eliminate) the volatility of
net asset value by normally maintaining an overall portfolio duration of from 1
to 3 years. U.S. Government Income Fund has no fixed portfolio duration policy.
"Duration" is a measure of the expected life of a fixed income security on a
present value basis.
Each Fund normally invests at least 65% of its total assets in U.S. government
bonds (including mortgage-backed securities) and repurchase agreements with
respect to them. Each Fund also may invest up to 35% of its total assets in
privately issued mortgage-backed and asset-backed securities that, at the time
of purchase, are rated in the highest rating category by a nationally recognized
rating agency, such as S&P or Moody's, or if unrated, are considered to be of
comparable quality by Mitchell Hutchins or, for Low Duration Income Fund, its
sub-adviser, Pacific Investment Management Company ("PIMCO").
Each Fund has a fundamental policy of normally concentrating at least 25% of its
total assets in U.S. government and privately issued mortgage- and asset-backed
securities. This policy has the effect of increasing each Fund's exposure to the
risks of these securities and might cause the Fund's net asset value to
fluctuate more than otherwise would be the case. Some types of mortgage-backed
securities, including "interest only," "principal-only" and inverse floating
rate classes of these securities can be extremely volatile and may become
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illiquid. Low Duration Income Fund does not invest in these classes of
mortgage-backed securities.
CASHFUND
Cashfund's investment objective is to provide current income, stability of
principal and high liquidity. The Fund invests exclusively in high quality money
market instruments having or deemed to have remaining maturities of 13 months or
less. These instruments include U.S. government securities, obligations of U.S.
and foreign banks, commercial paper and other short-term obligations of U.S. and
foreign companies, governments and similar entities, variable and floating rate
securities and participation interests and repurchase agreements involving any
of the foregoing. The Fund maintains a dollar-weighted average portfolio
maturity of 90 days or less.
Shares of Cashfund are not insured or guaranteed by the U.S. government.
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INVESTMENT PHILOSOPHY & PROCESS
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Mitchell Hutchins' team of three Chief Investment Officers ("Team") will employ
a two-step approach to allocate each Portfolio's investments among the
Underlying Funds.
First, in accordance with each Portfolio's current equity/bond target, the Team
will allocate the Portfolio's assets among five basic asset categories of the
Underlying Funds:
o U.S. equity;
o global equity;
o U.S. bond;
o global bond; and
o money market (The Portfolios may invest in a money market fund or directly
in money market instruments.)
When the Team's analysis indicates that a different allocation is more likely to
achieve a Portfolio's goals, the Portfolio may deviate from its target
allocations within the established investment ranges for equity and bond
securities. The Team will base its category allocation decisions in part on
Mitchell Hutchins' quantitative models, which include, but are not limited to,
an analysis of the following factors:
o price-to-earnings ratios
o inflation rates
o real interest rates and
o the yield curve in the United States and overseas.
Analysis of these variables generates estimated returns of equities in the four
major stock markets (the United States, the United Kingdom, Germany and Japan)
that represent in excess of 70% of global market capitalization, the estimated
changes of bond yields in the U. S. bond market and global bond markets, and the
estimated spreads between these yields.
Second, after deciding the appropriate asset category allocation for each
Portfolio, the Team allocates each Portfolio's investments among the Underlying
Funds within each of the five asset categories. For example, in making a
decision to allocate among the Underlying Funds that invest in U.S. bonds, the
Team will evaluate relevant factors including the outlook for the direction of
interest rates, the duration of the relevant Underlying Funds' portfolio and
yield differentials between sectors of the bond markets. Similarly, the Team may
consider factors such as the relative valuations of different sectors of the
equity market (that is, large capitalization or small capitalization) and the
risks of the different sectors when deciding the appropriate allocation among
U.S. equity funds.
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In addition to using quantitative analysis, Team members may rely on their own
judgment, as well as the judgment of the Underlying Funds' portfolio managers,
when making investment decisions. The Team will consider reallocating Portfolio
investments at least quarterly, but may change allocations more frequently if
market conditions warrant.
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PERFORMANCE
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PERFORMANCE OF UNDERLYING FUNDS
The following table shows the average annual total returns of each Underlying
Fund (other than Cashfund) for the most recent one-, five- and ten-year periods
(or since inception if shorter). The performance information reflects both
standardized and non-standardized returns. These terms are defined below in
"Performance Information" in this section. Standardized returns are net of the
maximum applicable initial and contingent deferred sales charges and other
distribution-related expenses and service fees. Non-standardized returns do not
reflect maximum applicable sales charges and thus are higher than standardized
returns.
The Portfolios invest in Class Y shares of the Underlying Funds (other than
Cashfund), which are not subject to sales charges and distribution-related
expenses and service fees. However, Class A, B or C shares of the Portfolios are
subject to these sales charges and expenses, all of which will reduce the
returns to an investor. For the Underlying Funds that invest predominantly in
bonds, 30-day yield is also given. For Cashfund, yield and effective yield are
shown in a footnote.
<TABLE>
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PERFORMANCE OF UNDERLYING FUNDS
Assets of all Average Annual Total Returns 30-Day
Underlying Fund Classes as of Inception through 9/30/97 Yield for
9/30/97 ($000's) Date Class(1) One Year Five Years Ten Years period
ended
9/30/97(2)
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EQUITY FUNDS
PaineWebber Global Equity Fund $554,631 11/14/91(3) A
Standardized Return 13.34 12.73 11.74(3) N/A
Non-Standardized Return 18.66% 13.77% 12.62%(3) N/A
PaineWebber Growth Fund 385,510 03/18/85 A
Standardized Return 10.61 15.48 12.00 N/A
Non-Standardized Return 15.84 16.55 12.51 N/A
PaineWebber Growth and Income Fund 1,030,169 12/20/83 A
Standardized Return 38.15 15.25 14.00 N/A
Non-Standardized Return 44.66 16.32 14.52 N/A
PaineWebber Small Cap Fund 124,118 02/01/93(3) B
Standardized Return 37.36 N/A 14.54(3) N/A
Non-Standardized Return 42.36 N/A 14.80(3) N/A
BOND FUNDS
PaineWebber Global Income Fund 652,810 03/20/87 B
Standardized Return (0.02) 5.12 8.99 4.84
Non-Standardized Return 4.98 5.45 8.99 4.84
</TABLE>
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Assets of all Average Annual Total Returns 30-Day
Underlying Fund Classes as of Inception through 9/30/97 Yield for
9/30/97 ($000's) Date Class(1) One Year Five Years Ten Years period
ended
9/30/97(2)
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PaineWebber High Income Fund 630,091 08/31/84 A
Standardized Return 12.68 9.20 9.88 8.50
Non-Standardized Return 17.33 10.10 10.34 8.50
PaineWebber Investment Grade Income Fund $285,197 08/31/84 A
Standardized Return 7.87 6.72 9.44 6.09
Non-Standardized Return 12.39% 7.60% 9.89% 6.09%
PaineWebber Low Duration U.S. Government
Income Fund 138,422 05/03/93(3) C
Standardized Return 6.80 N/A 3.67(3) 4.92
Non-Standardized Return 7.55 N/A 3.67(3) 4.92
PaineWebber U.S. Government Income Fund 374,214 08/31/84 A
Standardized Return 4.92 2.96 7.04 5.72
Non-Standardized Return 9.31 3.80 7.48 5.72
</TABLE>
(1) The class outstanding for the longest period. If more than one class is
outstanding for the longest period, the table shows performance for the
class that represents the largest portion of the Underlying Fund's net
assets.
(2) For the seven-day period ended September 30, 1997, PaineWebber Cashfund's
yield was 5.09% and its effective yield was 5.22%.
(3) No class has been outstanding for ten years. The average annual return
figure represents the return for the life of the longest outstanding class
of the Underlying Fund.
The past performance of the Underlying Funds is not a guarantee of future
results for either the Underlying Funds or the Portfolios. Further information
about each Underlying Fund's performance is contained in its Annual Report to
Shareholders, which may be obtained without charge by contacting the Underlying
Fund, your PaineWebber investment executive or PaineWebber's correspondent firms
or by calling toll-free 1-800-647-1568.
PERFORMANCE INFORMATION
The Portfolios perform a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in a Portfolio as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. Standardized returns for Class A
shares of the Portfolios reflect deduction of the Portfolios' maximum initial
sales charge of 4.5% (4.0% for Conservative Portfolio) at the time of purchase,
and standardized returns for the Class B and Class C shares of the Portfolios
reflect deduction of the applicable contingent deferred sales charge imposed on
the sale of shares held for the period. One-, five- and ten-year periods will be
shown, unless the Portfolio or class has been in existence for a shorter period.
If so, returns will be shown for the period since inception.
The Portfolios may use other total return presentations (sometimes referred to
as non-standardized return) in conjunction with standardized return. These may
cover the same or different periods as those used for standardized return and
may include cumulative returns, average annual rates, actual year-by-year rates
or any combination thereof. Non-standardized return does not reflect initial or
contingent deferred sales charges and would be lower if such charges were
deducted.
Moderate Portfolio and Conservative Portfolio also may advertise their yields.
Yield reflects investment income net of expenses over a 30-day (or one-month)
period on the Portfolio shares, expressed as an annualized percentage of the
maximum offering price per share for Class A shares and net asset value per
share for Class B, Class C and Class Y shares at the end of the period. Yield
computations differ from other accounting methods and thus may differ from
dividends actually paid or reported net income.
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The Underlying Funds perform the same standardized computation of annualized
total return as the Portfolios, and the Bond Funds perform the same yield
computations.
As a money market fund, Cashfund may advertise its yield and effective yield
based on the income earned on an investment in Cashfund over a specified seven
day period. That income is then "annualized" (that is, assumed to be earned each
week over a 52-week period) and shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
is assumed to be reinvested. The effective yield will be higher than the yield
because of the compounding effect of this assumed reinvestment.
All total return and yield information reflects past performance and does not
indicate future results. The investment return and principal value of shares of
the Portfolios and the Underlying Funds will fluctuate. The amount investors
receive when selling shares may be more or less than what they paid.
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INVESTMENTS OF THE PORTFOLIOS AND
THE UNDERLYING FUNDS
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INVESTMENTS AND RISKS OF THE PORTFOLIOS
The performance of a Portfolio will directly reflect the investment performance
of the Underlying Funds it holds. As a result, the Portfolios' ability to meet
their investment objectives depends both on the allocation of their assets among
the various Underlying Funds and the ability of those Underlying Funds to meet
their investment objectives. An investment in a Portfolio is subject to all the
risks of an investment directly in the Underlying Funds it holds.
The value of the Underlying Funds' investments, and thus the net asset value of
both the Underlying Funds and the Portfolios, will fluctuate in response to
changes in market and economic conditions, as well as the financial condition
and prospects of issuers in which the Underlying Funds invest.
Each Portfolio invests in a limited number of Underlying Funds and may invest
more than 25% of its assets in a single Underlying Fund. As a result, the
performance of a single Underlying Fund can have a significant affect on the
performance of a Portfolio and the price of that Portfolio's shares.
The shareholders of a Portfolio will be subject to the risks of the securities
held by and the investment techniques used for an Underlying Fund in direct
proportion to the amount of assets allocated by that Portfolio to the Underlying
Fund. The risks of each Underlying Fund are determined by the nature of the
securities it holds and the investment techniques and strategies used by
Mitchell Hutchins or a sub-adviser. Certain of these securities, investment
techniques and related risks are described here. More information is available
in the Statement of Additional Information and in the prospectuses of the
Underlying Funds.
TYPES OF SECURITIES OF THE UNDERLYING FUNDS
EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and common
stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation.
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Preferred stock has certain fixed-income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, which are convertible into
common stock.
BONDS are fixed or variable rate obligations, including notes, debentures and
similar debt instruments and securities. Mortgage- and asset-backed securities
are types of bonds. Corporations, governments and other issuers use bonds to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at or before maturity. Bonds
have varying degrees of investment risk and varying levels of sensitivity to
changes in interest rates.
U.S. GOVERNMENT BONDS include direct obligations of the U.S. government (such as
U.S. Treasury bills, notes and bonds) and obligations issued or guaranteed by
the U.S. government, its agencies or its instrumentalities. U.S. government
bonds include mortgage-backed securities issued or guaranteed by government
agencies or government-sponsored enterprises. Other U.S. government bonds may be
backed by the full faith and credit of the U.S. government or supported
primarily or solely by the creditworthiness of the government-related issuer,
such as the Resolution Funding Corporation, the Student Loan Marketing
Association ("Sallie Mae"), the Federal Home Loan Banks and the Tennessee Valley
Authority.
CORPORATE BONDS are bonds issued by corporations, banks, partnerships, trusts or
other non-governmental entities.
MORTGAGE- AND ASSET-BACKED SECURITIES are bonds backed by specific types of
assets. Mortgage-backed securities represent direct or indirect interests in
pools of underlying mortgage loans that are secured by real property. U.S.
government mortgage-backed securities are issued or guaranteed as to principal
and interest (but not as to market value) by the Government National Mortgage
Association ("Ginnie Mae"), Fannie Mae (also known as the Federal National
Mortgage Association), Freddie Mac (also known as the Federal Home Loan Mortgage
Corporation) or other government-sponsored enterprises. Other mortgage-backed
securities are sponsored or issued by private entities, including investment
banking firms and mortgage originators. The growth of mortgage-backed securities
and the secondary mortgage market in which they are traded has helped to keep
mortgage money available for home financing. Mortgage-backed securities may be
composed of one or more classes and may be structured as either pass-through
securities or collateralized debt obligations.
Other asset-backed securities are similar to mortgage-backed securities, except
that the underlying assets are different. These underlying assets may be nearly
any type of financial asset or receivable, such as motor vehicle installment
sales contracts, home equity loans, leases of various types of real and personal
property and receivables from credit cards.
MONEY MARKET SECURITIES are high quality, short term instruments and include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, bank certificates of deposit, bankers' acceptances, high
grade commercial paper and repurchase agreements secured by these instruments.
RISKS OF THE UNDERLYING FUNDS
Following is a discussion of the risks that are common to a number of the
Underlying Funds:
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities, and reflect changes in a company's financial condition and in
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that an Underlying Fund may
experience a substantial or complete loss on an individual equity investment.
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BONDS - INTEREST RATE AND CREDIT RISK. Interest rate risk is the risk that
interest rates will rise and that, as a result, bond prices will fall, lowering
the value of the Underlying Fund's investments. In general, bonds having longer
durations are more sensitive to interest rate changes than are bonds with
shorter durations. "Duration" is a measure of the expected life of a fixed
income security on a present value basis. See "Duration."
Credit risk is the risk the issuer or guarantor may be unable to pay interest or
repay principal on the bond. This can be affected by many factors, including
adverse changes in the issuer's own financial condition or in economic
conditions.
DURATION. Duration incorporates a bond's yield, coupon interest rate payments,
final maturity and call features into one measure and is one of the fundamental
tools used by Mitchell Hutchins or a sub-adviser in portfolio selection and
yield curve positioning for the Underlying Funds.
Duration takes the length of the time intervals between the present time and the
time that the interest and principal payments are scheduled or, in the case of a
callable bond, expected to be made, and weights them by the present values of
the cash to be received at each future point in time. For any bond with interest
payments occurring prior to the payment of principal, duration is always less
than maturity.
Duration allows Mitchell Hutchins or a sub-adviser to make certain predictions
as to the effect that changes in the level of interest rates will have on the
value of an Underlying Fund's portfolio. For example, when the level of interest
rates increases by 1%, a fixed income security having a positive duration of
three years generally will decrease by approximately 3%. Thus, if Mitchell
Hutchins or a sub-adviser calculates the duration of the Fund's portfolio as
three years, it normally would expect the portfolio to change in value by
approximately 3% for every 1% change in the level of interest rates. However,
various factors such as changes in anticipated prepayment rates, qualitative
considerations and market supply and demand, can cause particular securities to
respond somewhat differently to changes in interest rates than expected.
Moreover, in the case of mortgage-backed and other complex securities, duration
calculations are estimates and are not precise. This is particularly true during
periods of market volatility.
CREDIT RATINGS; BONDS RATED BELOW INVESTMENT GRADE. Credit ratings attempt to
evaluate the safety of principal and interest payments, but they do not evaluate
the volatility of the security's value or its liquidity and do not guarantee the
performance of the issuer. Rating agencies may fail to make timely changes in
credit ratings in response to subsequent events, so that an issuer's current
financial condition may be better or worse than the rating indicates. There is a
risk that rating agencies may downgrade bonds.
Investment grade bonds are rated in one of the four highest rating categories by
a rating agency, such as S&P or Moody's, or, if unrated, are considered to be of
comparable quality by Mitchell Hutchins or the applicable sub-adviser. Moody's
considers bonds rated Baa (its lowest investment grade rating) to have
speculative characteristics. This means that changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher-rated bonds.
High yield, high risk bonds are rated below investment grade and are commonly
referred to as "junk bonds." High Income Fund may invest without limit in these
bonds and other Underlying Funds may invest significant portions of their assets
in them. High yield, high risk bonds are considered predominantly speculative
with respect to the issuer's ability to pay interest and repay principal. An
Underlying Fund's investments in these lower rated bonds entail greater risk
than its investments in investment grade bonds. Lower rated bonds may be more
sensitive to adverse market conditions. During an economic downturn or period of
rising interest rates, their issuers may experience financial stress that
adversely affects their ability to pay interest and repay principal and may
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increase the possibility of default. Lower rated bonds are frequently unsecured
by collateral and will not receive payment until more senior claims are paid in
full. The market for these bonds is thinner and less active, which may limit the
Underlying Funds' ability to sell them at fair value in response to changes in
the economy or financial markets.
FOREIGN SECURITIES. Investing in foreign securities involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations and could be subject to
extended clearance and settlement periods.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of investing outside the United
States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.
EMERGING MARKET SECURITIES. Investing in securities issued by companies located
in emerging market countries involves additional risks. These countries
typically have economic and political systems that are relatively less mature,
and can be expected to be less stable, than those of developed countries.
Emerging market countries may have policies that restrict investment by
foreigners in those countries, and there is a risk of government expropriation
or nationalization of private property. The possibility of low or nonexistent
trading volume in the securities of companies in emerging market countries may
also result in a lack of liquidity and in price volatility. Issuers in emerging
market countries typically are subject to a greater degree of change in earnings
and business prospects than are companies in developed markets.
CURRENCY. Currency risk is the risk that changes in foreign exchange rates may
reduce the U.S. dollar value of an Underlying Fund's foreign investments. An
Underlying Fund's share value may change significantly when investments are
denominated in foreign currencies. Generally, currency exchange rates are
determined by supply and demand in the foreign exchange markets and the relative
merits of investments in different countries. Currency exchange rates can also
be affected by the intervention of the U.S. and foreign governments or central
banks, the imposition of currency controls, speculation or other political or
economic developments inside and outside the United States.
DERIVATIVES. Some of the instruments in which the Underlying Funds may invest
may be referred to as "derivatives," because their value depends on (or
"derives" from) the value of an underlying asset, reference rate or index. These
instruments include options, futures contracts, forward currency contracts,
interest rate swaps and similar instruments that may be used in hedging and
related strategies. There is limited consensus as to what constitutes a
"derivative" security. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative instrument may pose its own special risks. Mitchell Hutchins and the
applicable sub-advisers take these risks into account in their management of the
Underlying Funds.
ZERO COUPON, OID AND PIK BONDS. Zero coupon bonds are Treasury bills, notes and
bonds that have been stripped of their unmatured interest coupons, and receipts
or certificates representing interest in such stripped debt obligations and
coupons. A zero coupon security pays no cash interest to its holder prior to
maturity. The buyer of a zero coupon bond receives a rate of return from the
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gradual appreciation of the securities that occurs because it will be redeemed
at face value on a specified maturity date. Federal tax law requires that the
holder of a zero coupon security and other securities issued with original issue
discount ("OID") include in gross income each year the OID that accrues on the
security for the year.
Because zero coupon bonds bear no interest, they usually trade at a discount
from their face or par value and they are generally more sensitive to changes in
interest rates than other bonds. This means that when interest rates fall, the
value of zero coupon bonds rises more rapidly than bonds paying interest on a
current basis. However, when interest rates rise, their value falls more
dramatically.
Interest or dividends on payment in kind ("PIK") bonds are paid in additional
securities. PIK bonds also often trade at a discount from their face or par
value and also are subject to greater fluctuations in market value in response
to changing interest rates than comparable securities that pay interest or
dividends in cash.
SOVEREIGN DEBT AND BRADY BONDS. Sovereign debt includes bonds that are issued or
guaranteed by foreign governments or their agencies, instrumentalities or
political subdivisions or by foreign central banks. Sovereign debt also may be
issued by quasi-governmental entities that are owned by foreign governments but
are not backed by their full faith and credit or general taxing powers. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to pay interest or repay principal when due
in accordance with the terms of such debt, and the Underlying Fund may have
limited legal recourse in the event of default. Political conditions, especially
a sovereign entity's willingness to meet the terms of its debt obligations, are
of considerable significance.
Brady bonds are sovereign debt securities issued under a 1989 plan (named for
former Secretary of the Treasury Nicolas F. Brady) that allows emerging market
countries to restructure their outstanding debt to U.S. and other banks.
Although Brady Bonds are collateralized by U.S. government securities, payment
of interest and repayment of principal is not guaranteed by the U.S. government.
MORTGAGE-BACKED SECURITIES. A major difference between mortgage-backed
securities and traditional bonds is that interest and principal payments are
made more frequently (usually monthly) and that principal may be repaid at any
time. When interest rates go down and homeowners refinance their mortgages,
mortgage-backed securities may be paid off more quickly than investors expect.
When interest rates rise, mortgage-backed securities may be paid off more slowly
than originally expected. Changes in the rate or "speed" of these prepayments
can cause the value of mortgage-backed securities to fluctuate rapidly. Because
of prepayments, mortgage-backed securities may not benefit as much as other
bonds from declining interest rates, and an Underlying Fund may have to reinvest
prepayments in bonds with lower interest rates than the original investment,
thus adversely affecting its yield. Actual prepayment experience may cause the
yield of a mortgage-backed security to differ from what was assumed when the
Underlying Fund purchased the security.
The market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.
Both U.S. government and privately issued mortgage-backed securities may be
composed of one or more classes and may be structured either as pass-through
securities or collateralized debt obligations. Multiple-class mortgage-backed
securities are referred to in this prospectus as "CMOs." CMO classes may be
specially structured in a manner that provides any of a wide variety of
investment characteristics, such as yield, effective maturity and interest rate
sensitivity. As market conditions change, however, and especially during periods
of rapid or unanticipated changes in market interest rates, the attractiveness
of some CMO classes and the ability of the structure to provide the anticipated
investment characteristics may be significantly reduced. These changes can
result in volatility in the market value and, in some instances, reduced
liquidity of the CMO class.
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Certain classes of CMOs are structured in a manner that makes them extremely
sensitive to changes in prepayment rates. Interest only ("IO") and principal
only ("PO") classes are examples of this. IOs are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets underlying
an IO experience greater than anticipated principal prepayments then the total
amount of interest payments allocable to the IO class, and, therefore, the yield
to investors, generally will be reduced. In some instances, an investor may fail
to recoup all of his original investment in the IO, even if the security is
government guaranteed or is considered to be of the highest credit quality.
Conversely, PO classes are entitled to receive all or a portion of the principal
payments, but none of the interest, from the underlying mortgage assets. PO
classes are purchased at substantial discounts from par, and the yield to
investors will be reduced if principal payments are slower than expected. Some
IOs and POs, as well as other CMO classes, are structured to have special
protections against the effects of prepayments. These structural protections,
however, normally are effective only within certain ranges of prepayment rates
and thus will not protect investors in all circumstances.
Floating rate CMO classes also may be extremely volatile. These classes pay
interest at a rate that decreases when a specified index of market rates
increases.
COUNTERPARTIES. An Underlying Fund may be exposed to the risk of financial
failure or insolvency of another party with which the Underlying Fund enters
into a transaction, such as a repurchase agreement or a derivative contract. To
help lessen those risks, Mitchell Hutchins and the applicable sub-advisers,
subject to the supervision of the respective boards, monitor and evaluate the
creditworthiness of the parties with which each Underlying Fund does business.
CONCENTRATION IN MORTGAGE-BACKED SECURITIES. U.S. Government Income Fund and Low
Duration Income Fund each concentrates at least 25% of its total assets in U.S.
government and privately issued mortgage- and asset-backed securities. This
policy has the effect of increasing each of these Underlying Fund's exposure to
the risks of these securities and might cause its net asset value to fluctuate
more than would otherwise be the case. Some types of mortgage-backed securities,
including IOs, POs and inverse floating rate classes of these securities, can be
extremely volatile and may become illiquid. Low Duration Income Fund does not
invest in these classes of mortgage-backed securities.
NON-DIVERSIFIED STATUS. Global Income Fund is "non-diversified," as that term is
defined in the 1940 Act. This means that it is permitted to invest a greater
proportion of its assets in the securities of a smaller number of issuers. As a
result, that Fund may be subject to greater risk because its return and the
price of its shares may be significantly affected by the market condition or
market assessment of a single issuer.
INVESTMENT TECHNIQUES AND STRATEGIES
HEDGING AND OTHER STRATEGIES USING DERIVATIVE INSTRUMENTS. Each Underlying Fund
except Cashfund may use derivative instruments, which may include options (both
exchange traded and over-the-counter), futures contracts and forward currency
contracts, in strategies intended to reduce the overall risk of its investments
("hedge") or, in the case of some Underlying Funds, to enhance income or return
(including reallocating exposure to different asset classes) or realize gains.
Use of these derivative instruments solely to enhance income or realize gains
may be considered a form of speculation. The Underlying Funds that invest
substantially in bonds also may use interest rate swaps and similar contracts to
preserve a return or spread on a particular investment or portion of their
portfolios or to protect against an increase in the price of securities that the
Underlying Fund anticipates purchasing at a later date. New financial products
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and risk management techniques continue to be developed, and may be used by an
Underlying Fund if consistent with its investment objective and policies. The
Statement of Additional Information contains further information on these
derivative instruments and related strategies.
The Underlying Funds might not use any derivative instruments or strategies, and
there can be no assurance that using them will succeed. If Mitchell Hutchins or
the applicable sub-adviser is incorrect in its judgment on market values,
interest rates or other economic factors in using a hedging strategy, an
Underlying Fund may have lower net income and a net loss on the investment. Each
of these strategies involves certain risks, which include:
o the fact that the skills needed to implement a strategy using derivative
instruments are different from those needed to select securities for the
Underlying Funds;
o the possibility of imperfect correlation, or even no correlation, between
price movements of derivative instruments used in hedging strategies and
price movements of the securities or currencies being hedged;
o possible constraints placed on an Underlying Fund's ability to purchase or
sell portfolio investments at advantageous times due to the need for the
Underlying Fund to maintain "cover" or to segregate securities; and
o the possibility that an Underlying Fund is unable to close out or liquidate
its hedged position.
REPURCHASE AGREEMENTS. All the Underlying Funds may use repurchase agreements
and the Portfolios also may use them in investing cash reserves. Repurchase
agreements are transactions in which a Portfolio or Underlying Fund purchases
securities from a bank or recognized securities dealer and simultaneously
commits to resell the securities to the bank or dealer, usually no more than
seven days after purchase, at an agreed upon date or upon demand and at a price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities. Repurchase agreements carry certain risks not
associated with direct investments in securities, including a possible decline
in the market value of the underlying securities and delays and costs to the
Portfolio or Underlying Fund if the other party to the repurchase agreement
becomes insolvent.
BORROWINGS, DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS. U.S. Government
Income Fund and Low Duration Income Fund each may invest in "arbitraged" dollar
roll and reverse repurchase transactions. In a dollar roll, the Underlying Fund
sells mortgage-backed or other securities for delivery on the next regular
settlement date and, simultaneously, contracts to purchase substantially
identical securities for delivery on a later settlement date. In a reverse
repurchase agreement, the Underlying Fund sells securities to a bank or dealer
and agrees to repurchase them on demand or on a specified future date and at a
specified price. In "arbitraged" transactions, the Underlying Fund maintains an
offsetting position in cash or in U.S. government or investment grade bonds that
mature on or before the settlement date of the related dollar roll or reverse
repurchase agreement. Mitchell Hutchins believes that these "arbitraged"
transactions do not present the risks that are normally associated with
leverage. These Underlying Funds may invest up to 5% of their total assets in
dollar rolls that are not arbitraged. These dollar rolls and reverse repurchase
transactions are subject to each of these Underlying Fund's limitation on
borrowings and may not exceed 33 1/3% of its total assets. Each of these
Underlying Funds also may borrow for temporary or emergency purposes, but not in
excess of an additional 5% of its total assets.
Each other Underlying Fund may borrow money and use reverse repurchase
agreements subject to its limitation on borrowings, which varies from 10% to 33
1/3% of total assets.
Each Portfolio also may borrow money for temporary or emergency purposes in an
amount not exceeding 33 1/3% of its total assets.
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WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Underlying Fund may purchase
securities on a "when-issued" or delayed-delivery basis. In when-issued or
delayed-delivery transactions, delivery of the securities occurs beyond normal
settlement periods, but the Underlying Fund would not pay for such securities or
start earning interest on them until they are delivered. However, when the
Underlying Fund purchases securities on a when-issued or delayed-delivery basis,
it immediately assumes the risks of ownership, including the risk of price
fluctuation.
LENDING PORTFOLIO SECURITIES. Each Underlying Fund may lend its securities to
qualified broker-dealers or institutional investors in an amount up to 33 1/3%
of its total assets. Lending securities enables an Underlying Fund to earn
additional income but could result in a loss or delay in recovering these
securities.
PORTFOLIO TURNOVER. Each Portfolio's and Underlying Fund's portfolio turnover
rate may vary greatly from year to year and will not be a limiting factor when
Mitchell Hutchins or a sub-adviser deems portfolio changes appropriate. A higher
turnover rate (100% or more) for a Portfolio or Underlying Fund will involve
correspondingly greater transaction costs, which will be borne directly by the
Portfolio or Underlying Fund, and may increase the potential for short-term
capital gains.
DEFENSIVE POSITIONS; CASH RESERVES. When Mitchell Hutchins or the applicable
sub-adviser believes that unusual market or economic circumstances warrant a
defensive posture, an Underlying Fund may temporarily commit all or any portion
of its assets to cash or investment grade money market instruments of U.S.
issuers (and foreign issuers for some Underlying Funds), including repurchase
agreements. Each Underlying Fund may invest up to 35% of its total assets in
cash or investment grade money market instruments of U.S. issuers (and foreign
issuers for some Underlying Funds) for liquidity purposes or pending investment
in other securities
ILLIQUID SECURITIES. Each Underlying Fund may invest up to 10% or 15% of its net
assets in illiquid securities, including repurchase agreements maturing in more
than seven days, certain cover for OTC options and securities whose disposition
is restricted under the federal securities laws. The Underlying Funds do not
consider securities that are eligible for resale pursuant to SEC Rule 144A to be
illiquid securities if Mitchell Hutchins or the sub-adviser, as applicable, has
determined such securities to be liquid, based upon the trading markets for the
securities under procedures approved by the Underlying Funds' boards. Investing
in 144A securities could have the effect of increasing the level of illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
Each Portfolio may invest up to 15% of its net assets in illiquid securities,
including Rule 144A securities, but intends to use this authorization only in
connection with its investment of cash reserves in short-term securities.
OTHER INFORMATION. Each Underlying Fund may invest up to 10% of its total assets
in the securities of other investment companies. To the extent an Underlying
Fund invests in other investment companies, its shareholders, including the
Portfolios, incur duplicative fees and expenses, including investment advisory
fees.
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FLEXIBLE PRICING(SERVICEMARK)
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Each Portfolio offers through this Prospectus four classes of shares that differ
in terms of sales charges and expenses. An investor can select from among Class
A, B and C the class that is best suited to his or her investment needs, based
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upon the holding period and the amount of investment. Certain eligible investors
may select Class Y. The Portfolios and Mitchell Hutchins reserve the right to
reject any purchase order and to suspend the offering of any class of shares for
a period of time.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial sales
charge (the maximum is 4.5% of the public offering price; 4% for Conservative
Portfolio) next calculated after PaineWebber's New York City headquarters or
PFPC Inc., the Portfolios' transfer agent ("Transfer Agent"), receives the
purchase order. Although investors pay an initial sales charge when they buy
Class A shares, the ongoing expenses for this class are lower than the ongoing
expenses of Class B and Class C shares. Class A shares sales charges are
calculated as follows:
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AGGRESSIVE PORTFOLIO AND MODERATE PORTFOLIO
SALES CHARGE AS DISCOUNT TO
A PERCENTAGE OF SELECTED DEALERS
---------------------------------
NET AMOUNT AS PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE
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Less than $50,000.................................. 4.50% 4.71% 4.25%
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$50,000 to $99,999................................. 4.00 4.17 3.75
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$100,000 to $249,999............................... 3.50 3.63 3.25
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$250,000 to $499,999............................... 2.50 2.56 2.25
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$500,000 to $999,999............................... 1.75 1.78 1.50
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$1,000,000 and over (1)............................ None None 1.00(2)
CONSERVATIVE PORTFOLIO
SALES CHARGE AS DISCOUNT TO
A PERCENTAGE OF SELECTED DEALERS
---------------------------------
NET AMOUNT AS PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE INVESTED OFFERING PRICE
- -------------------- -------------- -------- --------------
Less than $100,000................................. 4.00% 4.17% 3.75%
$100,000 to $249,999............................... 3.00 3.09 2.75
$250,000 to $499,999............................... 2.25 2.30 2.00
$500,000 to $999,999............................... 1.75 1.78 1.50
$1,000,000 and over (1)............................ None None 1.00(2)
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(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of any dividends or other
distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may not withdraw more than 12% of the value of the Portfolio
account under the Plan in the first year after purchase.
(2) Mitchell Hutchins pays 1% to PaineWebber.
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SALES CHARGE REDUCTIONS & WAIVERS
Investors purchasing Class A shares in more than one PaineWebber mutual fund may
combine those purchases to get a reduced sales charge. Investors who already own
Class A shares in one or more PaineWebber mutual funds may combine the amount
they are currently purchasing with the value of such previously owned shares to
qualify for a reduced sales charge. To determine the sales charge reduction in
either case, please refer to the charts above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
o their spouses, parents or children under age 21;
o their Individual Retirement Accounts (IRAs);
o certain employee benefit plans, including 401(k) plans;
o any company controlled by the investor;
o trusts created by the investor;
o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts
created by the investor or group of individuals for the benefit of the
investors' children; or
o accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
o is an employee, director, trustee or officer of PaineWebber, its affiliates
or any PaineWebber mutual fund;
o is the spouse, parent or child of any of the above;
o buys these shares through a PaineWebber investment executive who was
formerly employed as a broker with a competing brokerage firm that was
registered as a broker-dealer with the SEC; and
o the investor was the investment executive's client at the competing
brokerage firm;
o within 90 days of buying Class A shares in a Portfolio, the investor
sells shares of one or more mutual funds that (a) were principally
underwritten by the competing brokerage firm or its affiliates and (b)
the investor either paid a sales charge to buy those shares, paid a
contingent deferred sales charge when selling them or held those
shares until the contingent deferred sales charge was waived; and
o the amount that the investor purchases does not exceed the total
amount of money the investor received from the sale of the other
mutual fund;
o is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that
investment automatically invested in Class A shares;
o is an employer establishing an employee benefit plan qualified under
section 401, including a salary reduction plan qualified under section
401(k) or section 403(b) of the Internal Revenue Code ("Code") (each a
"qualified plan"). (This waiver is subject to minimum requirements, with
respect to the number of employees and the amount of plan assets,
established by Mitchell Hutchins. Currently, the plan must have 50 or more
eligible employees and at least $1 million in assets.) For investments made
pursuant to this waiver, Mitchell Hutchins may make a payment to
PaineWebber out of its own resources in an amount not to exceed 1% of the
amount invested;
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o is a participant in the PaineWebber Members Only Program(TM). For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested;
o is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver, Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
o acquires Class A shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a
written agreement with PaineWebber permitting the sale of Class A shares at
net asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested. For
subsequent investments or exchanges made to implement a rebalancing feature
of such an investment program, the minimum subsequent investment
requirement is also waived; or
o acquires Class A shares in connection with a reorganization pursuant to
which a Portfolio acquires substantially all of the assets and liabilities
of another investment company in exchange solely for shares of the
Portfolio.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568. Investors must provide satisfactory information to
PaineWebber or the Portfolio if they seek any of these sales charge reductions
or waivers.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or the Transfer Agent receives the
purchase order. The ongoing expenses investors pay for Class B shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class B shares, 100% of their purchase is immediately
invested.
Depending on how long they own their Portfolio investment, investors may have to
pay a sales charge when they sell their Portfolio shares. This sales charge is
called a "contingent deferred sales charge." The amount of the charge depends on
how long the investor owned the shares. The sales charge is calculated by
multiplying the offering price (net asset value at the time of purchase) or the
net asset value of the shares at the time of sale by the shareholder, whichever
is less, by the percentage shown on the following table. Investors who own
shares for more than six years do not have to pay a sales charge when selling
those shares.
PERCENTAGE BY WHICH
THE SHARES' NET ASSET
IF THE INVESTOR SELLS VALUE IS
SHARES WITHIN: MULTIPLIED
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1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A shares
of equal dollar value after the investor has owned them for six years. Dividends
and other distributions paid to the investor by the Portfolio in the form of
additional Class B shares will also convert to Class A shares on a pro-rata
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basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares. If the investor has exchanged Class B shares
between PaineWebber funds, the Portfolio uses the purchase date at which the
initial investment was made to determine the conversion date.
MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE
When investors sell Class B shares they have owned for less than six years, the
Portfolio automatically will minimize the sales charge by assuming the investors
are selling:
o First, Class B shares owned through reinvested dividends and capital gain
distributions; and
o Second, Class B shares held in the Portfolio the longest.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
o sales of shares under the Portfolio's "Systematic Withdrawal Plan"
(investors may withdraw annually no more than 12% of the value of the
Portfolio account under the Plan);
o a distribution from an IRA, a self-employed individual retirement plan
("Keogh Plan") or a custodial account under Section 403(b) of the Code
(after the investor reaches age 59 1/2);
o a tax-free return of an excess IRA contribution;
o a tax-qualified retirement plan distribution following retirement; or
o Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death either as the sole shareholder or
with his or her spouse as a joint tenant with the right of survivorship.
An investor must provide satisfactory information to PaineWebber or the
Portfolio if the investor seeks any of these waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value next
calculated after PaineWebber's New York City headquarters or the Transfer Agent
receives the purchase order. Investors do not pay an initial sales charge when
they buy Class C shares, but the ongoing expenses of Class C shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class C shares, 100% of their purchase is immediately
invested. Class C shares never convert to any other class of shares.
A contingent deferred sales charge of 1% (0.75% for Conservative Portfolio) of
the offering price (net asset value at the time of purchase) or the net asset
value of the shares at the time of sale by the shareholder, whichever is less,
is charged on sales of shares made within one year of the purchase date. Other
PaineWebber mutual funds may impose a different contingent deferred sales charge
on Class C shares sold within one year of the purchase date. A sale of Class C
shares acquired through an exchange and held less than one year will be subject
to the same contingent deferred sales charge that would have been imposed on the
Class C shares of the PaineWebber mutual fund originally purchased. Class C
shares representing reinvestment of any dividends or capital gain distributions
will not be subject to the 1% (0.75% for Conservative Portfolio) charge.
Withdrawals under the Systematic Withdrawal Plan also will not be subject to
this charge. However, investors may withdraw no more than 12% of the value of
the Portfolio account under the Plan in the first year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED. Eligible investors may purchase Class Y shares at the
net asset value next calculated after PaineWebber's New York City headquarters
or the Transfer Agent receives the purchase order. Because investors do not pay
an initial sales charge when they buy Class Y shares, 100% of their purchase is
immediately invested. No contingent deferred sales charge is imposed on Class Y
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shares, and the ongoing expenses for Class Y shares are lower than for the other
classes because Class Y shares are not subject to rule 12b-1 distribution or
service fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
o a participant in an investment program that is sponsored by PaineWebber and
may invest in PaineWebber mutual funds, if Class Y shares are purchased
through that program;
o an investor who buys $10 million or more at any one time in any combination
of PaineWebber mutual funds in the Flexible PricingSM System; and
o a qualified plan that has either
5,000 or more eligible employees or
$50 million or more in assets.
PACE MULTI-ADVISOR PROGRAM. An investor who participates in PACE Multi-Advisor
Program is eligible to purchase Class Y shares. The PACE Multi-Advisor Program
is an advisory program sponsored by PaineWebber that provides comprehensive
investment services, including investor profiling, a personalized asset
allocation strategy using an appropriate combination of funds, and a quarterly
investment performance review. Participation in the PACE Multi-Advisor Program
is subject to payment of an advisory fee at the maximum annual rate of 1.75% of
assets. Employees of PaineWebber and its affiliates are entitled to a waiver of
this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available to the PACE Multi-Advisor Program.
INSIGHT. An investor who participates in INSIGHT, a total portfolio asset
allocation program sponsored by PaineWebber, is eligible to purchase Class Y
shares. Participation in INSIGHT is subject to payment of an advisory fee to
PaineWebber at the maximum annual rate of 1.50% of assets held through the
program (generally charged quarterly in advance), which covers all INSIGHT
investment advisory services and program administration fees. Employees of
PaineWebber and its affiliates are entitled to a 50% reduction in the fee
otherwise payable for participation in INSIGHT.
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HOW TO BUY SHARES
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During an initial subscription period scheduled to end on February 24, 1998
("Offering Period"), Class B, C and Y shares will be offered at a subscription
price equal to early Portfolio's initial net asset value per share of $12.50,
and Class A shares will be offered at that price plus any applicable initial
sales charge. See "Flexible Pricing - Class A Shares." Payment of the purchase
price will be due on the third Business Day after the close of the Offering
Period, and must be made in the manner specified below. The Portfolios expect to
commence investment operations on or about February 25, 1998. Thereafter, the
net asset value of Portfolio shares will fluctuate, and the price of Portfolio
shares will be determined in the manner described above.
During the Offering Period, PaineWebber and selected dealers may obtain
non-binding indications of interest prior to actually confirming any orders.
Subscriptions for shares will be accepted through the last day of the Offering
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Period. To the extent that payment is made to PaineWebber or selected dealers
prior to the Closing Date, such persons may benefit from the temporary use of
those payment monies. Each Portfolio reserves the rights to withdraw, cancel or
modify the offering of shares during the Offering Period without notice and each
Portfolio reserves the right to refuse any order in whole or part, if a
Portfolio determines that it is in its best interest.
Prices are calculated for each class of a Portfolio's shares once each Business
Day, at the close of regular trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time). A "Business Day" is any day, Monday through Friday, on
which the New York Stock Exchange is open for business. Shares are purchased at
the next share price calculated after the purchase order is received by
PaineWebber's New York City headquarters or the Transfer Agent.
Each Portfolio and Mitchell Hutchins reserve the right to reject any purchase
order and to suspend the offering of Portfolio shares for a period of time.
When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to PaineWebber
or the Portfolio that they are eligible to purchase Class Y shares.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's New
York City headquarters. Investors may pay for their purchases with checks drawn
on U.S. banks or with funds they have in their brokerage accounts at PaineWebber
or its correspondent firms.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Portfolio shares and set
up an account through the Transfer Agent (PFPC Inc.) by completing an account
application which may be obtained by calling 1-800-647-1568. The application and
check must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899.
New investors to PaineWebber may complete and sign an account application and
mail it along with a check. Investors may also open an account in person.
Investors who already have money invested in a PaineWebber mutual fund, and want
to invest in another PaineWebber mutual fund, can:
o mail an application with a check; or
o open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional investments
in the Portfolio.
MINIMUM INVESTMENTS
To open an account .....................$ 1,000
To add to an account ...................$ 100
A Portfolio may waive or reduce these minimums for:
o employees of PaineWebber or its affiliates;
o participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Portfolio's automatic investment plan; or
o transactions in Class A and Class Y shares made in certain investment
programs.
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HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, Class B and
Class C shares of the Portfolios for the same class of shares of other
PaineWebber mutual funds. For classes of shares where no initial sales charge is
imposed, a contingent deferred sales charge may apply if the investor sells the
shares acquired through the exchange. Class Y shares are not exchangeable.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
o Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.
o Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to the Transfer Agent. The letter of
instruction must include:
o the investor's name and address;
o the Portfolio's name;
o the Portfolio account number;
o the dollar amount or number of shares to be sold; and
o a guarantee of each registered owner's signature by an eligible
institution, such as a commercial bank, trust company or stock
exchange member.
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899.
No contingent deferred sales charge is imposed when Class B or C shares are
exchanged for Class B or C shares of other PaineWebber mutual funds. A Portfolio
will use the purchase date of the initial investment to determine any contingent
deferred sales charge due when the acquired shares are sold. Portfolio shares
may be exchanged only after the settlement date has passed and payment for the
shares has been made. The exchange privilege is available only in those
jurisdictions where the sale of the fund shares to be acquired is authorized.
This exchange privilege may be modified or terminated at any time and, when
required by SEC rules, upon 60 days' notice. See the back cover of this
prospectus for a listing of other PaineWebber mutual funds.
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HOW TO SELL SHARES
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Investors can sell (redeem) shares at any time. Shares will be sold at the share
price for that class as next calculated (less any applicable contingent deferred
sales charge) after the order is received by PaineWebber's New York City
headquarters or the Transfer Agent. Share prices are normally calculated at the
close of regular trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time).
Investors who own more than one class of shares should specify which class they
are selling. If they do not, the Portfolio will assume they are first selling
their Class A shares, then Class C, then Class B and last, Class Y.
If a shareholder wants to sell shares which were purchased recently, the
Portfolio may delay payment until it verifies that good payment was received. In
the case of purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
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executive. PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' sell orders to PaineWebber's New
York City headquarters. Investors who do not have an account and have bought
their shares through the Transfer Agent, may sell shares by writing a "letter of
instruction," as detailed in "How to Exchange Shares."
Because the Portfolios incur certain fixed costs in maintaining shareholder
accounts, each Portfolio reserves the right to purchase back all of its shares
in any shareholder account with a net asset value of less than $500. If the
Portfolio elects to do so, it will notify the shareholder of the opportunity to
increase the amount invested to $500 or more within 60 days of the notice. A
Portfolio will not purchase back accounts that fall below $500 solely due to a
reduction in net asset value per share.
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Portfolio account
without a sales charge up to the dollar amount sold by purchasing the
Portfolio's Class A shares within 365 days after the sale. To take advantage of
this reinstatement privilege, shareholders must notify their investment
executive at PaineWebber or one of its correspondent firms at the time of
purchase.
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OTHER SERVICES
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Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Portfolios' Class A, Class B and Class C shares:
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which a Portfolio will deduct $50 or more monthly,
quarterly, semiannually or annually from the investor's bank account to invest
directly in the Portfolio. In addition to providing a convenient and disciplined
manner of investing, participation in the Automatic Investment Plan enables the
investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or annual
(December) withdrawals from their Portfolio accounts. Minimum balances and
withdrawals vary according to the class of shares:
o CLASS A AND CLASS C SHARES. Minimum value of Portfolio shares is $5,000;
minimum withdrawals of $100.
o CLASS B SHARES. Minimum value of Portfolio shares is $20,000; minimum
monthly, quarterly, semiannual and annual withdrawals of $200, $400, $600
and $800, respectively.
Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. An investor may withdraw no more than 12% of
the value of the Portfolio account when the investor signed up for the Plan
(annually for Class B shares; during the first year under the Plan for Class A
and Class C shares). Shareholders who elect to receive dividends or other
distributions in cash may not participate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed IRAs are available through PaineWebber in which purchases of
PaineWebber mutual funds and other investments may be made. Investors
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considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of a Portfolio in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Portfolio shares will be
moved to an account with the Transfer Agent. However, if the other firm has
entered into a selected dealer agreement with Mitchell Hutchins relating to the
Portfolio, the shareholder may be able to hold Portfolio shares in an account
with the other firm.
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MANAGEMENT
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The Portfolios are governed by a board of trustees, which oversees their
operations. Each Portfolio has appointed Mitchell Hutchins as investment adviser
and administrator responsible for that Portfolio's operations (subject to the
authority of the board). As investment adviser and administrator, Mitchell
Hutchins supervises all aspects of each Portfolio's operations and makes and
implements all investment decisions for that Portfolio.
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York
10019, is an asset management subsidiary of PaineWebber Incorporated, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On November 30, 1997 Mitchell Hutchins was adviser or
sub-adviser of 29 investment companies with 64 separate portfolios and aggregate
assets of approximately $36.2 billion.
Personnel of Mitchell Hutchins may engage in securities transactions for their
own accounts pursuant to Mitchell Hutchins' code of ethics that establishes
procedures for personal investing and restricts certain transactions.
T. Kirkham Barneby, Dennis McCauley and Mark A. Tincher are responsible for the
day-to-day management of each Portfolio's investments.
Mr. Barneby is a managing director and chief investment officer of quantitative
investments of Mitchell Hutchins. Mr. Barneby rejoined Mitchell Hutchins in 1994
after being with Vantage Global Management for one year. During the eight years
that Mr. Barneby was previously with Mitchell Hutchins, he was a senior vice
president responsible for quantitative management and asset allocation models.
Dennis McCauley is a managing director and chief investment officer of fixed
income investments of Mitchell Hutchins. Prior to joining Mitchell Hutchins in
December 1994, Mr. McCauley was director of fixed income investments of IBM
Corporation.
Mark A. Tincher is a managing director and chief investment officer of equities
of Mitchell Hutchins. Prior to joining Mitchell Hutchins in March 1995, Mr.
Tincher was a vice president of Chase Manhattan Private Bank where he directed
the U.S. funds management and equity research areas.
MANAGEMENT FEES & OTHER EXPENSES
Each Portfolio pays Mitchell Hutchins a monthly fee for its services at the
annual rate of 0.35% of its average daily net assets. For the first year of
operations, Mitchell Hutchins has agreed to waive 0.25% of its annual management
fee.
Each Portfolio incurs various expenses in its operations, such as the management
fee paid to Mitchell Hutchins, 12b-1 distribution and services fees paid with
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respect to the various classes, custody and transfer agency fees, brokerage
commissions, professional fees, expenses of board and shareholder meetings, fees
and expenses relating to registration of its shares, taxes and governmental
fees, fees and expenses of trustees, costs of obtaining insurance, expenses of
printing and distributing shareholder materials, organizational expenses and
extraordinary expenses, including costs or losses in any litigation. Mitchell
Hutchins has agreed to reimburse certain expenses of the Portfolios during their
first year of operation (excluding 12b-1 distribution and service fees and
extraordinary expenses).
The Portfolios, Mitchell Hutchins, PaineWebber and the Underlying Funds expect
to apply for exemptive relief from the SEC to permit them to enter into a
"Servicing Agreement." Under the proposed Servicing Agreement, Mitchell Hutchins
would arrange for all services pertaining to the operation of the Portfolios.
The officers of the Underlying Funds, at the direction of the Funds' board,
would determine annually whether the aggregate administrative expenses of a
Portfolio with respect to its investment in an Underlying Fund are greater than
the estimated savings to the Underlying Fund from the operation of the
Portfolio. If the aggregate financial benefits to the Underlying Fund equal or
exceed the administrative expenses of a Portfolio with respect to its investment
in the Underlying Fund, there would be no charge to the Portfolio for the
services under the Servicing Agreement. The expenses would be passed through to
the Underlying Fund in proportion to the average daily value of each Underlying
Fund's shares held by each Portfolio, provided further that no Underlying Fund
would bear such expenses in excess of the estimated savings to it. Consequently,
no Underlying Fund would be expected to carry expenses that are in excess of the
estimated savings to it. The estimated savings are expected to result from the
reduction of shareholder servicing costs due to the elimination of separate
shareholder accounts which either currently are or have potential to be invested
in the Underlying Funds.
Under the proposed Servicing Agreement, if the aggregate financial benefits to
the Underlying Fund do not equal or exceed the administrative expenses of the
Portfolio, the Portfolio would pay that portion of its costs determined to be in
excess of the benefits. All expenses of the Portfolios, excluding certain
non-recurring and extraordinary expenses, would be paid for in accordance with
the Servicing Agreement.
Each Underlying Fund pays a management fee to Mitchell Hutchins (PaineWebber for
Cashfund) and also pays other operating expenses. An investor in a Portfolio
will indirectly pay both the Portfolio's management fee and other expenses and
the management fees and other expenses of the Underlying Funds held by that
Portfolio. Investors who do not wish to take advantage of the Portfolios'
allocation of their assets among several Underlying Funds may invest directly in
the Underlying Funds and thereby avoid incurring the management fee and other
expenses paid by each Portfolio.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of each Portfolio's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
There is no distribution plan with respect to the Portfolios' Class Y shares.
Under distribution plans for Class A, Class B and Class C shares ("Class A
Plan," "Class B Plan" and "Class C Plan," collectively, "Plans"), each Portfolio
pays Mitchell Hutchins:
o Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
o Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B shares.
o Monthly distribution fees at the annual rate of 0.75% (0.50% for the
Conservative Portfolio) of the average daily net assets of Class C shares.
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Under the Plans, Mitchell Hutchins primarily uses the service fees under the
Plans for the Class A, Class B and Class C shares to pay PaineWebber for
shareholder servicing, currently at the annual rate of 0.25% of the aggregate
investment amounts maintained in each Portfolio by PaineWebber clients.
PaineWebber then compensates its investment executives for shareholder servicing
that they perform and offsets its own expenses in servicing and maintaining
shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class B and Class C Plans
to:
o Offset the commissions it pays to PaineWebber for selling each Portfolio's
Class B and Class C shares, respectively.
o Offset each Portfolio's marketing costs attributable to such classes, such
as preparation, printing and distribution of sales literature, advertising
and prospectuses to prospective investors and related overhead expenses,
such as employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from any of the Portfolios or investors at the
time Class B or Class C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related distribution contracts for each class of shares
("Distribution Contracts") specify that each Portfolio must pay service and
distribution fees to Mitchell Hutchins for its activities, not as reimbursement
for specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses
exceed the service or distribution fees it receives, the Portfolios will not be
obligated to pay more than those fees. On the other hand, if Mitchell Hutchins'
expenses are less than such fees, it will retain its full fees and realize a
profit. Expenses in excess of service and distribution fees received or accrued
through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not that of the Portfolios. Annually, the board reviews the
Plan and Mitchell Hutchins' corresponding expenses for each class separately
from the Plans and expenses of the other classes.
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DETERMINING THE SHARES'
NET ASSET VALUE
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The net asset value of a Portfolio's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) each Business Day. Each
Portfolio's net asset value per share is determined by dividing the value of the
securities it holds (that is, the shares of Underlying Funds), plus any cash or
other assets, minus all liabilities, by the total number of Portfolio shares
outstanding. The value of each Underlying Fund will be its net asset value at
the time of computation.
Short-term investments that have a maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity. The amortized cost method of valuation generally is used to value debt
obligations with 60 days or less remaining to maturity, unless the board
determines that this does not represent fair value.
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DIVIDENDS & TAXES
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DIVIDENDS
Each of Conservative Portfolio and Moderate Portfolio declares and pays
dividends from its net investment income quarterly; Aggressive Portfolio
declares and pays dividends from its net investment income annually. A
Portfolio's net investment income consists of dividends paid to it from the net
investment income of the Underlying Funds in which it holds shares -- plus
accrued interest and earned discount (including both original issue and market
discounts) on direct investments in money market or other short-term debt
investments, if any -- less applicable expenses. Each Portfolio also annually
distributes substantially all of its net capital gains, if any, which consist of
(1) distributions to it from the net capital gains, if any, of Underlying Funds
in which it holds shares and (2) net gains realized from the Portfolio's
disposition of Underlying Fund shares (which dispositions generally are
occasioned by reallocating the Portfolio's assets among Underlying Funds or by
the need to make distributions and/or payments of redemption proceeds in excess
of available cash). A Portfolio may make additional distributions, if necessary,
to avoid a 4% excise tax on certain undistributed income and capital gains.
Dividends and other distributions paid on each class of shares of a Portfolio
are calculated at the same time and in the same manner. Dividends on Class A,
Class B and Class C shares of a Portfolio are expected to be lower than those on
its Class Y shares because the other shares have higher expenses resulting from
their distribution and service fees. Similarly, dividends on Class B and Class C
shares of a Portfolio are expected to be lower than those on its Class A shares
because Class B and Class C shares have higher expenses resulting from their
distribution fees. For the same reason, dividends on Conservative Portfolio's
Class B shares are expected to be lower than those on its Class C shares.
The Portfolios' dividends and other distributions are paid in additional
Portfolio shares of the same class at net asset value, unless the shareholder
has requested cash payments. Shareholders who wish to receive dividends and
other distributions in cash, either mailed to them by check or credited to their
PaineWebber accounts, should contact their investment executives at PaineWebber
or one of its correspondent firms or complete the appropriate section of the
account application.
TAXES
Each Portfolio intends to qualify for treatment as a regulated investment
company under the Code so that it will not have to pay federal income tax on the
part of its investment company taxable income (generally consisting of net
investment income and net short-term capital gain) ("taxable income") and net
capital gain (that is, the excess of net long-term capital gain over net
short-term capital loss) that it distributes to its shareholders.
Dividends paid to a Portfolio from an Underlying Fund's taxable income (which
may include net gains from certain foreign currency transactions) are included
in the Portfolio's taxable income, and dividends from the latter (whether paid
in cash or additional shares) generally are taxable to the Portfolio's
shareholders as ordinary income. Distributions of a Portfolio's net capital
gain, consisting of distributions to it of net capital gain from Underlying
Funds in which it holds shares and net gains realized from the Portfolio's
disposition of an Underlying Fund's shares held for more than twelve months
(whether paid in cash or additional shares), are taxable to its shareholders as
long-term capital gains, regardless of how long they have held their Portfolio
shares. Under the Taxpayer Relief Act of 1997, different maximum tax rates apply
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to a non-corporate taxpayer's net capital gain depending on the taxpayer's
holding period and marginal rate of federal income tax -- generally, 28% for
gain recognized on capital assets held for more than one year but not more than
18 months and 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months. Pursuant to an
Internal Revenue Service notice, each Portfolio may divide each net capital gain
distribution into a 28% rate gain distribution and a 20% rate gain distribution
(in accordance with the Portfolio's holding periods for the securities it sold
that generated the distributed gain) and its shareholders must treat those
portions accordingly. Shareholders who are not subject to tax on their income
generally will not be required to pay tax on distributions.
YEAR-END TAX REPORTING
Following the end of each calendar year, each Portfolio notifies its
shareholders of the amounts of dividends and capital gain distributions paid (or
deemed paid) for that year and any portion of those dividends that qualifies for
special treatment. The information regarding capital gain distributions
designates the portions thereof subject to the different maximum rates of tax
applicable to non-corporate taxpayers' net capital gain indicated above.
WITHHOLDING REQUIREMENTS
Each Portfolio is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Portfolio with a correct
taxpayer identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
TAXES ON THE SALE OR EXCHANGE OF PORTFOLIO SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends upon whether the shareholder receives more or less than the
adjusted basis for the shares (which normally takes into account any initial
sales charge paid on Class A shares). An exchange of any Portfolio's shares for
shares of another PaineWebber mutual fund generally will have similar tax
consequences. In addition, if a Portfolio's shares are bought within 30 days
before or after selling other shares of that Portfolio (regardless of class) at
a loss, all or a portion of that loss will not be deductible and will increase
the basis of the newly purchased shares.
SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of a
PaineWebber mutual fund without paying a sales charge due to the 365-day
reinstatement privilege or the exchange privilege. In these cases, any gain on
the sale or exchange of the original Class A shares would be increased, or any
loss would be decreased, by the amount of the sales charge paid when those
shares were bought, and that amount will increase the basis of the PaineWebber
mutual fund shares subsequently acquired.
CLASS B SHAREHOLDERS
No gain or loss will be recognized by a shareholder as a result of a conversion
from Class B shares to Class A shares.
****
The foregoing only summarizes some of the important tax considerations affecting
the Portfolios and their shareholders. Please see the further discussion in the
Statement of Additional Information. Prospective shareholders are urged to
consult their tax advisers.
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GENERAL INFORMATION
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ORGANIZATION
The Portfolios are diversified series of Mitchell Hutchins Portfolios ("Trust"),
an open-end management investment company formed on August 9, 1996 as a business
trust under the laws of Delaware. The trustees of the Trust have authority to
issue an unlimited number of shares of beneficial interest of separate series,
with a par value of $0.001 per share. The board has established one series other
than the Portfolios.
SHARES
The shares of each Portfolio are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Each class of shares of a Portfolio
represents an identical interest in that Portfolio's investment portfolio and
has the same rights, privileges and preferences. However, each class may differ
with respect to sales charges, distribution and/or service fees, voting rights
on matters exclusively affecting that class and its exchange privilege. The
different charges applicable to the different classes of shares of the
Portfolios will affect the performance of those classes.
Each share of each Portfolio is entitled to participate equally in dividends,
other distributions and the proceeds of any liquidation of that Portfolio.
However, due to the differing expenses of the classes, dividends on a
Portfolio's Class A, B, C and Y shares will differ.
VOTING RIGHTS
Shareholders of each Portfolio are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and the holders of more than 50% of all the shares of the Portfolios
as a group may elect all the board members of the Trust. The shares of a
Portfolio will be voted together, except that only the shareholders of a
particular class may vote on matters affecting only that class, such as the
terms of a Plan as it relates to the class. The shares of each series of the
Trust will be voted separately, except when an aggregate vote of all the
securities is required by law.
SHAREHOLDER MEETINGS
The Trust does not intend to hold annual meetings. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a board
member through a declaration in writing or by vote cast in person or by proxy at
a meeting called for that purpose. A meeting will be called to vote on the
removal of a board member at the written request of holders of 10% of the
outstanding shares of the Trust.
REPORTS TO SHAREHOLDERS; OTHER INFORMATION
Each Portfolio sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by the
Portfolio as of the end of the period covered by the report. The Statement of
Additional Information, which is incorporated by this reference into this
Prospectus, is available to shareholders upon request.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as custodian and recordkeeping agent for the
Portfolios. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Portfolios'
transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809. PFPC (not the Portfolios) pays PaineWebber for certain
transfer agency related services that PFPC has delegated to PaineWebber.
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MITCHELL HUTCHINS PORTFOLIOS
PROSPECTUS --JANUARY -, 1998
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The PAINEWEBBER FAMILY OF MUTUAL FUNDS consists of the six broad categories
presented here. Class A, Class B and Class C shareholders
in the Mitchell Hutchins Portfolios may exchange their shares for the
corresponding shares of funds in the PaineWebber Family of Mutual Funds.
o PAINEWEBBER BOND FUNDS for income by investing mainly in bonds.
High Income Fund
Investment Grade Income Fund
Low Duration U.S. Government
Income Fund
Strategic Income Fund
U.S. Government Income Fund
o PAINEWEBBER STOCK FUNDS for long term growth by investing mainly in stocks.
Capital Appreciation Fund
Financial Services Growth Fund
Growth Fund
Growth and Income Fund
Small Cap Fund
Utility Income Fund
o PAINEWEBBER TAX-FREE BOND FUNDS for income exempt from federal income tax
and, in some cases, state and local income taxes, by investing in municipal
bonds.
California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
New York Tax-Free Income Fund
o PAINWEBBER GLOBAL FUNDS for long-term growth by investing mainly in foreign
stocks or high current income by investing mainly in global debt
instruments.
Asia Pacific Growth Fund
Emerging Markets Equity Fund
Global Equity Fund
Global Income Fund
o PAINEWEBBER ASSET ALLOCATION FUNDS for high total return by investing in
stocks and bonds.
Balanced Fund
Tactical Allocation Fund
o PAINEWEBBER MONEY MARKET FUND for income and stability by investing in
high-quality, short-term instruments.
A prospectus containing more complete information for any of these funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Please read it carefully before investing. It
is important you have all the information you need to make a sound investment
decision.
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(COPYRIGHT) 1998 PaineWebber Incorporated
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
The Portfolios described below (each a "Portfolio" and collectively
"Portfolios") are diversified series of Mitchell Hutchins Portfolios ("Trust"),
an open-end management investment company organized as a Delaware business
trust. The Portfolios seek to achieve their investment objectives by investing
in a number of other PaineWebber mutual funds ("Underlying Funds").
MITCHELL HUTCHINS AGGRESSIVE PORTFOLIO seeks long-term growth of capital
by investing the majority of its assets in equity mutual funds.
MITCHELL HUTCHINS MODERATE PORTFOLIO seeks total return by investing its
assets in a combination of equity and bond mutual funds.
MITCHELL HUTCHINS CONSERVATIVE PORTFOLIO seeks income and, secondarily,
growth of capital by investing the majority of its assets in bond mutual
funds.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the
investment adviser, administrator and distributor for each Portfolio. As
distributor, Mitchell Hutchins has appointed PaineWebber to serve as the
exclusive dealer for the sale of the Portfolio shares.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Portfolios' current Prospectus dated January
- -, 1998. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm, or by calling toll-free
1-800-647-1568. This Statement of Additional Information is dated January -,
1998.
<PAGE>
PORTFOLIOS - INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the investment policies and limitations of the Portfolios. Except as
otherwise indicated in the Prospectus or this Statement of Additional
Information, there are no policy limitations on the Portfolios' ability to use
the investments or techniques discussed in these documents.
DIRECT INVESTMENTS IN SECURITIES. As stated in the Prospectus, in addition to
investing in the Underlying Funds, each Portfolio may invest directly in
short-term U.S. government securities, commercial paper and other short-term
corporate obligations and other money market instruments, including repurchase
agreements. Under normal conditions, each Portfolio's investments in these
securities, together with its investments in PaineWebber Cashfund, a money
market fund, is not expected to exceed 20% of its total assets. However, when
Mitchell Hutchins believes that unusual market or economic conditions warrant a
temporary defensive posture, each Portfolio may invest without limit in these
securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Portfolio purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Portfolio maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the repurchase
price on the date agreed to or upon demand is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price, plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by a Portfolio upon acquisition is
accrued as interest and included in its net investment income. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible declines in the market value of the underlying
securities and delays and costs to a Portfolio if the other party to a
repurchase agreement becomes insolvent.
The Portfolios intend to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the Trust's board of trustees
("board"). Mitchell Hutchins reviews and monitors the creditworthiness of those
institutions under the board's general supervision.
MONEY MARKET INSTRUMENTS. Money market instruments may include securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
investment grade commercial paper and other short-term corporate obligations,
bank certificates of deposit, bankers' acceptances and repurchase agreements
secured by any of the foregoing.
U.S. GOVERNMENT SECURITIES. The Portfolios may invest in various direct
obligations of the U.S. Treasury and obligations issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities (collectively, "U.S.
government securities"). Among the U.S. government securities that may be held
by the Portfolios are securities that are supported by the full faith and credit
of the United States; securities that are supported by the right of the issuer
to borrow from the U.S. Treasury; and securities that are supported solely by
the credit of the instrumentality. U.S. government securities are described in
greater detail in "Underlying Funds - Investment Policies" below.
ILLIQUID SECURITIES. Each Portfolio may invest up to 15% of its net assets in
illiquid securities, although the Portfolios intend to use this authorization
only in connection with their investment of cash reserves in short-term
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
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at approximately the amount at which a Portfolio has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days and restricted securities other than those Mitchell Hutchins has determined
to be liquid pursuant to guidelines established by the Trust's board. More
information about illiquid securities and the circumstances under which
restricted securities can be determined to be liquid is provided in "Underlying
Funds - Investment Policies, Illiquid Securities" below. If the amount of a
Portfolio's net assets invested in illiquid securities increases to more than
15% as a result of a change in the values of its investments or its amount of
total assets, the Portfolio will engage in an orderly disposition to bring its
holdings of such securities to no more than 15% of its net assets.
OTHER INVESTMENTS. Although their fundamental and non-investment
limitations (described below) do not prohibit the Portfolios from purchasing or
selling financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments or from
engaging in short sales of securities the Portfolios own (short sales "against
the box"), the Portfolios have no intention of engaging in these transactions
during the coming year.
INVESTMENT LIMITATIONS OF THE PORTFOLIOS
FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed for a Portfolio without the affirmative vote of the lesser of
(a) more than 50% of the outstanding shares of the Portfolio or (b) 67% or more
of the shares of the Portfolio present at a shareholders' meeting if more than
50% of the outstanding shares of the Portfolio are represented at the meeting in
person or by proxy. Except with respect to fundamental investment limitation
(2), if a percentage restriction is adhered to at the time of an investment or
transaction, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the foregoing limitations.
Each Portfolio will not:
(1) purchase any security if, as a result of that purchase, 25% or more of
the Portfolio's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities, and
except that the Portfolio will invest 25% or more of its total assets in the
securities of other investment companies.
(2) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ("1940 Act") and then not in excess of 33 1/3% of
the Portfolio's total assets (including the amount of the senior securities
issued but reduced by any liabilities not constituting senior securities) at the
time of the issuance or borrowing, except that the Portfolio may borrow up to an
additional 5% of its total assets (not including the amount borrowed) for
temporary or emergency purposes.
(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
(4) engage in the business of underwriting securities of other issuers,
except to the extent that the Portfolio might be considered an underwriter under
the federal securities laws in connection with its disposition of portfolio
securities.
(5) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by interests
in real estate are not subject to this limitation, and except that the Portfolio
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may exercise rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an orderly
manner.
(6) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Portfolio may purchase, sell or
enter into financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative instruments.
(7) purchase securities of any one issuer if, as a result, more than 5% of
the Portfolio's total assets would be invested in securities of that issuer or
the Portfolio would own or hold more than 10% of the outstanding voting
securities of that issuer, except that up to 25% of the Portfolio's total assets
may be invested without regard to this limitation, and except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities or to securities issued by other
investment companies.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions may be
changed by the board without shareholder approval.
Each Portfolio will not:
(1) invest more than 15% of its net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Portfolio
has valued the securities and includes, among other things, repurchase
agreements maturing in more than seven days.
(2) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
(3) purchase securities on margin, except for short-term credit necessary for
clearance of portfolio transactions and except that the Portfolio may make
margin deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.
(4) engage in short sales of securities or maintain a short position, except
that the Portfolio may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(5) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act or under the terms of an exemptive order granted by
the Securities and Exchange Commission ("SEC") and except that this limitation
does not apply to securities received or acquired as dividends, through offers
of exchange, or as a result of reorganization, consolidation, or merger.
Notwithstanding the forgoing investment limitations, the Portfolios may
invest in Underlying Funds that have adopted investment limitations that may be
more or less restrictive than those listed above. As a result, the Portfolios
may engage indirectly in investment strategies that are prohibited under the
investment limitations listed above. The investment limitations and other
investment policies and restrictions of each Underlying Fund are described in
its prospectus and statement of additional information.
In accordance with each Portfolio's investment program as set forth in the
Prospectus, a Portfolio may invest more than 25% of its assets in any one
Underlying Fund. However, each Underlying Fund in which a Portfolio may invest
(other than PaineWebber Low Duration U.S. Government Income Fund and PaineWebber
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U.S. Government Income Fund) will not concentrate more than 25% of its total
assets in any one industry.
UNDERLYING FUNDS - INVESTMENT POLICIES
The following supplements the information contained in the Prospectus
concerning the investment policies and limitations of the Underlying Funds. With
respect to certain Underlying Funds, Mitchell Hutchins has retained one or more
sub-advisers ("Sub-Adviser" or "Sub-Advisers"), who are identified by name in
the Prospectus. More information about the investment policies and restrictions
and the investment limitations of each Underlying Fund is set forth in its
prospectus and statement of additional information.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
other nationally recognized rating organizations ("NRSROs") are private services
that provide ratings of the credit quality of debt obligations. A description of
the ratings assigned to corporate debt obligations by Moody's and S&P is
included in the Appendix to this Statement of Additional Information. The
process by which S&P and Moody's determine ratings for mortgage- and
asset-backed securities includes consideration of the likelihood of the receipt
by security holders of all distributions, the nature of the underlying
securities, the credit quality of the guarantor, if any, and the structural,
legal and tax aspects associated with such securities. Not even the highest such
ratings represents an assessment of the likelihood that principal prepayments
will be made by mortgagors or the degree to which such prepayments may differ
from that originally anticipated, nor do such ratings address the possibility
that investors may suffer a lower than anticipated yield or that investors in
such securities may fail to recoup fully their initial investment due to
prepayments.
The Underlying Funds may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Also, NRSROs may fail to make timely changes in credit ratings in
response to subsequent events so that an issuer's current financial condition
may be better or worse than the rating indicates. The rating assigned to a
security by a NRSRO does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an investment in the security.
Subsequent to its purchase by an Underlying Fund, an issue of debt obligations
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by that Underlying Fund.
The yields on bonds and other debt securities in which the Underlying
Funds invest are dependent on a variety of factors, including general money
market conditions, general conditions in the bond market, the financial
condition of the issuer, the size of the offering, the maturity of the
obligation and its rating. There is a wide variation in the quality of bonds,
both within a particular classification and between classifications. An issuer's
obligations under its bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of bond holders or
other creditors of an issuer; litigation or other conditions may also adversely
affect the power or ability of issuers to meet their obligations for the payment
of interest and principal on their bonds.
Below investment grade debt securities are debt securities that are not rated
at the time of purchase within one of the four highest grades assigned by S&P or
Moody's, comparably rated by another NRSRO or determined by Mitchell Hutchins or
the applicable Sub-Adviser to be of comparable quality. These securities are
also commonly referred to as "junk bonds." Lower rated debt securities generally
offer a higher current yield than that available for investment grade issues;
however, they involve higher risks. Lower rated securities may be less sensitive
to interest rate changes than higher rated investments, but are more sensitive
to adverse market conditions. During an economic downturn or period of rising
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interest rates, their issuers may experience financial stress that adversely
affects their ability to pay interest and repay principal and may increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them and may be unable to repay debt at
maturity by refinancing. Lower rated bonds are frequently unsecured by
collateral and will not receive payment until more senior claims are paid in
full. The prices for lower rated bonds often are more volatile than those of
higher rated securities in response to market conditions. The market for these
bonds is thinner and less active, which may limit the Underlying Fund's ability
to sell them at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the value and liquidity of lower rated
securities, especially in a thinly traded market.
The market for lower-rated debt securities has expanded rapidly in recent
years, and its growth generally paralleled a long economic expansion. In the
past, many lower rated debt securities experienced substantial price declines
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructurings or defaults. There can be no
assurance that such declines will not recur.
U.S. GOVERNMENT SECURITIES. The Underlying Funds may invest in various direct
obligations of the U.S. Treasury and obligations issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities. Among the U.S.
government securities that may be held by the Underlying Funds are securities
that are supported by the full faith and credit of the United States; securities
that are supported by the right of the issuer to borrow from the U.S. Treasury;
and securities that are supported solely by the credit of the instrumentality.
Certain Underlying Funds may invest in mortgage-backed securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities. These
securities are described below under "Underlying Funds -- Investment Policies,
Mortgage-Backed Securities."
Certain Underlying Funds may invest in exchange rate-related U.S. government
securities. Such securities are indexed to specific foreign currency exchange
rates and generally provide that the interest rate and/or principal amount will
be adjusted upwards or downwards (but not below zero) to reflect changes in the
exchange rate between two currencies while the obligations are outstanding.
While such securities offer the potential for an attractive rate of return, they
also entail the risk of loss of principal.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed in more
detail below. However, the underlying assets are not first lien mortgage loans
or interests therein, but include assets such as motor vehicle installment sale
contracts, other installment sale contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to a certain amount and for a certain time
period by a letter of credit or pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements may be
present.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
herein as CMOs. U.S. government mortgage-backed securities include
mortgage-backed securities issued or guaranteed as to the payment of principal
and interest (but not as to market value) by the Government National Mortgage
Association ("Ginnie Mae"), Fannie Mae (also known as the Federal National
Mortgage Association) or Freddie Mac (also known as the Federal Home Loan
Mortgage Corporation). Other mortgage-backed securities are issued by private
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issuers, generally originators of an investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment bankers and
special purpose entities (collectively, "Private Mortgage Lenders"). Payments of
principal and interest (but not the market value) of such private
mortgage-backed securities may be supported by pools of mortgage loans or other
mortgage-backed securities that are guaranteed, directly or indirectly, by the
U.S. government or one of its agencies or instrumentalities, or they may be
issued without any government guarantee of the underlying mortgage assets but
with some form of non-government credit enhancement. New types of
mortgage-backed securities are developed and marketed from time to time and,
consistent with their investment policies and limitations, the Underlying Funds
expect to invest in these new types of mortgage-backed securities that Mitchell
Hutchins or the applicable Sub-Adviser believes may assist in achieving the
Underlying Fund's investment objective. Similarly, an Underlying Fund may invest
in mortgage-backed securities issued by new or existing governmental or private
issuers other than those identified herein.
GINNIE MAE CERTIFICATES. Ginnie Mae guarantees certain mortgage pass-through
certificates ("Ginnie Mae certificates") that are issued by Private Mortgage
Lenders and that represent ownership interests in individual pools of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. Timely payment of interest
and principal is backed by the full faith and credit of the U.S. government.
Each mortgagor's monthly payments to his lending institution on his residential
mortgage are "passed through" to certificate holders such as Global Income Fund.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions that originate
mortgages for the pools are subject to certain standards, including credit and
other underwriting criteria for individual mortgages included in the pools.
FANNIE MAE CERTIFICATES. Fannie Mae facilitates a national secondary market
in residential mortgage loans insured or guaranteed by U.S. government agencies
and in privately insured or uninsured residential mortgage loans (sometimes
referred to as "conventional mortgage loans" or "conventional loans") through
its mortgage purchase and mortgage-backed securities sales activities. Fannie
Mae issues guaranteed mortgage pass-through certificates ("Fannie Mae
certificates"), which represent pro rata shares of all interest and principal
payments made and owed on the underlying pools. Fannie Mae guarantees timely
payment of interest and principal on Fannie Mae certificates. The Fannie Mae
guarantee is not backed by the full faith and credit of the U.S. government.
FREDDIE MAC CERTIFICATES. Freddie Mac also facilitates a national secondary
market for conventional residential and U.S. government-insured mortgage loans
through its mortgage purchase and mortgage-backed securities sales activities.
Freddie Mac issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). Each PC represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. Freddie Mac generally guarantees
timely monthly payment of interest on PCs and the ultimate payment of principal,
but it also has a PC program under which it guarantees timely payment of both
principal and interest. GMCs also represent a pro rata interest in a pool of
mortgages. These instruments, however, pay interest semi-annually and return
principal once a year in guaranteed minimum payments. The Freddie Mac guarantee
is not backed by the full faith and credit of the U.S. government.
PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES. Mortgage-backed
securities issued by Private Mortgage Lenders are structured similarly to CMOs
issued or guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac. Such
mortgage-backed securities may be supported by pools of U.S. government or
agency insured or guaranteed mortgage loans or by other mortgage-backed
securities issued by a government agency or instrumentality, but they generally
are supported by pools of conventional (I.E., non-government guaranteed or
insured) mortgage loans. Since such mortgage-backed securities normally are not
guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae and
Freddie Mac, they normally are structured with one or more types of credit
enhancement. See "--TYPES OF CREDIT ENHANCEMENT" below. These credit
enhancements do not protect investors from changes in market value.
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The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
government in connection with the savings and loan crisis, held assets of failed
savings associations as either a conservator or receiver for such associations,
or it acquired such assets in its corporate capacity. These assets included,
among other things, single family and multi-family mortgage loans, as well as
commercial mortgage loans. In order to dispose of such assets in an orderly
manner, RTC established a vehicle registered with the SEC through which it sold
mortgage-backed securities. RTC mortgage-backed securities represent pro rata
interests in pools of mortgage loans that RTC held or had acquired, as described
above, and are supported by one or more of the types of private credit
enhancements used by Private Mortgage Lenders.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-THROUGHS.
CMOs are debt obligations that are collateralized by mortgage loans or mortgage
pass-through securities (such collateral collectively being called "Mortgage
Assets"). Payments of principal of, and interest on, the Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide the funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any
principal-only or "PO" class) on a monthly, quarterly or semiannual basis. The
principal and interest on the Mortgage Assets may be allocated among the several
classes of a CMO in many ways. In one structure, payments of principal,
including any principal prepayments, on the Mortgage Assets are applied to the
classes of a CMO in the order of their respective stated maturities or final
distribution dates so that no payment of principal will be made on any class of
the CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full. In some CMO structures, all or a
portion of the interest attributable to one or more of the CMO classes may be
added to the principal amounts attributable to such classes, rather than passed
through to certificateholders on a current basis, until other classes of the CMO
are paid in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier.
Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so as to pay at a rate that will be attractive in
certain interest rate environments but not in others. For example, an inverse
floating rate CMO class pays interest at a rate that increases as a specified
interest rate index decreases but decreases as that index increases. For other
CMO classes, the yield may move in the same direction as market interest
rates--I.E., the yield may increase as rates increase and decrease as rates
decrease--but may do so more rapidly or to a greater degree. The market value of
such securities generally is more volatile than that of a fixed rate obligation.
Such interest rate formulas may be combined with other CMO characteristics. For
example, a CMO class may be an "inverse IO," on which the holders are entitled
to receive no payments of principal and are entitled to receive interest at a
rate that will vary inversely with a specified index or a multiple thereof.
TYPES OF CREDIT ENHANCEMENT. To lessen the effect of failures by obligors on
Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Such credit enhancement falls into two
categories: (1) liquidity protection and (2) protection against losses resulting
after default by an obligor on the underlying assets and collection of all
amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provision of advances, generally
by the entity administering the pool of assets (usually the bank, savings
association or mortgage banker that transferred the underlying loans to the
issuer of the security), to ensure that the receipt of payments on the
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underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor, from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Underlying Funds
will not pay any additional fees for such credit enhancement, although the
existence of credit enhancement may increase the price of a security. Credit
enhancements do not provide protection against changes in the market value of
the security. Examples of credit enhancement arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "spread accounts" or "reserve funds" (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets, are
held in reserve against future losses) and "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceed
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in such a security.
SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES. The yield
characteristics of mortgage- and asset-backed securities differ from those of
traditiona1 debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other
obligations generally may be prepaid at any time. Prepayments on a pool of
mortgage loans are influenced by a variety of economic, geographic, social and
other factors, including changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. Generally, however, prepayments on fixed-rate mortgage loans will
increase during a period of falling interest rates and decrease during a period
of rising interest rates. Similar factors apply to prepayments on asset-backed
securities, but the receivables underlying asset-backed securities generally are
of a shorter maturity and thus less likely to experience substantial
prepayments. Such securities, however, often provide that for a specified time
period the issuers will replace receivables in the pool that are repaid with
comparable obligations. If the issuer is unable to do so, repayment of principal
on the asset-backed securities may commence at an earlier date. Mortgage- and
asset-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed-income securities from
declining interest rates because of the risk of prepayment.
The rate of interest on mortgage-backed securities is lower than the interest
rates paid on the mortgages included in the underlying pool due to the annual
fees paid to the servicer of the mortgage pool for passing through monthly
payments to certificateholders and to any guarantor, and due to any yield
retained by the issuer. Actual yield to the holder may vary from the coupon
rate, even if adjustable, if the mortgage-backed securities are purchased or
traded in the secondary market at a premium or discount. In addition, there is
normally some delay between the time the issuer receives mortgage payments from
the servicer and the time the issuer makes the payments on the mortgage-backed
securities, and this delay reduces the effective yield to the holder of such
securities.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice was to assume that prepayments on pools of
fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
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of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield. Reinvestment of prepayments may
occur at lower interest rates than the original investment, thus adversely
affecting the yield of an Underlying Fund.
ADDITIONAL INFORMATION ON ADJUSTABLE RATE MORTGAGE AND FLOATING RATE
MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage ("ARM") securities are
mortgage-backed securities that represent a right to receive interest payments
at a rate that is adjusted to reflect the interest earned on a pool of mortgage
loans bearing variable or adjustable rates of interest (such mortgage loans are
referred to as "ARMs"). Floating rate mortgage-backed securities are classes of
mortgage-backed securities that have been structured to represent the right to
receive interest payments at rates that fluctuate in accordance with an index
but that generally are supported by pools comprised of fixed-rate mortgage
loans.
Because the interest rates on ARM and floating rate mortgage-backed
securities are reset in response to changes in a specified market index, the
values of such securities tend to be less sensitive to interest rate
fluctuations than the values of fixed-rate securities. As a result, during
periods of rising interest rates, ARMs generally do not decrease in value as
much as fixed rate securities. Conversely, during periods of declining rates,
ARMs generally do not increase in value as much as fixed rate securities. ARM
mortgage-backed securities represent a right to receive interest payments at a
rate that is adjusted to reflect the interest earned on a pool of ARMs. ARMs
generally specify that the borrower's mortgage interest rate may not be adjusted
above a specified lifetime maximum rate or, in some cases, below a minimum
lifetime rate. In addition, certain ARMs specify limitations on the maximum
amount by which the mortgage interest rate may adjust for any single adjustment
period. ARMs also may limit changes in the maximum amount by which the
borrower's monthly payment may adjust for any single adjustment period. In the
event that a monthly payment is not sufficient to pay the interest accruing on
the ARM, any such excess interest is added to the mortgage loan ("negative
amortization"), which is repaid through future payments. If the monthly payment
exceeds the sum of the interest accrued at the applicable mortgage interest rate
and the principal payment that would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
reduces the principal balance of the ARM. Borrowers under ARMs experiencing
negative amortization may take longer to build up their equity in the underlying
property and may be more likely to default.
ARMs also may be subject to a greater rate of prepayments in a declining
interest rate environment. For example, during a period of declining interest
rates, prepayments on ARMs could increase because the availability of fixed
mortgage loans at competitive interest rates may encourage mortgagors to
"lock-in" at a lower interest rate. Conversely, during a period of rising
interest rates, prepayments on ARMs might decrease. The rate of prepayments with
respect to ARMs has fluctuated in recent years.
The rates of interest payable on certain ARMs, and, therefore, on certain ARM
mortgage-backed securities, are based on indices, such as the one-year constant
maturity Treasury rate, that reflect changes in market interest rates. Others
are based on indices, such as the 11th District Federal Home Loan Bank Cost of
Funds Index ("COFI"), that tend to lag behind changes in market interest rates.
The values of ARM mortgage-backed securities supported by ARMs that adjust based
on lagging indices tend to be somewhat more sensitive to interest rate
fluctuations than those reflecting current interest rate levels, although the
values of such ARM mortgage-backed securities still tend to be less sensitive to
interest rate fluctuations than fixed-rate securities.
Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. As with ARM
mortgage-backed securities, interest rate adjustments on floating rate
mortgage-backed securities may be based on indices that lag behind market
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interest rates. Interest rates on floating rate mortgage-backed securities
generally are adjusted monthly. Floating rate mortgage-backed securities are
subject to lifetime interest rate caps, but they generally are not subject to
limitations on monthly or other periodic changes in interest rates or monthly
payments.
DURATION. Duration is a measure of the expected life of a fixed income
security that was developed as a more precise alternative to the concept "term
to maturity." Traditionally, a debt security's "term to maturity" has been used
as a proxy for the sensitivity of the security's price to changes in interest
rates (which is the "interest rate risk" or "volatility" of the security).
However, "term to maturity" measures only the time until a debt security
provides for a final payment, taking no account of the pattern of the security's
payments prior to maturity.
For any fixed income security with interest payments occurring prior to the
payment of principal, duration is always less than maturity. For example,
depending upon its coupon and the level of market yields, a Treasury note with a
remaining maturity of five years might have a duration of 4.5 years. For
mortgage-backed and other securities that are subject to prepayments, put or
call features or adjustable coupons, the difference between the remaining stated
maturity and the duration is likely to be much greater.
Futures, options and options on futures have durations that, in general, are
closely related to the duration of the securities that underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and cash equivalents) will lengthen a security's duration by approximately the
same amount as would holding an equivalent amount of the underlying securities.
Short futures or put options have durations roughly equal to the negative
duration of the securities that underlie these positions, and have the effect of
reducing portfolio duration by approximately the same amount as would selling an
equivalent amount of the underlying securities.
There are some situations in which the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by the standard duration calculation is the case of mortgage-backed securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are critical in determining the securities' interest rate
exposure. In these and other similar situations, Mitchell Hutchins and the
applicable Sub-Advisers will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
duration and, therefore, its interest rate exposure.
ZERO COUPON, OID AND PIK BONDS. Federal tax law requires that the holder of a
bond with original issue discount ("OID") accrue a portion of the OID on the
bond as income each year, even though the holder may receive no interest payment
on the bond during the year. Accordingly, although an investing Underlying Fund
will receive no payments on its zero coupon bonds prior to their maturity or
disposition, it will have income attributable to such bonds. Similarly, while
payment-in-kind ("PIK") bonds may pay interest in the form of additional
securities rather than cash, that interest must be included in an Underlying
Fund's annual gross income.
To qualify for pass-through federal income tax treatment as a regulated
investment company, an Underlying Fund must distribute substantially all of its
net investment income each year, including non-cash income. Accordingly, each
Underlying Fund will be required to include in its dividends an amount equal to
the income attributable to its zero coupon, other OID and PIK bonds. See
"Taxes." Those dividends will be paid from the cash assets of an Underlying Fund
or by liquidation of portfolio securities, if necessary, at a time when the
Underlying Fund otherwise might not have done so.
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Certain zero coupon bonds are U.S. Treasury notes and bonds that have been
stripped of their unmatured interest coupon receipts or interests in such U.S.
Treasury securities or coupons. The staff of the SEC currently takes the
position that "stripped" U.S. government securities that are not issued through
the U.S. Treasury are not U.S. government securities. This technique is
frequently used with U.S. Treasury bonds to create CATS (Certificates of Accrual
Treasury Securities), TIGRs (Treasury Income Growth Receipts) and similar
securities. As long as the SEC takes this position, "CATS" and "TIGRs", which
are not issued through the U.S. Treasury, will not be counted as U.S. government
securities for purposes of the 65% investment requirement applicable to
PaineWebber U.S. Government Income Fund and PaineWebber Low Duration U.S.
Government Income Fund.
FOREIGN AND EMERGING MARKET SECURITIES. Investments in foreign securities
involve risks relating to political, social and economic developments abroad, as
well as risks resulting from the differences between the regulations to which
U.S. and foreign issuers and markets are subject. These risks are greater for
emerging market securities and may include expropriation, confiscatory taxation,
withholding taxes on interest and/or dividends, limitations on the use of or
transfer of Underlying Fund assets and political or social instability or
diplomatic developments. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Securities of many foreign
companies may be less liquid and their prices more volatile than securities of
comparable U.S. companies. Many foreign securities may be difficult to liquidate
rapidly without significantly depressing the price of such securities. There may
be less publicly available information concerning foreign issuers of securities
held by the Underlying Funds than is available concerning U.S. companies.
Transactions in foreign securities may be subject to less efficient settlement
practices. Foreign securities trading practices, including those involving
securities settlement where Underlying Fund assets may be released prior to
receipt of payment, may expose the Underlying Funds to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer. Legal
remedies for defaults and disputes may have to be pursued in foreign courts,
whose procedures differ substantially from those of U.S. courts. Foreign
securities trading practices, including those involving securities settlement
where an Underlying Fund's assets may be released prior to receipt of payment,
may expose that Underlying Fund to increased risk in the event of a failed trade
or the insolvency of a foreign broker-dealer.
These risks are greater for emerging market securities than for securities of
foreign issuers in more developed markets. Disclosure and regulatory standards
for securities traded in emerging markets are less stringent than in the U.S.
and other major markets. There also may be a lower level of monitoring and
regulation of emerging markets and the activities of investors in such markets,
and enforcement of existing regulations may be extremely limited. In certain
emerging markets, there have been times when settlements have failed to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
the assets of an Underlying Fund are uninvested and no return is earned thereon.
The inability of an Underlying Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Underlying Fund due to subsequent
declines in the value of such portfolio security or, if the Underlying Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
To the extent that the Underlying Funds hold securities of foreign issuers,
these securities may not be registered with the SEC, nor may the issuers thereof
be subject to its reporting requirements. Accordingly, there may be less
publicly available information concerning foreign issuers of securities held by
the Underlying Funds than is available concerning U.S. companies. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies.
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The Underlying Funds may invest in foreign securities by purchasing
depository receipts, including American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs"), or other
securities convertible into securities of issuers based in foreign countries.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets. EDRs are similar to ADRs, but may be denominated in other
currencies and are designed for use in European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. GDRs are similar to EDRs and are designed for use
in several international markets. For purposes of each Underlying Fund's
investment policies, ADRs, EDRs and GDRs are deemed to have the same
classification as the underlying securities they represent. Thus, an ADR, EDR or
GDR representing ownership of common stock will be treated as common stock.
The Underlying Funds anticipate that their brokerage transactions involving
foreign securities of companies headquartered in countries other than the United
States will be conducted primarily on the principal exchanges of such countries.
Transactions on foreign exchanges are usually subject to fixed commissions that
are generally higher than negotiated commissions on U.S. transactions, although
each Underlying Fund will endeavor to achieve the best net results in effecting
its portfolio transactions. There is generally less government supervision and
regulation of exchanges and brokers in foreign countries than in the United
States.
From time to time, investments in other investment companies may be the most
effective available means by which the Underlying Funds may invest in securities
of issuers in certain countries. Investment in such investment companies may
involve the payment of management expenses and, in connection with some
purchases, sales loads, and payment of substantial premiums above the value of
such companies' portfolio securities. At the same time, an Underlying Fund would
continue to pay its own management fees and other expenses. The Underlying Funds
may invest in these investment funds and in registered investment companies
subject to the provisions of the 1940 Act.
Investment income on certain foreign securities in which the Underlying Funds
may invest, and gains realized on the disposition thereof, may be subject to
foreign income, withholding or other taxes that could reduce the yield and/or
total return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Underlying Funds would be subject.
FOREIGN SOVEREIGN DEBT. Investment by the Underlying Funds in debt securities
issued by foreign governments and their political subdivisions or agencies
("Sovereign Debt") involves special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal and/or interest when due in accordance with the
terms of such debt, and the Underlying Funds may have limited legal recourse in
the event of a default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is, therefore, somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
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country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Underlying
Funds' investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Mitchell Hutchins and the Sub-Advisers manage the
Underlying Funds' portfolios in a manner that is intended to minimize the
exposure to such risks, there can be no assurance that adverse political changes
will not cause an Underlying Fund to suffer a loss of interest or principal on
any of its holdings.
BRADY BONDS. Brady Bonds are Sovereign Debt securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness. In
restructuring its external debt under the Brady Plan framework, a debtor nation
negotiates with its existing bank lenders as well as multilateral institutions
such as the IMF. The Brady Plan framework, as it has developed, contemplates the
exchange of commercial bank debt for newly issued Brady Bonds. Brady Bonds may
also be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. The World Bank and the IMF support the
restructuring by providing funds pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new Brady Bonds
or to repurchase outstanding bank debt at a discount.
Brady Plan debt restructurings totaling more than $80 billion have been
implemented to date in Mexico, Costa Rica, Venezuela, Uruguay, Nigeria,
Argentina and the Philippines and, in addition, Brazil has announced intentions
to issue Brady Bonds. There can be no assurance that the circumstances regarding
the issuance of Brady Bonds by these countries will not change. Investors should
recognize that Brady Bonds have been issued only recently, and accordingly do
not have a long payment history. Agreements implemented under the Brady Plan to
date are designed to achieve debt and debt-service reduction through specific
options negotiated by a debtor nation with its creditors. As a result, the
financial packages offered by each country differ. The types of options have
included the exchange of outstanding commercial bank debt for bonds issued at
100% of face value of such debt, which carry a below-market stated rate of
interest (generally known as par bonds), bonds issued at a discount from the
face value of such debt (generally known as discount bonds), bonds bearing an
interest rate which increases over time and bonds issued in exchange for the
advancement of new money by existing lenders. Regardless of the stated face
amount and stated interest rate of the various types of Brady Bonds, the
Underlying Fund will purchase Brady Bonds in secondary markets, as described
below, in which the price and yield to the investor reflect market conditions at
the time of purchase.
Certain Brady Bonds have been collateralized as to principal due at maturity
by U.S. Treasury zero coupon bonds with maturities equal to the final maturity
of such Brady Bonds. Collateral purchases are financed by the IMF, the World
Bank and the debtor nations' reserves. In the event of a default with respect to
collateralized Brady Bonds as a result of which the payment obligations of the
issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments which would have then
been due on the Brady Bonds in the normal course. In addition, interest payments
on certain types of Brady Bonds may be collateralized by cash or high grade
securities in amounts that typically represent between 12 and 18 months of
interest accruals on these instruments with the balance of the interest accruals
being uncollateralized. Brady Bonds are often viewed as having several valuation
components: (1) the collateralized repayment of principal, if any, at final
maturity, (2) the collateralized interest payments, if any, (3) the
uncollateralized interest payments and (4) any uncollateralized repayment of
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principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In light of the residual risk of Brady Bonds and, among other factors,
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are to be viewed as speculative. The Underlying Funds may purchase Brady Bonds
with no or limited collateralizations and will be relying for payment of
interest and (except in the case of principal collateralized Brady Bonds)
repayment of principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the Brady Bonds.
Brady Bonds issued to date are purchased and sold in secondary markets through
U.S. securities dealers and other financial institutions and are generally
maintained through European transnational securities depositories.
FOREIGN CURRENCY TRANSACTIONS. Although the Underlying Funds value their
assets daily in U.S. dollars, they do not intend to convert their holdings of
foreign currencies to U.S. dollars on a daily basis. The Underlying Funds'
foreign currencies generally will be held as "foreign currency call accounts" at
foreign branches of foreign or domestic banks. These accounts bear interest at
negotiated rates and are payable upon relatively short demand periods. If a bank
became insolvent, the Underlying Funds could suffer a loss of some or all of the
amounts deposited. The Underlying Funds may convert foreign currency to U.S.
dollars from time to time. Although foreign exchange dealers generally do not
charge a stated commission or fee for conversion, the prices posted generally
include a "spread," which is the difference between the prices at which the
dealers are buying and selling foreign currencies.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities have
characteristics similar to non-convertible debt securities in that they
ordinarily provide a stable stream of income with generally higher yields than
those of common stocks of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure but are usually
subordinated to comparable non-convertible securities. While no securities
investment is without some risk, investments in convertible securities generally
entail less risk than the issuer's common stock, although the extent to which
such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock because they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
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A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by an Underlying Fund is called for
redemption, that Underlying Fund will be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
WARRANTS. Warrants are securities permitting, but not obligating, their
holder to subscribe for other securities or commodities. Warrants do not carry
with them the right to dividends or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not represent any rights
in the assets of the issuer. As a result, warrants may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying securities,
and a warrant ceases to have value if it is not exercised prior to its
expiration date.
ILLIQUID SECURITIES. The Underlying Funds may invest up to 10% or 15% of
their net assets in illiquid securities. The term "illiquid securities" for this
purpose means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which an Underlying
Fund has valued the securities and includes, among other things, purchased OTC
options, repurchase agreements maturing in more than seven days and restricted
securities other than those Mitchell Hutchins or a Sub-Adviser, as applicable,
have determined are liquid pursuant to guidelines established by each Underlying
Fund's board of trustees or board of directors (each sometimes referred to as a
"board"). The assets used as cover for OTC options written by the Underlying
Funds will be considered illiquid unless the OTC options are sold to qualified
dealers who agree that a Fund may repurchase any OTC option it writes at a
maximum price to be calculated by a formula set forth in the option agreement.
The cover for an OTC option written subject to this procedure would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
Illiquid restricted securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the Securities Act of 1933 ("1933 Act"). However,
to the extent that securities are freely tradeable in the country in which they
are principally traded, they are not considered illiquid securities for purposes
of the Underlying Funds' respective percentage limitations, even if they are not
freely tradeable in the United States. Where registration is required, an
Underlying Fund may be obligated to pay all or part of the registration expenses
and a considerable period may elapse between the time of the decision to sell
and the time a Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, an Underlying Fund might obtain a less favorable price than
prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
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of Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
an Underlying Fund, however, could affect adversely the marketability of such
portfolio securities and the Fund might be unable to dispose of such securities
promptly or at favorable prices.
Each board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins or the applicable Sub-Adviser pursuant to
guidelines approved by the board. Mitchell Hutchins or the Sub-Adviser takes
into account a number of factors in reaching liquidity decisions, including (1)
the frequency of trades for the security, (2) the number of dealers that make
quotes for the security, (3) the number of dealers that have undertaken to make
a market in the security, (4) the number of other potential purchasers and (5)
the nature of the security and how trading is effected (e.g., the time needed to
sell the security, how offers are solicited and the mechanics of transfer).
Mitchell Hutchins or the Sub-Adviser monitors the liquidity of restricted
securities in each Underlying Fund's portfolio and reports periodically on such
decisions to the applicable board.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which an
Underlying Fund purchases securities from a bank or recognized securities dealer
and simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Underlying Fund maintains custody of the underlying securities prior to
their repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to or upon demand is, in effect, secured by
such securities. If the value of these securities is less than the repurchase
price, plus any agreed-upon additional amount, the other party to the agreement
must provide additional collateral so that at all times the collateral is at
least equal to the repurchase price, plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by an Underlying Fund upon acquisition is
accrued as interest and included in its net investment income.
The Underlying Funds intend to enter into repurchase agreements only with
banks and dealers in transactions believed by Mitchell Hutchins or a Sub-Adviser
to present minimal credit risks in accordance with guidelines established by the
applicable board. Mitchell Hutchins reviews and monitors the creditworthiness of
those institutions under each board's general supervision.
REVERSE REPURCHASE AGREEMENTS. Most of the Underlying Funds may enter into
reverse repurchase agreements with banks and securities dealers. Such agreements
involve the sale of securities held by the Underlying Fund subject to the Fund's
agreement to repurchase the securities at an agreed-upon date or upon demand and
at a price reflecting a market rate of interest. Such agreements are considered
to be borrowings and may be entered into only for temporary or emergency
purposes. While a reverse repurchase agreement is outstanding, the Underlying
Fund's custodian segregates assets to cover the Fund's obligations under the
reverse repurchase agreement. See "Underlying Funds -- Investment Policies,
Segregated Accounts."
LENDING OF PORTFOLIO SECURITIES. Each Underlying Fund is authorized to lend
up to 33 1/3% of its total assets to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
acceptable collateral with that Underlying Fund's custodian in an amount, marked
to market daily, at least equal to the market value of the securities loaned,
plus accrued interest and dividends. Acceptable collateral is limited to cash,
U.S. government securities and irrevocable letters of credit that meet certain
guidelines established by Mitchell Hutchins. In determining whether to lend
securities to a particular broker-dealer or institutional investor, Mitchell
Hutchins will consider, and during the period of the loan will monitor, all
relevant facts and circumstances, including the creditworthiness of the
borrower. Each Underlying Fund will retain authority to terminate any loans at
any time. Each Underlying Fund may pay reasonable fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash held as
collateral to the borrower or placing broker. Each Underlying Fund will receive
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reasonable interest on the loan or a flat fee from the borrower and amounts
equivalent to any dividends, interest or other distributions on the securities
loaned. Each Underlying Fund will regain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights, when
regaining such rights is considered to be in the Fund's interest.
Pursuant to procedures adopted by an Underlying Fund's board governing its
securities lending program, PaineWebber serves as lending agent for that
Underlying Fund. The boards have also authorized the payment of fees (including
fees calculated as a percentage of invested cash collateral) to PaineWebber for
these services. The board of each Underlying Fund periodically reviews all
portfolio securities loan transactions of that Underlying Fund for which
PaineWebber acted as lending agent.
SHORT SALES "AGAINST THE BOX." Each Underlying Fund other than PaineWebber
Cashfund may engage in short sales of securities it owns or has the right to
acquire at no added cost through conversion or exchange of other securities it
owns (short sales "against the box"). To make delivery to the purchaser in a
short sale, the executing broker borrows the securities being sold short on
behalf of an Underlying Fund, and that Underlying Fund is obligated to replace
the securities borrowed at a date in the future. When an Underlying Fund sells
short, it will establish a margin account with the broker effecting the short
sale, and will deposit collateral with the broker. In addition, the Underlying
Fund will maintain with its custodian, in a segregated account, the securities
that could be used to cover the short sale. Each Underlying Fund incurs
transaction costs, including interest expense, in connection with opening,
maintaining and closing short sales "against the box."
The Underlying Funds might make a short sale "against the box" in order to
hedge against market risks when Mitchell Hutchins or a Sub-Adviser believes that
the price of a security may decline, thereby causing a decline in the value of a
security owned by a Fund or a security convertible into or exchangeable for a
security owned by the Fund.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Investment Grade Income Fund and High
Income Fund each may invest up to 5% of its net assets in secured or unsecured
fixed or floating rate loans ("Loans") arranged through private negotiations
between a borrowing corporation and one or more financial institutions
("Lenders"). These Underlying Funds' investments in Loans are expected in most
instances to be in the form of participations ("Participations") in Loans and
assignments ("Assignments") of all or a portion of Loans from third parties.
Participations typically result in an Underlying Fund's having a contractual
relationship only with the Lender, not with the borrower. An Underlying Fund has
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, an Underlying Fund generally has no direct right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, an Underlying Fund assumes the credit
risk of both the borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, an Underlying
Fund may be treated as a general creditor of the Lender and may not benefit from
any set-off between the Lender and the borrower. The Underlying Funds will
acquire Participations only if the Lender interpositioned between the Fund and
the borrower is determined by Mitchell Hutchins to be creditworthy.
When an Underlying Fund purchases Assignments from Lenders, it acquires
direct rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and assignors,
the rights and obligations acquired by an Underlying Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender.
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Assignments and Participations are generally not registered under the 1933
Act and thus are subject to each Underlying Fund's limitation on investment in
illiquid securities. Because there is no liquid market for such securities, the
Underlying Funds anticipate that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on an Underlying
Fund's ability to dispose of particular Assignments or Participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
SEGREGATED ACCOUNTS. When an Underlying Fund enters into certain transactions
to make future payments to third parties, it will maintain with an approved
custodian in a segregated account cash or liquid securities, marked to market
daily, in an amount at least equal to the Fund's obligation or commitment under
such transactions. As described below under "Underlying Funds -- Hedging and
Other Strategies Using Derivative Instruments," segregated accounts may also be
required in connection with certain transactions involving options, futures
contracts and forward currency contracts and certain interest rate protection
transactions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each Underlying Fund may purchase securities on a "when-issued" or delayed
delivery basis. A security purchased on a when-issued or delayed delivery basis
is recorded as an asset on the commitment date and is subject to changes in
market value, generally based upon changes in the level of interest rates. Thus,
fluctuation in the value of the security from the time of the commitment date
will affect a Fund's net asset value. When an Underlying Fund agrees to purchase
securities on a when-issued or delayed delivery basis, its custodian segregates
assets to cover the amount of the commitment. See "Underlying Funds Investment
Policies - Segregated Accounts." An Underlying Fund purchases when-issued
securities only with the intention of taking delivery, but may sell the right to
acquire the security prior to delivery if Mitchell Hutchins or a Sub-Adviser, as
applicable, deems it advantageous to do so, which may result in a gain or loss
to the Fund.
UNDERLYING FUNDS -- HEDGING AND OTHER STRATEGIES USING DERIVATIVE
INSTRUMENTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins and the
Sub-Advisers may use a variety of financial contracts ("Derivative
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures") and options on futures contracts to attempt to hedge the
portfolio of each Underlying Fund (other than PaineWebber Cashfund). Certain
Underlying Funds also may use these derivative instruments to attempt to enhance
income or return, including shifting an Underlying Fund's exposure from one
asset class to another. Certain Underlying Funds also may hedge their portfolios
by entering into certain swaps or other interest rate protection transactions
and by using forward currency contracts. An Underlying Fund may enter into
transactions involving one or more types of Derivative Instruments under which
the full value of its portfolio is at risk. Under normal circumstances, however,
an Underlying Fund's use of these Derivative Instruments will place at risk a
much smaller portion of its assets. The particular Derivative Instruments used
by the Underlying Funds are described below.
OPTIONS ON SECURITIES AND FOREIGN CURRENCIES--A call option is a short-term
contract pursuant to which the purchaser of the option, in return for a premium,
has the right to buy the security or currency underlying the option at a
specified price at any time during the term of the option. The writer of the
call option, who receives the premium, has the obligation, upon exercise of the
option during the option term, to deliver the underlying security or currency
against payment of the exercise price. A put option is a similar contract that
gives its purchaser, in return for a premium, the right to sell the underlying
security or currency at a specified price during the option term. The writer of
the put option, who receives the premium, has the obligation, upon exercise of
the option during the option term, to buy the underlying security or currency at
the exercise price.
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OPTIONS ON SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. A securities index option operates in the same way
as a more traditional securities option, except that exercise of a securities
index option is effected with cash payment and does not involve delivery of
securities. Thus, upon exercise of a securities index option, the purchaser will
realize, and the writer will pay, an amount based on the difference between the
exercise price and the closing price of the securities index.
SECURITIES INDEX FUTURES CONTRACTS--A securities index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the securities index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exercise
of the option, the delivery of the futures position to the holder of the option
will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future. The writer of an option, upon exercise, will assume a short
position in the case of a call and a long position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
GENERAL DESCRIPTION OF STRATEGIES. Hedging strategies can be broadly
categorized as "short hedges" and "long hedges." A short hedge is a purchase or
sale of a Derivative Instrument intended to partially or fully offset potential
declines in the value of one or more investments held in an Underlying Fund's
portfolio. Thus, in a short hedge an Underlying Fund takes a position in a
Derivative Instrument whose price is expected to move in the opposite direction
of the price of the investment being hedged. For example, an Underlying Fund
might purchase a put option on a security to hedge against a potential decline
in the value of that security. If the price of the security declined below the
exercise price of the put, an Underlying Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transactions
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, an Underlying Fund
might be able to close out the put option and realize a gain to offset the
decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Derivative Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that an Underlying Fund intends to acquire.
Thus, in a long hedge, an Underlying Fund takes a position in a Derivative
Instrument whose price is expected to move in the same direction as the price of
the prospective investment being hedged. For example, an Underlying Fund might
purchase a call option on a security it intends to purchase in order to hedge
against an increase in the cost of the security. If the price of the security
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increased above the exercise price of the call, an Underlying Fund could
exercise the call and thus limit its acquisition cost to the exercise price plus
the premium paid and transactions costs. Alternatively, an Underlying Fund might
be able to offset the price increase by closing out an appreciated call option
and realizing a gain.
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that an
Underlying Fund owns or intends to acquire. Derivative Instruments on stock
indices, in contrast, generally are used to hedge against price movements in
broad equity market sectors in which an Underlying Fund has invested or expects
to invest. Derivative Instruments on debt securities may be used to hedge either
individual securities or broad fixed income market sectors.
Income strategies include the writing of covered options to obtain the
related option premiums. Return strategies include the use of Derivative
Instruments to increase or reduce an Underlying Fund's exposure to an asset
class without buying or selling the underlying instruments.
The use of Derivative Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded and
the Commodity Futures Trading Commission ("CFTC"). In addition, an Underlying
Fund's ability to use Derivative Instruments will be limited by tax
considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins and the Sub-Advisers expect to discover additional
opportunities in connection with options, futures contracts and other derivative
instruments and hedging techniques. These new opportunities may become available
as Mitchell Hutchins or the Sub-Advisers develop new techniques, as regulatory
authorities broaden the range of permitted transactions and as new options,
futures contracts, foreign currency contracts or other derivative instruments
and techniques are developed. Mitchell Hutchins or a Sub-Adviser, as applicable,
may utilize these opportunities for an Underlying Fund to the extent that they
are consistent with the Fund's investment objective and permitted by its
investment limitations and applicable regulatory authorities. An Underlying
Fund's prospectus or statement of additional information will be supplemented to
the extent that new products or techniques involve materially different risks
than those described below or in its prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Derivative Instruments in
hedging strategies involves special considerations and risks, as described
below. Risks pertaining to particular Derivative Instruments are described in
the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the ability of
Mitchell Hutchins or a Sub-Adviser, as applicable, to predict movements of the
overall securities and interest rate markets, which requires different skills
than predicting changes in the prices of individual securities. While Mitchell
Hutchins and the Sub-Advisers are experienced in the use of Derivative
Instruments, there can be no assurance that any particular hedging strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments being hedged. For example, if the value of a Derivative Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which
Derivative Instruments are traded. The effectiveness of hedges using Derivative
Instruments on indices will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
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(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if an Underlying Fund entered
into a short hedge because Mitchell Hutchins or a Sub-Adviser projected a
decline in the price of a security in that Underlying Fund's portfolio, and the
price of that security increased instead, the gain from that increase might be
wholly or partially offset by a decline in the price of the Derivative
Instrument. Moreover, if the price of the Derivative Instrument declined by more
than the increase in the price of the security, that Underlying Fund could
suffer a loss. In either such case, the Underlying Fund would have been in a
better position had it not hedged at all.
(4) As described below, an Underlying Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments when it
takes positions in Derivative Instruments involving obligations to third parties
(I.E., Derivative Instruments other than purchased options). If the Underlying
Fund was unable to close out its positions in such Derivative Instruments, it
might be required to continue to maintain such assets or accounts or make such
payments until the positions expired or matured. These requirements might impair
an Underlying Fund's ability to sell a portfolio security or make an investment
at a time when it would otherwise be favorable to do so, or require that the
Fund sell a portfolio security at a disadvantageous time. An Underlying Fund's
ability to close out a position in a Derivative Instrument prior to expiration
or maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of a contra party to enter
into a transaction closing out the position. Therefore, there is no assurance
that any position can be closed out at a time and price that is favorable to an
Underlying Fund.
COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose the Underlying
Funds to an obligation to another party. An Underlying Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, other options or futures contracts or (2) cash and
liquid securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each Underlying
Fund will comply with SEC guidelines regarding cover for these transactions and
will, if the guidelines so require, set aside cash or liquid securities in a
segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Derivative Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
an Underlying Fund's assets to cover or segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS. Certain of the Underlying Funds may purchase put and call options,
and write (sell) covered put or call options on securities on which they are
permitted to invest and indices of those securities. Those Underlying Funds that
are permitted to invest in foreign securities denominated in foreign currencies
also may purchase put and call options on foreign currencies. The purchase of
call options serves as a long hedge, and the purchase of put options serves as a
short hedge. Writing covered call options serves as a limited short hedge,
because declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the affected Underlying Fund
will be obligated to sell the security at less than its market value. Writing
covered put options serves as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a price
lower than the exercise price of the put option, it can be expected that the put
option will be exercised and the Underlying Fund will be obligated to purchase
the security at more than its market value. The securities or other assets used
22
<PAGE>
as cover for OTC options written by an Underlying Fund would be considered
illiquid to the extent described under "Underlying Funds -- Investment Policies,
Illiquid Securities."
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.
An Underlying Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, an Underlying Fund
may terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, an Underlying Fund may terminate a position in a put or
call option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit an Underlying
Fund to realize profits or limit losses on an option position prior to its
exercise or expiration.
The Underlying Funds may purchase and write both exchange-traded and OTC
options. Exchange markets for options on debt securities and foreign currencies
exist but are relatively new, and these instruments are primarily traded on the
OTC market. Exchange-traded options in the United States are issued by a
clearing organization affiliated with the exchange on which the option is listed
which, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts between an Underlying Fund
and its contra party (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when an Underlying Fund purchases or writes an OTC
option, it relies on the contra party to make or take delivery of the underlying
investment upon exercise of the option. Failure by the contra party to do so
would result in the loss of any premium paid by the Underlying Fund as well as
the loss of any expected benefit of the transaction. The Underlying Funds will
enter into OTC option transactions only with contra parties that have a net
worth of at least $20 million.
Generally, the OTC debt options or foreign currency options used by the
Underlying Funds are European-style options. This means that the option is only
exercisable immediately prior to its expiration. This is in contrast to
American-style options, which are exercisable at any time prior to the
expiration date of the option.
The Underlying Funds' ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The
Underlying Funds intend to purchase or write only those exchange-traded options
for which there appears to be a liquid secondary market. However, there can be
no assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
contra party, or by a transaction in the secondary market if any such market
exists. Although the Underlying Funds will enter into OTC options only with
contra parties that are expected to be capable of entering into closing
transactions with the Underlying Funds, there is no assurance that an Underlying
Fund will in fact be able to close out an OTC option position at a favorable
price prior to expiration. In the event of insolvency of the contra party, an
Underlying Fund might be unable to close out an OTC option position at any time
prior to its expiration.
If an Underlying Fund were unable to effect a closing transaction for an
option it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a covered
put or call option written by the Underlying Fund could cause material losses
because the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
LIMITATIONS ON THE USE OF OPTIONS. The use of options is governed by the
following guidelines, which can be changed by the board for each Underlying Fund
without shareholder vote:
23
<PAGE>
(1) Each Underlying Fund may purchase a put or call option, including any
straddles or spreads, only if the value of its premium, when aggregated with the
premiums on all other options held by the Underlying Fund, does not exceed 5% of
its total assets.
(2) The aggregate value of securities underlying put options written by an
Underlying Fund determined as of the date the put options are written will not
exceed 50% of that Underlying Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock and bond indices and options on futures
contracts) purchased by an Underlying Fund that are held at any time will not
exceed 20% of that Underlying Fund's net assets.
FUTURES. The Underlying Funds may purchase and sell futures contracts that
are related to securities in which they are permitted to invest, such as
securities index futures contracts for Underlying Funds that invest in equity
securities, interest rate futures contracts for Underlying Funds that invest in
bonds and foreign currency futures contracts for Underlying Funds that invest in
securities that are denominated in foreign currencies. An Underlying Fund may
also purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered call
options on futures contracts can serve as a limited short hedge, and writing
covered put options on futures contracts can serve as a limited long hedge,
using a strategy similar to that used for writing covered options on securities
or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract an Underlying Fund is required to deposit in a
segregated account with its custodian, in the name of the futures broker through
whom the transaction was effected, "initial margin" consisting of cash,
obligations of the United States or obligations that are fully guaranteed as to
principal and interest by the United States, in an amount generally equal to 10%
or less of the contract value. Margin must also be deposited when writing a call
option on a futures contract, in accordance with applicable exchange rules.
Unlike margin in securities transactions, initial margin on futures contracts
does not represent a borrowing, but rather is in the nature of a performance
bond or good-faith deposit that is returned to an Underlying Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, an
Underlying Fund may be required by an exchange to increase the level of its
initial margin payment, and initial margin requirements might be increased
generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of each Underlying Fund's obligations to or from a
futures broker. When an Underlying Fund purchases an option on a future, the
premium paid plus transaction costs is all that is at risk. In contrast, when an
Underlying Fund purchases or sells a futures contract or writes a call option
thereon, it is subject to daily variation margin calls that could be substantial
in the event of adverse price movements. If an Underlying Fund has insufficient
cash to meet daily variation margin requirements, it might need to sell
securities at a time when such sales are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Underlying Funds intend to enter into futures transactions only on exchanges
24
<PAGE>
or boards of trade where there appears to be a liquid secondary market. However,
there can be no assurance that such a market will exist for a particular
contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If an Underlying Fund were unable to liquidate a futures or related options
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. An Underlying Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, an Underlying Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The use of futures and
related options is governed by the following guidelines, which can be changed by
the applicable board for each Underlying Fund without shareholder vote:
(1) To the extent an Underlying Fund enters into futures contracts and
options on futures positions that are not for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums on those
positions (excluding the amount by which options are "in-the-money") may not
exceed 5% of that Underlying Fund's net assets.
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by an Underlying Fund that are held at any time will not
exceed 20% of that Underlying Fund's net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by an Underlying Fund will not exceed 5% of its total
assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Those Underlying
Funds that invest in securities that are denominated in foreign currencies may
use options and futures on foreign currencies, as described above, and forward
currency contracts, as described below, to hedge against movements in the values
of the foreign currencies in which their portfolio securities are denominated.
Such currency hedges can protect against price movements in a security an
Underlying Fund owns or intends to acquire that are attributable to changes in
the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are attributable
to other causes.
25
<PAGE>
The Underlying Funds might seek to hedge against changes in the value of a
particular currency when no Derivative Instruments on that currency are
available or such Derivative Instruments are more expensive than certain other
Hedging Instruments. In such cases, the Underlying Funds may hedge against price
movements in that currency by entering into transactions using Derivative
Instruments on another currency or a basket of currencies, the value of which
Mitchell Hutchins or the applicable Sub-Adviser believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the Derivative Instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Derivative Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Derivative
Instruments, an Underlying Fund could be disadvantaged by having to deal in the
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Derivative Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Underlying Funds might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. An Underlying Fund that invests in securities
denominated in foreign currencies may enter into forward currency contracts to
purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. Such transactions may serve as long hedges--for
example, an Underlying Fund may purchase a forward currency contract to lock in
the U.S. dollar price of a security denominated in a foreign currency that the
Underlying Fund intends to acquire. Forward currency contract transactions may
also serve as short hedges--for example, an Underlying Fund may sell a forward
currency contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
As noted above, an Underlying Fund also may seek to hedge against changes in
the value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which Mitchell Hutchins or a
Sub-Adviser believes will have a positive correlation to the values of the
currency being hedged. In addition, an Underlying Fund may use forward currency
contracts to shift its exposure to foreign currency fluctuations from one
country to another. For example, if an Underlying Fund owned securities
denominated in a foreign currency and Mitchell Hutchins or the Sub-Adviser
believed that currency would decline relative to another currency, it might
enter into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second foreign currency. Transactions
that use two foreign currencies are sometimes referred to as "cross hedging."
Use of a different foreign currency magnifies the risk that movements in the
price of the Derivative Instrument will not correlate or will correlate
unfavorably with the foreign currency being hedged.
26
<PAGE>
The cost to an Underlying Fund of engaging in forward currency contracts
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or commissions
are involved. When an Underlying Fund enters into a forward currency contract,
it relies on the contra party to make or take delivery of the underlying
currency at the maturity of the contract. Failure by the contra party to do so
would result in the loss of any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that an Underlying Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the contra party, an Underlying Fund might be unable to close out
a forward currency contract at any time prior to maturity. In either event, the
Underlying Fund would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, an Underlying Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. An Underlying Fund may
enter into forward currency contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Underlying Fund to deliver an amount of foreign currency in excess of the value
of the position being hedged by such contracts or (2) the Underlying Fund
segregates with its custodian cash or liquid securities in an amount not less
than the value of its total assets committed to the consummation of the contract
and not covered as provided in (1) above, as marked to market daily.
INTEREST RATE PROTECTION TRANSACTIONS. Certain Underlying Funds may enter
into interest rate protection transactions, including interest rate swaps and
interest rate caps, floors and collars. Interest rate swap transactions involve
an agreement between two parties to exchange payments that are based, for
example, on variable and fixed rates of interest and that are calculated on the
basis of a specified amount of principal (the "notional principal amount") for a
specified period of time. Interest rate cap and floor transactions involve an
agreement between two parties in which the first party agrees to make payments
to the counterparty when a designated market interest rate goes above (in the
case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which payments are made
when a designated market interest rate either goes above a designated ceiling
level or goes below a designated floor level on predetermined dates or during a
specified time period.
The Underlying Funds expect to enter into interest rate protection
transactions to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against any increase in the price of
securities it anticipates purchasing at a later date. The Underlying Funds
intend to use these transactions as a hedge and not as a speculative investment.
Interest rate protection transactions are subject to risks comparable to those
described above with respect to other hedging strategies.
27
<PAGE>
Certain Underlying Funds may enter into interest rate swaps, caps, floors and
collars on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Underlying Fund receiving or paying, as the case may be, only the
net amount of the two payments. Inasmuch as these interest rate protection
transactions are entered into for good faith hedging purposes, and inasmuch as
segregated accounts will be established with respect to such transactions,
Mitchell Hutchins, the applicable Sub-Advisers and the Underlying Funds believe
such obligations do not constitute senior securities and, accordingly, will not
treat them as being subject to the Underlying Funds' borrowing restrictions. The
net amount of the excess, if any, of an Underlying Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a daily
basis, and appropriate Underlying Fund assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account as described above in "Underlying Funds -- Investment
Policies--Segregated Accounts." The Underlying Fund also will establish and
maintain such segregated accounts with respect to its total obligations under
any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, collars and floors that are written by the
Underlying Fund.
The Underlying Funds will enter into interest rate protection transactions
only with banks and recognized securities dealers believed by Mitchell Hutchins
or the applicable Sub-Adviser to present minimal credit risk in accordance with
guidelines established by each Underlying Fund's board. If there is a default by
the other party to such a transaction, the Underlying Fund will have to rely on
its contractual remedies (which may be limited by bankruptcy, insolvency or
similar laws) pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, floors and collars are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
28
<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
Name And Address*; Position with Business Experience;
Age The Trust Other Directorships
--- --------- -------------------
Margo N. Trustee and Mrs. Alexander is president,
Alexander*;50 President chief executive officer and a
director of Mitchell Hutchins
(since January 1995) and also
an executive vice president
and a director of
PaineWebber. Mrs. Alexander
is president and a director or
trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Richard Q. Trustee Mr. Armstrong is chairman and
Armstrong; 62 principal of RQA Enterprises
78 West Brother Drive (management consulting firm)
Greenwich, CT 06830 (since April 1991 and
principal occupation since
March 1995). Mr. Armstrong is
also a director of HiLo
Automotive, Inc. He was
chairman of the board, chief
executive officer and co-owner
of Adirondack Beverages
(producer and distributor of
soft drinks and
sparkling/still waters)
(October 1993-March 1995).
Mr. Armstrong was a partner of
the New England Consulting
Group (management consulting
firm) (December 1992-September
1993). He was managing
director of LVMH U.S.
Corporation (U.S. subsidiary
of the French luxury goods
conglomerate, Louis Vuitton
Moet Hennessey Corporation)
(1987-1991) and chairman of
its wine and spirits
subsidiary, Schieffelin &
Somerset Company (1987-1991).
Mr. Armstrong is a director or
trustee of 28 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
29
<PAGE>
E.Garrett Bewkes, Trustee and Mr. Bewkes is a director of
Jr.*; 71 Chairman of the Paine Webber Group Inc. ("PW
Board of Group") (holding company of
Trustees PaineWebber and Mitchell
Hutchins). Prior to December
1995, he was a consultant to
PW Group. Prior to 1988, he
was chairman of the board,
president and chief executive
officer of American Bakeries
Company. Mr. Bewkes is a
director of Interstate
Bakeries Corporation and NaPro
BioTherapeutics, Inc. Mr.
Bewkes is a director of
trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Richard R. Burt; 50 Trustee Mr. Burt is chairman of IEP
1275 Pennsylvania Advisors, Inc. (international
Ave., N.W. investments and consulting
Washington, D.C. firm) (since March 1994) and a
20004 partner of McKinsey & Company
(management consulting firm)
(since 1991). He is also a
director of American
Publishing Company and
Archer-Daniels-Midland Co.
(agricultural commodities).
He was the chief negotiator in
the Strategic Arms Reduction
Talks with the former Soviet
Union (1989-1991) and the U.S.
Ambassador to the Federal
Republic of Germany
(1985-1989). Mr. Burt is a
director or trustee of 28
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Mary C. Farrell*; 48 Trustee Ms. Farrell is a managing
director, senior investment
strategist and member of the
Investment Policy Committee of
PaineWebber. Ms. Farrell
joined PaineWebber in 1982.
She is a member of the
Financial Women's Association
and Women's Economic
Roundtable, and appears as a
regular panelist on Wall
$treet Week with Louis
Rukeyser. She also serves on
the Board of Overseers of New
York University's Stern School
of Business. Ms. Farrell is a
director or trustee of 28
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
30
<PAGE>
Meyer Feldberg; 55 Trustee Mr. Feldberg is Dean and
Columbia University Professor of Management of the
101 Uris Hall Graduate School of Business,
New York, New York Columbia University. Prior to
10027 1989, he was president of the
Illinois Institute of
Technology. Dean Feldberg is
also a director of K-III
Communications Corporation,
Federated Department Stores,
Inc. and Revlon, Inc. Dean
Feldberg is a director or
trustee of 28 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
George W. Gowen; 68 Trustee Mr. Gowen is a partner in the
666 Third Avenue law firm of Dunnington,
New York, New York Bartholow & Miller. Prior to
10017 may 1994, he was a partner in
the law firm of Fryer, Ross &
Gowen. Mr. Gowen is a
director of Columbia Real
Estate Investments, Inc. Mr.
Gowen is a director or trustee
of 28 investment companies for
which Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Frederic V. Malek; 60 Trustee Mr. Malek is chairman of
1445 Pennsylvania Thayer Capital Partners
Avenue, N.W. (merchant bank). From January
Suite 350 1992 to November 1992, he was
Washington, D.C. campaign manager of
20004 Bush-Quayle '92. From 1990 to
1992, he was vice chairman
and, from 1989 to 1990, he was
president of Northwest
Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings
Holdings Inc. (holding company
of NWA Inc.). Prior to 1989,
he was employed by the
Marriott Corporation (hotels,
restaurants, airline catering
and contract feeding), where
he most recently was an
executive vice president and
president of Marriott Hotels
and Resorts. Mr. Malek is
also a director of American
Management Systems, Inc.
(management consulting and
computer-related services),
Automatic Data Processing
Inc., CB Commercial Group,
Inc. (real estate services),
Choice Hotels International
(hotel and hotel franchising),
FPL Group, Inc. (electric
services), Integra, Inc.
(bio-medical), Manor Care,
Inc. (health care), National
Education Corporation and
Northwest Airlines Inc. Mr.
Malek is a director or trustee
of 28 investment companies for
which Mitchell Hutchins or
PaineWebber serves as
investment adviser.
31
<PAGE>
Carl W. Schafer; 61 Trustee Mr. Schafer is president of
P.O. Box 1164 the Atlantic Foundation
Princeton, NJ 08542 (charitable foundation
supporting mainly
oceanographic exploration and
research). He also is a
director of Roadway Express,
Inc. (trucking), The Guardian
Group of Mutual Funds, Evans
Systems, Inc. (a motor fuels,
convenience store and
diversified company),
Electronic Clearing House,
Inc. (financial transactions
processing), Wainoco Oil
Corporation and Nutraceutix,
Inc. (biotechnology). Prior
to January 1993, Mr. Schafer
was chairman of the Investment
Advisory Committee of the
Howard Hughes Medical
Institute. Mr. Schafer is a
director or trustee of 28
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
T. Kirkham Barneby; Vice President Mr. Barneby is a managing
51 director and chief investment
officer - quantitative
investments of Mitchell
Hutchins. Prior to September
1994, he was a senior vice
president at Vantage Global
Management. Prior to June
1993, he was a senior vice
president at Mitchell
Hutchins. Mr. Barneby is a
vice president of six
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Dennis McCauley; 51 Vice President Mr. McCauley is a managing
director and chief investment
officer - fixed income of
Mitchell Hutchins. Prior to
December 1994, he was director
of fixed income investments of
IBM Corporation. Mr. McCauley
is a vice president of 18
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Ann E. Moran; 40 Vice President Ms. Moran is a vice president
and Assistant and a manager of the mutual
Treasurer fund finance division of
Mitchell Hutchins. Ms. Moran
is a vice president and
assistant treasurer of 28
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
32
<PAGE>
Dianne E. O'Donnell; Vice President Ms. O'Donnell is a senior vice
45 and Secretary president and deputy
general counsel of Mitchell
Hutchins. Ms. O'Donnell is a
vice president and secretary
of 28 investment companies and
vice president and assistant
secretary for one investment
company which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Emil Polito; 37 Vice President Mr. Polito is a senior vice
president and director of
operations and control for
Mitchell Hutchins. From March
1991 to September 1993 he was
director of the Mutual Funds
Sales Support and Service
Center for Mitchell Hutchins
and PaineWebber. Mr. Polito
is a vice president for 28
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Victoria E. Vice President Ms. Schonfeld is a managing
Schonfeld; 48 director and general counsel
of Mitchell Hutchins. Prior to
May 1994, she was a partner in
the law firm of Arnold &
Porter. Ms. Schonfeld is a
vice president of 28
investment companies and vice
president and secretary for
one investment company for
which Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Paul H. Schubert; 34 Vice President Mr. Schubert is a first vice
and Treasurer president and the director of
the mutual fund finance
division of Mitchell
Hutchins. From August 1992 to
August 1994, he was a vice
president of BlackRock
Financial Management L.P..
Prior to August 1992, he was
an audit manager with Ernst &
Young LLP. Mr. Schubert is a
vice president and treasurer
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as
investment adviser.
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Barney A. Vice President Mr. Taglialatela is a vice
Taglialatela; 36 and Assistant president and a manager of the
Treasurer mutual fund finance division
of Mitchell Hutchins. Prior
to February 1995, he was a
manager of the mutual fund
finance division of Kidder
Peabody Asset Management Inc.
Mr. Taglialatela is a vice
president and assistant
treasurer of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing
director and chief investment
officer - Equities of Mitchell
Hutchins. Prior to March
1995, he was a vice president
and directed the U.S. funds
management and equity research
areas of Chase Manhattan
Private Bank. Mr. Tincher is
a vice president of 13
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Keith A. Weller; 36 Vice President Mr. Weller is a first vice
and Assistant president and associate
Secretary general counsel of Mitchell
Hutchins. Prior to May 1995,
he was an attorney in private
practice. Mr. Weller is a
vice president and assistant
secretary of 28 investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Ian W. Williams; 40 Vice President Mr. Williams is a vice
and Assistant president and a manager of the
Treasurer mutual fund finance division
of Mitchell Hutchins. Prior
to June 1992, he was an audit
senior accountant with Price
Waterhouse LLP. Mr. Williams
is a vice president and
assistant treasurer of 29
investment companies for which
Mitchell Hutchins or
PaineWebber serves as
investment adviser.
- ------------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019. Mrs. Alexander, Mr.
Bewkes and Ms. Farrell are "interested persons" of the Trust as defined in the
1940 Act by virtue of their positions with PW Group, PaineWebber and/or Mitchell
Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust
("disinterested members") $1,000 annually for each Portfolio and $150 for each
board meeting and each separate meeting of a board committee. Accordingly, the
Trust pays each such trustee $3,000 annually for its three series, plus any
additional amounts due for board or committee meetings. Each chairman of the
audit and contract review committees of individual funds within the PaineWebber
fund complex receives additional compensation aggregating $15,000 annually. All
trustees are reimbursed for any expenses incurred in attending meetings.
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<PAGE>
Trustees and officers own in the aggregate less than 1% of the outstanding
shares of each Portfolio. Because PaineWebber and Mitchell Hutchins perform
substantially all the services necessary for the operation of the Trust and each
Portfolio, the Trust requires no employees. No officer, director or employee of
Mitchell Hutchins or PaineWebber presently receives any compensation from the
Trust for acting as a trustee or officer.
The table below shows the estimated compensation to be paid to each trustee
during the current fiscal year and the total compensation of those trustees for
all PaineWebber funds during the calendar year ended December 31, 1996.
COMPENSATION TABLE
Total
Estimated Compensation
Aggregate for the
Compensation Trust and
for the Fund
Name of Person, Position the Trust(1) Complex(2)
- ------------------------ ------------ ----------
Richard Q. Armstrong, Trustee $1,200 $59,873
Richard R. Burt, Trustee 1,200 51,173
Meyer Feldberg, Trustee 1,300 96,181
George W. Gowen, Trustee 1,200 92,431
Frederic V. Malek, Trustee 1,200 92,431
Carl W. Schafer, Trustee 1,200 62,307
- ----------------------------
Only independent members of the board are compensated for their services as
trustees and identified above; trustees who are "interested person," as defined
by the 1940 Act, do not receive compensation
(1) Estimated for the initial fiscal year of the Trust.
(2) Represents total compensation paid to each trustee during the
calendar year ended December 31, 1996; no fund within the fund
complex has a pension or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES. Prior to December 29, 1997, Mitchell
Hutchins held all outstanding securities of the Portfolios and thus may be
deemed a controlling person of each Portfolio until additional shareholders
purchase shares.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator to each Portfolio pursuant to a contract (the
"Advisory Contract") with the Trust. Under the Advisory Contract, each Portfolio
pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual
rate of 0.35% of average daily net assets.
Under the terms of the Advisory Contract, each Portfolio bears all of its
expenses incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Portfolio include the following: (1) the cost
(including brokerage commissions) of securities purchases or sold by the
Portfolio and any losses incurred in connection therewith; (2) fees payable to
and expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Portfolio's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to board members and officers who are not "interested
persons" (as defined in the 1940 Act) of the Trust or Mitchell Hutchins; (6) all
expenses incurred in connection with the board members' services, including
travel expenses; (7) taxes (including any income or franchise taxes) and
governmental fees; (8) costs of any liability, uncollectible items of deposit
35
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and other insurance or fidelity bonds; (9) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against the
Trust or Portfolio for violation of any law; (10) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent board
members; (11) charges of custodians, transfer agents and other agents; (12)
costs of preparing share certificates; (13) expenses of setting in type and
printing prospectuses, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders, and costs of
mailing such materials to shareholders; (14) any extraordinary expenses
(including fees and disbursements of counsel) incurred by the Fund; (15) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment . company organizations; (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the board or any committee
thereof; (17) the cost of investment literature and other publications provided
to board members and officers; and (18) costs of mailing, stationery and
communications equipment.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by a Portfolio in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder. The Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the Trust's board or by vote of the holders of a majority of the Portfolio's
outstanding voting securities on 60 days' written notice to Mitchell Hutchins,
or by Mitchell Hutchins on 60 days' written notice to the Portfolio.
NET ASSETS. The following table shows the approximate net assets as of
November 30, 1997, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
Net Assets
Investment Category $ mil
- ------------------- -----
Domestic (excluding Money Market)......................... $ 6,441.3
Global.................................................... 3,312.6
Equity/Balanced........................................... 4,903.2
Fixed Income (excluding Money Market)..................... 4,850.7
Taxable Fixed Income............................ 3,285.4
Tax-Free Fixed Income........................... 1,565.3
Money Market Funds........................................ 26,428.7
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participation in initial public
offerings generally are prohibited. In addition, the code of ethics puts
restrictions on the timing of personal investing in relation to trades by
PaineWebber Funds and other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of each
class of shares of each Portfolio under separate distribution contracts with the
Trust (collectively, "Distribution Contracts") that require Mitchell Hutchins to
use its best efforts, consistent with its other businesses, to sell shares of
each Portfolio. Shares of each Portfolio are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
relating to each class of shares of each Portfolio (collectively, "Exclusive
36
<PAGE>
Dealer Agreements"), PaineWebber and its correspondent firms sell the
Portfolios' shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by the Trust in the manner prescribed under Rule 12b-1
under the 1940 Act (each, respectively, a "Class A Plan," "Class B Plan" and
"Class C Plan" and, collectively, "Plans"), each Portfolio pays Mitchell
Hutchins a service fee, accrued daily and payable monthly, at the annual rate of
0.25% of the average daily net assets of each Class of shares for each
respective Portfolio. Under the Class B Plan and Class C Plan, each Portfolio
pays Mitchell Hutchins a distribution fee, accrued daily and payable monthly, at
the annual rate of 0.75% (0.50% for Conservative Portfolio) of the average daily
net assets of that Class. There is no distribution plan with respect to Class Y
shares and the Portfolios pay no service or distribution fees with respect to
their Class Y shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the board at least quarterly, and the trustees will review, reports regarding
all amounts expended under the Plan and the purposes for which such expenditures
were made, (2) the Plan will continue in effect only so long as it is approved
at least annually, and any material amendment thereto is approved, by the board,
including those trustees who are not "interested persons" of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related to the Plan, acting in person at a meeting called for that
purpose, (3) payments by a Portfolio under the Plan shall not be materially
increased without the affirmative vote of the holders of a majority of the
outstanding shares of the relevant class of that Portfolio and (4) while the
Plan remains in effect, the selection and nomination of trustees who are not
"interested persons" of the Trust shall be committed to the discretion of the
trustees who are not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the board, Mitchell Hutchins
allocates expenses attributable to the sale of each Class of each Portfolio's
shares to such Class based on the ratio of sales of shares of such Class to the
sales of all Classes of shares. The fees paid by one Class of a Portfolio's
shares will not be used to subsidize the sale of any other Class of that
Portfolio's shares.
In approving the Portfolios' overall Flexible Pricing(SERVICEMARK) system of
distribution, the board considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby encouraging
current shareholders to make additional investments in each respective Portfolio
and attracting new investors and assets to the Portfolio to the benefit of the
Portfolio and its shareholders, (2) facilitate distribution of the Portfolios'
shares and (3) maintain the competitive position of the Portfolios in relation
to other funds that have implemented or are seeking to implement similar
distribution arrangements.
In approving the Class A Plan for each Portfolio, the board considered all
the features of the distribution system, including (1) the conditions under
which initial sales charges would be imposed and the amount of such charges, (2)
Mitchell Hutchins' belief that the initial sales charge combined with a service
fee would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Portfolio than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Portfolio's assets and potential continued growth, (4) the
services provided to the Portfolio and its shareholders by Mitchell Hutchins,
(5) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan for each Portfolio, the board considered all
the features of the distribution system, including (1) the conditions under
which contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from Portfolio purchase payments and instead having the entire amount
of their purchase payments immediately invested in Portfolio shares, (3)
Mitchell Hutchins' belief that the ability of PaineWebber investment executives
and correspondent firms to receive sales commissions when Class B shares are
37
<PAGE>
sold and continuing service fees thereafter while their customers invest their
entire purchase payments immediately in Class B shares would prove attractive to
the investment executives and correspondent firms, resulting in greater growth
of the Portfolio than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Portfolio's
assets and potential continued growth, (5) the services provided to the
Portfolio and its shareholders by Mitchell Hutchins, (6) the services provided
by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (7) Mitchell Hutchins' shareholder service and distribution-related expenses
and costs. The board also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives, without the concomitant
receipt by Mitchell Hutchins of initial sales charges, was conditioned upon its
expectation of being compensated under the Class B Plan.
In approving the Class C Plan for each Portfolio, the board considered all
the features of the distribution system, including (1) the advantage to
investors in having no initial sales charges deducted from the Portfolio
purchase payments and instead having the entire amount of their purchase
payments immediately invested in Portfolio shares, (2) the advantage to
investors in being free from contingent deferred sales charges upon redemption
for shares held more than one year and paying for distribution on an ongoing
basis, (3) Mitchell Hutchins' belief that the ability of PaineWebber investment
executives and correspondent firms to receive sales compensation for their sales
of Class C shares on an ongoing basis, along with continuing service fees, while
their customers invest their entire purchase payments immediately in Class C
shares and generally do not face contingent deferred sales charges, would prove
attractive to the investment executives and correspondent firms, resulting in
greater growth to the Portfolio than might otherwise be the case, (4) the
advantages to the shareholders of economies of scale resulting from growth in
the Portfolio's assets and potential continued growth, (5) the services provided
to the Portfolio and its shareholders by Mitchell Hutchins, (6) the services
provided by PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell
Hutchins and (7) Mitchell Hutchins' shareholder and service and
distribution-related expenses and costs. The board also recognized that Mitchell
Hutchins' willingness to compensate PaineWebber and its investment executives
without the concomitant receipt by Mitchell Hutchins of initial sales charges or
contingent deferred sales charges upon redemption, was conditioned upon its
expectation of being compensated under the Class C Plan.
With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The board also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and advisory fees which are
calculated based upon a percentage of the average net assets of each Portfolio,
which would increase if the Plan were successful and the Portfolio attained and
maintained significant asset levels.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities for the
Portfolios (normally shares of the Underlying Funds) are placed on behalf of a
particular Portfolio by Mitchell Hutchins. A Portfolio will not incur any
commissions or sales charges when it invests in shares of the Underlying Funds,
but it may incur such costs if it invests directly in other types of securities.
When a Portfolio purchases short-term U.S. government securities or commercial
paper directly, it may purchase such securities in dealer transactions, which
generally include a "spread," as explained below.
Subject to policies established by each Underlying Fund's board, Mitchell
Hutchins or the applicable Sub-Adviser is responsible for the execution of the
Underlying Fund's portfolio transactions and the allocation of brokerage
transactions. In executing portfolio transactions, Mitchell Hutchins or a
Sub-Adviser seeks to obtain the best net results for an Underlying Fund, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved. While Mitchell Hutchins or a
Sub-Adviser generally seeks reasonably competitive commission rates, payment of
the lowest commission is not necessarily consistent with obtaining the best net
38
<PAGE>
results. Prices paid to dealers in principal transactions, through which most
debt securities and some equity securities are traded, generally include a
"spread," which is the difference between the prices at which the dealer is
willing to purchase and sell a specific security at the time. The Underlying
Funds may invest in securities traded in the OTC market and will engage
primarily in transactions directly with the dealers who make markets in such
securities, unless a better price or execution could be obtained by using a
broker.
The Portfolios and the Underlying Funds have no obligation to deal with any
broker or group of brokers in the execution of portfolio transactions. The
Portfolios and the Underlying Funds contemplate that, consistent with the policy
of obtaining the best net results, brokerage transactions may be conducted
through PaineWebber. Each Portfolio and Underlying Fund's board has adopted
procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to PaineWebber are reasonable and fair. Specific
provisions in the Advisory Contract authorize PaineWebber to effect portfolio
transactions for the Portfolios on such exchange and to retain compensation in
connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Underlying Funds' procedures in selecting FCMs to execute their transactions in
futures contracts, including procedures permitting the use of PaineWebber, are
similar to those in effect with respect to brokerage transactions in securities.
Consistent with the interests of the Portfolios and the Underlying Funds and
subject to the review of each Portfolio's or Underlying Fund's board, Mitchell
Hutchins or a Sub-Adviser may cause a Portfolio or an Underlying Fund to
purchase and sell portfolio securities from and to dealers or through brokers
who provide that Portfolio or Underlying Fund with research, analysis, advice
and similar services. In return for such services, a Portfolio or Underlying
Fund may pay to those brokers a higher commission than may be charged by other
brokers, provided that Mitchell Hutchins or a Sub-Adviser determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins to that
Portfolio or Underlying Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term.
For purchases or sales with broker-dealer firms which act as principal,
Mitchell Hutchins or a Sub-Adviser seeks best execution. Although Mitchell
Hutchins or a Sub-Adviser may receive certain research or execution services in
connection with these transactions, they will not purchase securities at a
higher price or sell securities at a lower price than would otherwise be paid if
no weight was attributed to the services provided by the executing dealer.
Moreover, Mitchell Hutchins and a Sub-Adviser will not enter into any explicit
soft dollar arrangements relating to principal transactions and will not receive
in principal transactions the types of services which could be purchased for
hard dollars. Mitchell Hutchins or a Sub-Adviser may engage in agency
transactions in OTC equity and debt securities in return for research and
execution services. These transactions are entered into only in compliance with
procedures ensuring that the transaction (including commissions) is at least as
favorable as it would have been if effected directly with a market-maker that
did not provide research or execution services. These procedures include
Mitchell Hutchins or a Sub-Adviser receiving multiple quotes from dealers before
executing the transactions on an agency basis.
Information and research services furnished by brokers or dealers through
which or with which the Portfolios or Underlying Funds effect securities
transactions may be used by Mitchell Hutchins or a Sub-Adviser in advising other
funds or accounts and, conversely, research services furnished to Mitchell
Hutchins or a Sub-Adviser by brokers or dealers in connection with other funds
or accounts that either of them advises may be used in advising the Portfolios
or Underlying Funds. Information and research received from brokers or dealers
will be in addition to, and not in lieu of, the services required to be
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<PAGE>
performed by Mitchell Hutchins under the Advisory Contract or a Sub-Adviser
under its contract with Mitchell Hutchins.
Investment decisions for a Portfolio or Underlying Fund and for other
investment accounts managed by Mitchell Hutchins are made independently of each
other in light of differing considerations for the various accounts. However,
the same investment decision may occasionally be made for a Portfolio or an
Underlying Fund and one or more of such accounts. In such cases, simultaneous
transactions are inevitable. Purchases or sales are then averaged as to price
and allocated between that Portfolio or Underlying Fund and such other
account(s) as to amount according to a formula deemed equitable to the Portfolio
or Underlying Fund and such account(s). While in some cases this practice could
have a detrimental effect upon the price or value of the security as far as the
Portfolios or Underlying Funds are concerned, or upon their ability to complete
their entire order, in other cases it is believed that coordination and the
ability to participate in volume transactions will be beneficial to the
Portfolios and Underlying Funds.
The Portfolios and Underlying Funds will not purchase securities that are
offered in underwritings in which PaineWebber is a member of the underwriting or
selling group, except pursuant to procedures adopted by each Fund's board of
trustees pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the spread or commission paid in connection with such a
purchase be reasonable and fair, the purchase be at not more than the public
offering price prior to the end of the first business day after the date of the
public offering and that PaineWebber or any affiliate thereof not participate in
or benefit from the sale to the Portfolios or Underlying Funds.
PORTFOLIO TURNOVER. The Portfolios' annual portfolio turnover rates may vary
greatly from year to year, but they will not be a limiting factor when
management deems portfolio changes appropriate. The portfolio turnover rate is
calculated by dividing the lesser of each Portfolio's annual sales or purchases
of portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of securities in the portfolio during the year. Mitchell Hutchins
estimates that each Portfolio's annual portfolio turnover rate will be less than
100% during its first fiscal year.
The portfolio turnover rates of the Underlying Funds have ranged from 33% to
359% during their most recent full fiscal years. There can be no assurance that
the portfolio turnover rates of the Underlying Funds will remain within this
range during subsequent fiscal years.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE-CLASS A SHARES. Investors and eligible groups of
related Portfolio investors may combine purchases of Class A shares of the
Portfolios with concurrent purchases of Class A shares of any other PaineWebber
mutual fund and thus take advantage of the reduced sales charges indicated in
the table of sales charges for Class A shares in the Prospectus. The sales
charge payable on the purchase of Class A shares of the Portfolios and Class A
shares of such other funds will be at the rates applicable to the total amount
of the combined concurrent purchases.
An "eligible group of related Portfolio investors" can consist of any
combination of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
40
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(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25% or
more of the outstanding voting securities of a corporation will be deemed to
control the corporation, and a partnership will be deemed to be controlled by
each of its general partners);
(d) an individual (or eligible group of individuals) and one or more employee
benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust created by
the individual(s), the beneficiaries of which are the individual and/or the
individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that other employer); or
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The registered
investment adviser must communicate at least quarterly through a newsletter or
investment update establishing a relationship with all of the accounts.
RIGHTS OF ACCUMULATIONS-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Portfolio investors (as defined above) are permitted to purchase Class A
shares of the Portfolios among related accounts at the offering price applicable
to the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Portfolio shares and Class A shares of any other PaineWebber mutual
fund. The purchaser must provide sufficient information to permit confirmation
of his or her holdings, and the acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or terminated at any
time.
WAIVERS OF SALES CHARGES-CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where the
decedent is either the individual shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only to
redemption of shares held at the time of death.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Portfolios may be exchanged for shares of the
corresponding Class of most other PaineWebber mutual funds. Shareholders will
receive at least 60 days' notice of any termination or material modification of
the exchange offer, except no notice need be given of an amendment whose only
material effect is to reduce any exchange fee and no notice need be given if,
under extraordinary circumstances, either redemptions are suspended under the
circumstances described below or a Portfolio temporarily delays or ceases the
sales of its shares because it is unable to invest amounts effectively in
accordance with the Portfolio's investment objective, policies and restrictions.
If conditions exist that make cash payments undesirable, each Portfolio
reserves the right to honor any request for redemption by making payment in
whole or in part in securities chosen by the Portfolio and valued in the same
way as they would be valued for purposes of computing the Portfolio's net asset
value. If payment is made in securities, a shareholder may incur brokerage
expenses in converting these securities into cash.
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The Portfolios may suspend redemption privileges or postpone the date of
payment during any period (1) when the New York Stock Exchange ("NYSE") is
closed or trading on the NYSE is restricted as determined by the SEC, (2) when
an emergency exists, as defined by the SEC, that makes it not reasonably
practicable for a Portfolio to dispose of securities owned by it or fairly to
determine the value of its assets or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of a Portfolio's portfolio at the time.
AUTOMATIC INVESTMENT PLAN. Participation in the Automatic Investment Plan
enables an investor to use the technique of "dollar cost averaging." When an
investor invests the same dollar amount each month under the Plan, the investor
will purchase more shares when a Portfolio's net asset value per share is low
and fewer shares when the net asset value per share is high. Using this
technique, an investor's average purchase price per share over any given period
will be lower than if the investor purchased a fixed number of shares on a
monthly basis during the period. Of course, investing through the automatic
investment plan does not assure a profit or protect against loss in declining
markets. Additionally, because the automatic investment plan involves continuous
investing regardless of price levels, an investor should consider his or her
financial ability to continue purchases through periods of both low and high
price levels.
SYSTEMATIC WITHDRAWAL PLAN. An investor's participation in the systematic
withdrawal plan will terminate automatically if the "Initial Account Balance" (a
term that means the value of the Portfolio account at the time the investor
elects to participate in the systematic withdrawal plan) less aggregate
redemptions made other than pursuant to the systematic withdrawal plan is less
than $5,000 for Class A and Class C shareholders or $20,000 for Class B
shareholders. Purchases of additional shares of a Portfolio concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, initial sales charges. On or about the 15th
of each month for monthly plans and on or about the 15th of the months selected
for quarterly or semiannual plans and the 15th of December for annual plans,
PaineWebber will arrange for redemption by the Portfolios of sufficient
Portfolio shares to provide the withdrawal payments specified by participants in
the Portfolios' systematic withdrawal plan. The payments generally are mailed
approximately three Business Days (defined under "Valuation of Shares") after
the redemption date. Withdrawal payments should not be considered dividends, but
redemption proceeds, with the tax consequences described under "Dividends &
Taxes" in the Prospectus. If periodic withdrawals continually exceed reinvested
dividends and other distributions, a shareholder's investment may be
correspondingly reduced. A shareholder may change the amount of the systematic
withdrawal or terminate participation in the systematic withdrawal plan at any
time without charge or penalty by written instructions with signatures
guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to
participate in the plan, change the withdrawal amount or terminate participation
in the plan will not be effective until five days after written instructions
with signatures guaranteed are received by the Transfer Agent. Shareholders may
request the forms needed to establish a systematic withdrawal plan from their
PaineWebber investment executives, correspondent firms or the Transfer Agent at
1-800-647-1568.
REINSTATEMENT PRIVILEGE-CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in a Portfolio without a sales charge. Shareholders may exercise the
reinstatement privilege by notifying the Transfer Agent of such desire and
forwarding a check for the amount to be purchased within 365 days after the date
of redemption. The reinstatement will be made at the net asset value per share
next computed after the notice of reinstatement and check are received. The
amount of a purchase under this reinstatement privilege cannot exceed the amount
of the redemption proceeds. Gain on a redemption is taxable regardless of
whether the reinstatement privilege is exercised; however, a loss arising out of
a redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to the
shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege. Gain or loss on a redemption also will be adjusted for federal income
tax purposes by the amount of any sales charge paid on Class A shares, under the
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circumstances and to the extent described in "Dividends & Taxes" in the
Prospectus.
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SERVICEMARK)
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(REGISTERED) (RMA(REGISTERED))
Shares of PaineWebber mutual funds, including the Portfolios, (each a "PW
Fund" and, collectively, the "PW Funds") are available for purchase through the
RMA Resource Accumulation Plan ("Plan") by customers of PaineWebber and its
correspondent firms who maintain Resource Management Accounts ("RMA
accountholders"). The Plan allows an RMA accountholder to continually invest in
one or more of the PW Funds at regular intervals, with payment for shares
purchased automatically deducted from the client's RMA account. The client may
elect to invest at monthly or quarterly intervals and may elect either to invest
a fixed dollar amount (minimum $100 per period) or to purchase a fixed number of
shares. A client can elect to have Plan purchases executed on the first or
fifteenth day of the month. Settlement occurs three Business Days (defined under
"Valuation of Shares") after the trade date, and the purchase price of the
shares is withdrawn from the investor's RMA account on the settlement date from
the following sources and in the following order: uninvested cash balances,
balances in RMA money market funds, or margin borrowing power, if applicable to
the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether through the
Plan or otherwise, helps investors establish and maintain a disciplined approach
to accumulating assets over time, de-emphasizing the importance of timing the
market's highs and lows. Periodic investing also permits an investor to take
advantage of "dollar cost averaging." By investing a fixed amount in mutual fund
shares at established intervals, an investor purchases more shares when the
price is lower and fewer shares when the price is higher, thereby increasing his
or her earning potential. Of course, dollar cost averaging does not guarantee a
profit or protect against a loss in a declining market, and an investor should
consider his or her financial ability to continue investing through periods of
both low and high share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
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o monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard(REGISTERED) transactions during the period, and provide unrealized
and realized gain and loss estimates for most securities held in the account;
o comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax return
preparation;
o automatic "sweep" of uninvested cash into the RMA accountholder's choice of
one of the six RMA money market funds-RMA Money Market Portfolio, RMA U.S.
Government Portfolio, RMA Tax-Free Fund, RMA California Municipal Money Fund,
RMA New Jersey Municipal Money Fund and RMA New York Municipal Money Fund. Each
money market fund attempts to maintain a stable price per share of $1.00,
although there can be no assurance that it will be able to do so. Investments in
the money market funds are not insured or guaranteed by the U.S. government;
o check writing, with no per-check usage charge, no minimum amount on checks
and no maximum number of checks that can be written. RMA accountholders can code
their checks to classify expenditures. All canceled checks are returned each
month;
o Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to remain
invested for a longer period of time;
o 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service Center;
o expanded account protection to $100 million in the event of the liquidation
of PaineWebber. This protection does not apply to shares of the RMA money market
funds or the PW Funds because those shares are held at the transfer agent and
not through PaineWebber; and
o automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of a Portfolio will automatically convert to Class A shares of
that Portfolio, based on the relative net asset values per share of the two
classes, as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of such Class B shares occurs. For the purpose of calculating
the holding period required for conversion of Class B shares, the date of
initial issuance shall mean (i) the date on which such Class B shares were
issued, or (ii) for Class B shares obtained through an exchange, or a series of
exchanges, the date on which the original Class B shares were issued. For
purposes of conversion to Class A shares, Class B shares purchased through the
reinvestment of dividends and other distributions paid in respect of Class B
shares will be held in a separate sub-account. Each time any Class B shares in
the shareholder's regular account (other than those in the sub-account) convert
to Class A shares, a pro rata portion of the Class B shares in the sub-account
will also convert to Class A shares. The portion will be determined by the ratio
that the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.
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The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and that the conversion
of shares does not constitute a taxable event. If the conversion feature ceased
to be available, the Class B shares would not be converted and would continue to
be subject to the higher ongoing expenses of the Class B shares beyond six years
from the date of purchase. Mitchell Hutchins has no reason to believe that this
condition for the availability of the conversion feature will not be met.
VALUATION OF SHARES
Each Portfolio determines the net asset values per share separately for each
class of shares as of the close of regular trading (currently 4:00 p.m., Eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is closed on the observance of
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The value of the shares of each Underlying Fund will be their net asset value
at the time of the net asset value of the Portfolio shares is determined. The
Portfolios generally use the amortized cost method of valuation to value debt
obligations with 60 days or less remaining until maturity, unless the board
determines that this does not represent fair value.
PERFORMANCE INFORMATION
Each Portfolio's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in each Portfolio's Performance Advertisements are calculated
according to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000 to
purchase shares of a specified class
T = average annual total return of shares of that
n = class number of years
ERV = ending redeemable value of a hypothetical $1,000
payment at the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% (4% for Conservative Portfolio) sales charge is deducted from the
initial $1,000 payment and, for Class B and Class C shares, the applicable
contingent deferred sales charge imposed on a redemption of Class B or Class C
shares held for the period is deducted. All dividends and other distributions
are assumed to have been reinvested at net asset value.
The Portfolios also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Portfolios calculate Non-Standardized
Return for specified periods of time by assuming an investment of $1,000 in
Portfolio shares and assuming the reinvestment of all dividends and other
distributions. The rate of return is determined by subtracting the initial value
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of the investment from the ending value and by dividing the remainder by the
initial value. Neither initial nor contingent deferred sales charges are taken
into account in calculating Non-Standardized Return; the inclusion of those
charges would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years will reflect conversion of the Class B shares to Class
A shares at the end of the sixth year.
YIELD. Yields used in Moderate Portfolio's and Conservative Portfolio's
Performance Advertisements are calculated by dividing the Portfolio's interest
income attributable to a Class of shares for a 30-day period ("Period"), net of
expenses attributable to such Class, by the average number of shares of such
Class entitled to receive dividends during the Period and expressing the result
as an annualized percentage (assuming semi-annual compounding) of the maximum
offering price per share (in the case of Class A shares) or the net asset value
per share (in the case of Class B and Class C shares) at the end of the Period.
Yield quotations are calculated according to the following formula:
YIELD = 2 [( a-b/cd +1 ) 6 -1 ]
where: a = interest earned during the Period attributable to a Class
of shares
b = expenses accrued for the Period attributable to a Class
of shares (net of reimbursements)
c = the average daily number of shares of a Class outstanding
during the Period that were entitled to receive dividends
d = the maximum offering price per share (in the case of
Class A shares) or the net asset value per share (in the
case of Class B and Class C shares) on the last day of
the Period.
Except as noted below, in determining interest income earned during the
Period (variable "a" in the above formula), a Portfolio calculates interest
earned on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the period that the obligation is in the portfolio. Once interest earned
is calculated in this fashion for each debt obligation held by the Portfolio,
interest earned during the Period is then determined by totalling the interest
earned on all debt obligations. For purposes of these calculations, the maturity
of an obligation with one or more call provisions is assumed to be the next date
on which the obligation reasonably can be expected to be called or, if none, the
maturity date. With respect to Class A shares, in calculating the maximum
offering price per share at the end of the Period (variable "d" in the above
formula) the Portfolio's current maximum 4% initial sales charge on Class A
shares is included.
OTHER INFORMATION. In Performance Advertisements, the Portfolios may compare
their Standardized Return and/or their Non-Standardized Return with data
published by Lipper Analytical Services, Inc. ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), Wiesenberger Investment Companies Service
("Wiesenberger"), Investment Company Data, Inc. ("ICD") or Morningstar Mutual
Funds ("Morningstar"), with the performance of recognized stock and other
indices, including the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), the Dow Jones Industrial Average ("DJIA"), the International Finance
Corporation Global Total Return Index, the Nasdaq Composite Index, the Russell
2000 Index, the Wilshire 5000 Index, the Lehman Bond Index, the Lehman Brothers
20+ Year Treasury Bond Index, the Lehman Brothers Government/Corporate Bond
Index, other similar Lehman Brothers indices or components thereof, 30-year and
10-year U.S. Treasury bonds, the Morgan Stanley Capital International
Perspective Indices, the Morgan Stanley Capital International Energy Sources
Index, the Standard & Poor's Oil Composite Index, the Morgan Stanley Capital
International World Index, the Salomon Brothers Non-U.S. Dollar Index, the
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Salomon Brothers Non-U.S. World Government Bond Index, the Salomon Brothers
World Government Index, other similar Salomon Brothers indices or components
thereof and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The Portfolios also may refer in such materials to
mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of the
Portfolios and comparative mutual fund data and ratings reported in independent
periodicals, including) THE WALL STREET JOURNAL, MONEY MAGAZINE, FORBES,
BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE
CHICAGO TRIBUNE, THE WASHINGTON POST AND THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.
The Portfolios may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Portfolio investment are
reinvested in additional Portfolio shares, any future income or capital
appreciation of a Portfolio would increase the value, not only of the original
Portfolio investment, but also of the additional Portfolio shares received
through reinvestment. As a result, the value of a Portfolio investment would
increase more quickly than if dividends or other distributions had been paid in
cash.
The Portfolios may also compare their performance with the performance of
bank certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(Registered) Money Markets. In comparing the
Portfolios' performance to CD performance, investors should keep in mind that
bank CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that bank CD
yields may vary depending on the financial institution offering the CD and
prevailing interest rates. Shares of the Portfolios are not insured or
guaranteed by the U.S. government and returns and net asset values will
fluctuate. The debt securities held by the Portfolios may have longer maturities
than most CDs and may reflect interest rate fluctuations for longer term debt
securities. An investment in any Portfolio involves greater risks than an
investment in either a money market fund or a CD.
The Portfolios may also compare their performance to general trends in the
stock and bond markets, as illustrated by the following graph prepared by
Ibbotson Associates, Chicago.
Year Common Long-Term Inflation/C Treasury Bills
1926 $10,000 $10,000 $10,000 $10,000
1927 $15,347 $11,739 $9,646 $10,649
1928 $22,039 $11,751 $9,553 $11,028
1929 $20,184 $12,153 $9,572 $11,552
1930 $15,158 $12,719 $8,994 $11,831
1931 $8,588 $12,044 $8,138 $11,957
1932 $7,885 $14,072 $7,300 $12,072
1933 $12,142 $14,062 $7,337 $12,108
1934 $11,967 $15,473 $7,486 $12,128
1935 $17,672 $16,243 $7,710 $12,148
1936 $23,667 $17,465 $7,803 $12,170
1937 $15,376 $17,505 $8,045 $12,208
1938 $20,161 $18,473 $7,822 $12,205
1939 $20,079 $19,570 $7,784 $12,208
1940 $18,115 $20,762 $7,859 $12,208
1941 $16,015 $20,955 $8,623 $12,215
1942 $19,273 $21,630 $9,424 $12,248
1943 $24,265 $22,080 $9,721 $12,291
1944 $29,057 $22,700 $9,926 $12,331
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1945 $39,645 $25,136 $10,150 $12,372
1946 $36,446 $25,111 $11,993 $12,415
1947 $38,527 $24,453 $13,074 $12,478
1948 $40,646 $25,284 $13,428 $12,579
1949 $48,283 $26,915 $13,186 $12,717
1950 $63,594 $26,931 $13,950 $12,870
1951 $78,869 $25,873 $14,769 $13,061
1952 $93,357 $28,173 $14,899 $13,278
1953 $92,433 $27,126 $14,991 $13,520
1954 $141,071 $29,076 $14,916 $13,636
1955 $185,594 $28,701 $14,971 $13,850
1956 $197,768 $27,097 $15,399 $14,191
1957 $176,449 $29,118 $15,864 $14,636
1958 $252,957 $27,345 $16,144 $14,862
1959 $283,211 $26,727 $16,386 $15,300
1960 $284,542 $30,410 $16,628 $15,707
1961 $361,055 $30,705 $16,740 $16,042
1962 $329,535 $32,820 $16,944 $16,480
1963 $404,669 $33,217 $17,223 $16,994
1964 $471,359 $34,383 $17,428 $17,596
1965 $530,043 $34,627 $17,763 $18,287
1966 $476,721 $35,891 $18,358 $19,158
1967 $591,038 $32,597 $18,916 $19,964
1968 $656,407 $32,512 $19,809 $21,004
1969 $600,613 $30,863 $21,019 $22,386
1970 $624,697 $34,601 $22,173 $23,846
1971 $714,091 $39,179 $22,918 $24,893
1972 $849,626 $41,408 $23,700 $25,849
1973 $725,071 $40,948 $25,785 $27,640
1974 $533,144 $42,730 $28,931 $29,851
1975 $731,474 $46,661 $30,956 $31,582
1976 $905,565 $54,500 $32,442 $33,193
1977 $840,364 $54,118 $34,648 $34,886
1978 $895,828 $53,469 $37,767 $37,398
1979 ####### $52,827 $42,790 $41,287
1980 ####### $50,767 $48,096 $45,911
1981 ####### $51,732 $52,376 $52,660
1982 ####### $72,631 $54,419 $58,190
1983 ####### $73,139 $56,487 $63,310
1984 ####### $84,478 $58,748 $69,515
1985 ####### $110,664 $60,979 $74,867
1986 ####### $137,776 $61,649 $79,509
1987 ####### $134,056 $64,362 $83,882
1988 ####### $147,060 $67,194 $89,167
1989 ####### $173,678 $70,285 $96,657
1990 ####### $184,446 $74,572 $104,196
1991 ####### $220,044 $76,884 $110,031
1992 ####### $237,887 $79,114 $113,882
1993 ####### $281,159 $81,250 $117,185
1994 ####### $259,229 $83,443 $121,755
1995 ####### $313,511 $85,404 $126,856
1996 ####### $337,286 $88,451 $135,380
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The chart is shown for illustrative purposes only and does not represent any
Portfolio's performance. These returns consist of income and capital
appreciation (or depreciation) and should not be considered an indication or
guarantee of future investment results. Year-to-year fluctuations in certain
markets have been significant and negative returns have been experienced in
certain markets from time to time. Stocks are measured by the S&P 500, an
unmanaged weighted index comprising 500 widely held common stocks and varying in
composition. Unlike investors in bonds and U.S. Treasury bills, common stock
investors do not receive fixed income payments and are not entitled to repayment
of principal. These differences contribute to investment risk. Returns shown for
long-term government bonds are based on U.S. Treasury bonds with 20-year
maturities. Inflation is measured by the Consumer Price Index. The indexes are
unmanaged and are not available for investment.
- ----------
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook(TM) Ibbotson Assoc.,
Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1996, stocks beat all
other traditional asset classes. A $10,000 investment in the stocks comprising
the S&P 500 grew to $13,710,736, significantly more than any other investment.
TAXES
TAXATION OF THE PORTFOLIOS. To qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code, each Portfolio must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment income
and net short-term capital gains) ("Distribution Requirement") and must meet
several additional requirements. For each Portfolio these requirements include
the following: (1) the Portfolio must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities, or other
income derived with respect to its business of investing in securities ("Income
Requirement"); (2) at the close of each quarter of the Portfolio's taxable year,
at least 50% of the value of its total assets must be represented by cash and
cash items, U.S. government securities, securities of other RICs (including the
Underlying Funds) and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Portfolio's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter of
the Portfolio's taxable year, not more than 25% of the value of its total assets
may be invested in securities (other than U.S. government securities or the
securities of other RICs, including the Underlying Funds) of any one issuer.
Each Portfolio will invest its assets in shares of Underlying Funds and money
market and other short-term instruments. Accordingly, each Portfolio's income
will consist of distributions from Underlying Funds, net gains realized from the
disposition of Underlying Fund shares and interest. If an Underlying Fund
qualifies for treatment as a RIC under the Internal Revenue Code -- each has
done so for its past taxable years and intends to continue to do so for its
current and future taxable years -- (1) dividends paid to a Portfolio from the
Underlying Fund's investment company taxable income (which may include net gains
from certain foreign currency transactions) will be taxable to the Portfolio as
ordinary income to the extent of the Underlying Fund's earnings and profits, and
(2) distributions paid to a Portfolio from the Underlying Fund's net capital
gain (that is, the excess of net long-term capital gain over net short-term
capital loss) will be taxable to the Portfolio as long-term capital gains,
regardless of how long the Portfolio has held the Underlying Fund's shares. If a
Portfolio purchases shares of an Underlying Fund within thirty days before or
after redeeming at a loss other shares of that Underlying Fund (whether pursuant
to a rebalancing of the Portfolio's portfolio or otherwise), all or part of the
loss will not be deductible by the Portfolio and instead will increase its basis
for the newly purchased shares.
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Although each of Global Income Fund and Global Equity Fund will be eligible
to elect to "pass-through" to its shareholders (including a Portfolio) the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions income taxes it pays if more than 50% of the value of its total
assets at the close of any taxable year consists of securities of foreign
corporations, no Portfolio will qualify to pass that benefit through to its
shareholders because of its inability to satisfy that test.
Each Portfolio will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
TAXATION OF THE PORTFOLIOS' SHAREHOLDERS. Dividends and other distributions
declared by a Portfolio in October, November or December of any year and payable
to shareholders of record on a date in any of those months will be deemed to
have been paid by the Portfolio and received by the shareholders on December 31
of that year if the distributions are paid by the Portfolio during the following
January. Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends from a Portfolio's investment company taxable
income (whether paid in cash or additional shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion for
any Portfolio may not exceed the total of its shares of the aggregate dividends
received from U.S. corporations by the Underlying Funds in which it invests that
qualify as RICs. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If Portfolio shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
The portion of each Portfolio's dividends attributable to interest on U.S.
government obligations, including the portion of dividends the Portfolio
receives from Underlying Funds qualifying as RICs that is attributable to such
interest, may be exempt from state and local income tax.
OTHER INFORMATION
The Trust is a Delaware business trust. The Trust has authority to issue an
unlimited number of shares of beneficial interest. The Trust's board may,
without shareholder approval, divide the authorized shares into an unlimited
number of separate series and may divide the shares of any series into classes,
and the costs of doing so will be borne by the Trust. The Trust currently
consist of four series, each with four classes of shares. Prior to August 20,
1997, the Trust's name was "PaineWebber Journey Portfolios," and, prior to July
22, 1997, its name was "PaineWebber Select Fund."
Although Delaware law statutorily limits the potential liabilities of a
Delaware business trust's shareholders to the same extent as it limits the
potential liabilities of a Delaware corporation, shareholders of a Portfolio
could, under certain conflicts of laws jurisprudence in various states, be held
personally liable for the obligations of the Trust or a Portfolio. However, the
Trust's trust instrument disclaims shareholder liability for acts or obligations
of the Trust or its series (the Portfolios) and requires that notice of such
disclaimer be given in each written obligation made or issued by the trustees or
by any officers or officer by or on behalf of the Trust, a series, the trustees
or any of them in connection with the Trust. The trust instrument provides for
indemnification from a Portfolio's property for all losses and expenses of any
series shareholder held personally liable for the obligations of the Portfolio.
Thus, the risk of a shareholder's incurring financial loss on account of
50
<PAGE>
shareholder liability is limited to circumstances in which a Portfolio itself
would be unable to meet its obligations, a possibility which Mitchell Hutchins
believes is remote and not material. Upon payment of any liability incurred by a
shareholder solely by reason of being or having been a shareholder of a
Portfolio, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Portfolio. The trustees intend to
conduct the operations of the Portfolios in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the
Portfolios.
Each Portfolio is entitled to participate equally in the dividends and other
distribution and the proceeds of any liquidation except that, due to the
differing expenses borne by the classes, dividends and liquidation proceeds for
each class will likely differ. Shares are fully paid and non-assessable and have
no preemptive or other right to subscribe to any additional shares or other
securities issued by the Trust. Shareholders have non-cumulative voting rights.
A shareholder is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held.
Annual shareholder meetings are not required. Special meetings of the
shareholders of any class or any series may be called by the trustees and shall
be called by the trustees upon the written request of shareholders owning at
least ten percent of the outstanding shares of such series or class, or at least
ten percent of the outstanding shares entitled to vote. On matters requiring
shareholder approval, all shares shall be voted by individual series or class,
except (a) when required by the 1940 Act, shares shall be voted in the aggregate
and not by individual series or class, and (b) when the trustees have determined
that the matter affects the interests of more than one series or class, then the
shareholders of all such series or classes shall be entitled to one vote
thereon.
CLASS-SPECIFIC EXPENSES. Each Portfolio may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific Classes of the
Portfolio's shares to which those expenses are attributable. For example, a
Portfolio's Class B shares bear higher transfer agency fees per shareholder
account than those borne by Class A or Class C shares. The higher fee is imposed
due to the higher costs incurred by the Transfer Agent in tracking shares
subject to a contingent deferred sales charge because, upon redemption, the
duration of the shareholder's investment must be determined in order to
determine the applicable charge. Moreover, the tracking and calculations
required by the automatic conversion feature of the Class B shares will cause
the Transfer Agent to incur additional costs. Although the transfer agency fee
will differ on a per account basis as stated above, the specific extent to which
the transfer agency fees will differ between the Classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each Class and the relative
amounts of net assets in each Class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Portfolios.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Trust and each Portfolio.
51
<PAGE>
FINANCIAL STATEMENTS
MITCHELL HUTCHINS PORTFOLIOS
Statement Of Assets And Liabilities Aggressivemoderate Conservative
December 29, 1997 Portfolio Portfolio Portfolio
- ----------------- -----------------------------
ASSETS:
Cash $40,000 $40,000 $20,000
Deferred organizational expenses 86,333 86,333 86,333
Prepaid expenses 112,765 112,765 112,765
-------------------------------
Total assets 239,098 239,098 219,098
-------------------------------
Liabilities:
Organizational expenses payable 86,333 86,333 86,333
Payable to adviser 112,765 112,765 112,765
-------------------------------
Total liabilities 199,098 199,098 199,098
-------------------------------
Net Assets (beneficial interest, $0.001 par
value, issued and outstanding) $40,000 $40,000 $20,000
===============================
CLASS A:
Net Assets $10,000 $10,000 $5,000
Shares outstanding 800 800 400
Net asset value, offering price and
redemption value per share $12.50 $12.50 $12.50
===============================
CLASS B:
Net Assets $10,000 $10,000 $5,000
Shares outstanding 800 800 400
Net asset value, offering price and
redemption value per share $12.50 $12.50 $12.50
===============================
CLASS C:
Net Assets $10,000 $10,000 $5,000
Shares outstanding 800 800 400
Net asset value, offering price and
redemption value per share $12.50 $12.50 $12.50
===============================
CLASS Y:
Net Assets $10,000 $10,000 $5,000
Shares outstanding 800 800 400
Net asset value, offering price and
redemption value per share $12.50 $12.50 $12.50
===============================
See accompanying notes to financial statement.
51
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
NOTES TO FINANCIAL STATEMENT
ORGANIZATION
Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins Moderate
Portfolio and Mitchell Hutchins Conservative Portfolio (collectively "the
Portfolios") are diversified series of Mitchell Hutchins Portfolios (the
"Trust"), an open-end management investment company organized as a Delaware
business trust on August 9, 1996. The Portfolios have had no operations other
than the sale of shares on December 29, 1997 to Mitchell Hutchins Asset
Management ("Mitchell Hutchins"), the investment adviser and a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") as follows:
Aggressive Moderate Conservative
Portfolio Portfolio Portfolio
Shares $ Shares $ Shares $
------ - ------ - ------ -
Class A 800 $10,000 800 $10,000 400 $5,000
Class B 800 $10,000 800 $10,000 400 $5,000
Class C 800 $10,000 800 $10,000 400 $5,000
Class Y 800 $10,000 800 $10,000 400 $5,000
The Portfolios currently offer four classes of shares. Each class, respectively,
represents assets of each Portfolio, respectively, and the classes are identical
except for differences in ongoing service fees and certain transfer agency
expenses. The trustees of the Trust have authority to issue an unlimited number
of shares of beneficial shares, par value $0.001 per share. Costs incurred in
connection with the organization and initial registration fees of the Trust will
be paid initially by Mitchell Hutchins; however, the Trust will reimburse
Mitchell Hutchins for such costs. Such organizational costs, estimated at
$259,000, have been allocated among the Portfolios and will be deferred and
amortized by the Portfolios on the straight line method over a period not to
exceed 60 months from the date the Portfolios commence investment operations. If
any initial shares are redeemed by any holder thereof during the amortization
period, the redemption proceeds shall be reduced by the pro rata portion of
unamortized expenses which the number of shares redeemed bears to the number of
initial shares then outstanding.
MANAGEMENT AGREEMENT
Mitchell Hutchins acts as the investment adviser and administrator to each
Portfolio pursuant to a contract (the "Advisory Contract") with the Trust dated
, 1997. Under the Advisory Contract, each Portfolio pays Mitchell
Hutchins a fee, computed daily and paid monthly, at an annual rate of 0.35% of
each Portfolio's average daily net assets. Through each Portfolio's first year
of operations, Mitchell Hutchins has agreed to voluntarily waive 0.25% of its
fee and reimburse other Portfolio expenses. This expense reimbursement does not
include 12b-1 service and distribution fees and extraordinary expenses.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of each Portfolio's shares and has
appointed PaineWebber as the exclusive dealer for the sale of those shares.
Under the distribution plan for Class A, Class B and Class C shares, ("Class A
Plan", "Class B Plan" and "Class C Plan" collectively, "Plans"), Class B shares
and Class C shares pay monthly distribution fees at the annual rate of 0.75%
(0.50% for the Conservative Portfolio) of the average daily net assets. Each
Portfolio (other than Class Y shares) pays Mitchell Hutchins monthly service
fees at the annual rate of 0.25% of the average daily net assets. There is no
distribution plan respect to the Portfolio's Class Y shares.
52
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
Mitchell Hutchins Portfolios
We have audited the accompanying statement of assets and liabilities of Mitchell
Hutchins Portfolios (comprising, respectively, Mitchell Hutchins Aggressive
Portfolio, Mitchell Hutchins Moderate Portfolio and Mitchell Hutchins
Conservative Portfolio) (the "Trust") as of December 29, 1997. This statement of
assets and liabilities is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Mitchell
Hutchins Portfolios at December 29, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
December 30, 1997
53
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
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 a
"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 in 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 payment and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well; BA. Bonds
which are rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class; B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small; Caa. Bonds which are rated CAA are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest; CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings; C. Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. 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.
DESCRIPTION OF S&P CORPORATE DEBT RATINGS
AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the higher rated
issues 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; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
lowest 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 exposures to adverse conditions.
A-1
<PAGE>
"BB." An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure 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 nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitments 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 obligation.
"CC." An obligation rated "CC" is currently highly vulnerable to nonpayment.
"C." The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
"D." An obligation rated "D" is in payment default. The "D" rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
R. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations 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.
A-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE PORTFOLIOS OR THEIR DISTRIBUTOR. THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN
OFFERING BY THE PORTFOLIOS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
Portfolios - Investment Policies And Restrictions......................2
Underlying Funds - Investment Policies.................................5
Underlying Funds -- Hedging And Other Strategies Using
Derivative Contracts.............................................19
Trustees And Officers; Principal Holders Of Securities................28
Compensation Table....................................................34
Investment Advisory And Distribution Arrangements.....................34
Portfolio Transactions................................................37
Reduced Sales Charges, Additional Exchange And Redemption
Information And Other Services ..................................39
Conversion Of Class B Shares..........................................43
Valuation Of Shares...................................................43
Performance Information...............................................44
Taxes.................................................................48
Other Information.....................................................49
Financial Statements..................................................51
Appendix.............................................................A-1
(C)1998 PAINEWEBBER INCORPORATED
<PAGE>
MITCHELL HUTCHINS
PORTFOLIOS
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January _, 1998
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: (filed herewith)
(b) Exhibits:
(1) Amended and Restated Trust Instrument (filed herewith)
(2) Amended and Restated By-Laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(5) Investment Advisory and Administration Contract (filed herewith)
(6) (a) Distribution Contract with respect to Class A Shares
(b) Distribution Contract with respect to Class B Shares (filed herewith)
(c) Distribution Contract with respect to Class C Shares (filed herewith)
(d) Distribution Contract with respect to Class Y Shares (filed herewith)
(e) Exclusive Dealer Agreement with respect to Class A Shares (filed
herewith)
(f) Exclusive Dealer Agreement with respect to Class B Shares (filed
herewith)
(g) Exclusive Dealer Agreement with respect to Class C Shares (filed
herewith)
(h) Exclusive Dealer Agreement with respect to Class Y Shares (filed
herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Form of Custodian Agreement (filed herewith)
(9) Form of Transfer Agency Agreement (filed herewith)
(10) Opinion of Counsel (filed herewith)
(11) Other opinions, appraisals, rulings and consents: Auditors' consent
(filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (filed herewith)
(14) Prototype Retirement Plan - none
(15) Rule 12b-1 Plans
(a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A
Shares (filed herewith)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
Shares (filed herewith)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C
Shares (filed herewith)
(16) Schedule for Computation of Performance Quotations - none
(17) and (27) Financial Data Schedule (not applicable)
(18) Plan Pursuant to Rule 18f-3 (filed herewith)
- ----------
1/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles VI and IX of Registrant's By-Laws.
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<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Holders as OF
TITLE OF CLASS DECEMBER 30, 1997
-------------- -----------------
Shares of beneficial interest, par value
$0.001 per share, in
Mitchell Hutchins Growth Portfolio
Class A Shares 1
Class B Shares 1
Class C Shares 1
Class Y Shares 1
Mitchell Hutchins Moderate Portfolio
Class A Shares 1
Class B Shares 1
Class C Shares 1
Class Y Shares 1
Mitchell Hutchins Conservative Portfolio
Class A Shares 1
Class B Shares 1
Class C Shares 1
Class Y Shares 1
Item 27. INDEMNIFICATION
Section 2 of Article IX of the Trust Instrument, "Indemnification,"
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article IX, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office or
did not act in good faith in the reasonable belief that his action was in the
best interest of the Registrant. Section 2 of Article IX also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.
Additionally, "Limitation of Liability" in Section 1 of Article IX of the
Trust Instrument provides that the trustees or officers of the Registrant shall
not be personally liable to any person extending credit to, contracting with or
having a claim against the Registrant or a particular series; and that, provided
they have exercised reasonable care and have acted under the reasonable belief
that their actions are in the best interest of the Registrant, the trustees and
officers shall not be liable for neglect or wrongdoing by them or any officer,
agent, employee, investment adviser or independent contractor of the Registrant.
Section 9 of the Investment Advisory and Administration Contract with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides that
Mitchell Hutchins shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any series of the Registrant in connection with
the matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 10 of the Contract provides that the Trustees
shall not be liable for any obligations of the Trust or any series under the
Contract and that Mitchell Hutchins shall look only to the assets and property
of the Registrant in settlement of such right or claim and not to the assets and
property of the Trustees.
Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
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<PAGE>
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and Trustees free and harmless of any claims arising out of any alleged
untrue statement or any alleged omission of material fact contained in
information furnished by Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with the Contract. Section 10 of each Distribution
Contract contains provisions similar to Section 10 of the Investment Advisory
and Administration Contract, with respect to Mitchell Hutchins and PaineWebber,
as appropriate.
Section 9 of each Exclusive Dealer Agreement contains provisions similar to
Section 9 of each Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of PaineWebber Group Inc. Mitchell Hutchins is primarily
engaged in the investment advisory business. Information as to the officers and
directors of Mitchell Hutchins is included in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-13219), and is
incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS
a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following investment companies:
ALL AMERICAN TERM TRUST INC.
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND INC.
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GRADE INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
C-3
<PAGE>
PAINEWEBBER OLYMPUS FUND
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
b) Mitchell Hutchins is the Registrant's principal underwriter. PaineWebber
acts as exclusive dealer of the Registrant's shares. The directors and officers
of Mitchell Hutchins, their principal business addresses, and their positions
and offices with Mitchell Hutchins are identified in its Form ADV, as filed with
the Securities and Exchange Commission (registration number 801-13219). The
directors and officers of PaineWebber, their principal business addresses, and
their positions and offices with PaineWebber are identified in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-7163). The foregoing information is hereby incorporated herein by reference.
The information set forth below is furnished for those directors and officers of
Mitchell Hutchins or PaineWebber who also serve as trustees or officers of the
Registrant. Unless otherwise indicated, the principal business address of each
person named is 1285 Avenue of the Americas, New York, NY 10019.
<TABLE>
<CAPTION>
<S> <C> <C>
Position and Offices with
NAME POSITION WITH UNDERWRITER OR EXCLUSIVE DEALER
REGISTRANT
Margo N. Alexander President and Trustee Director, President and Chief
Executive Officer of Mitchell
Hutchins and Director and
Executive Vice President of
PaineWebber
Mary C. Farrell Trustee Managing Director, Senior
Investment Strategist and member
of Investment Policy Committee
of PaineWebber
T. Kirkham Barneby Vice President Managing Director, Chief
Investment Officer- Quantitative
Investments of Mitchell Hutchins
Dennis McCauley Vice President Managing Director and Chief
Investment Officer - Fixed
Income of Mitchell Hutchins
Ann E. Moran Vice President and Vice President of Mitchell
Assistant Treasurer Hutchins and a Manager of the
Mutual Fund Finance Division of
Mitchell Hutchins
Dianne E. O'Donnell Vice President and Senior Vice President and Deputy
Secretary General Counsel of Mitchell
Hutchins
Emil Polito Vice President Senior Vice President and
Director of Operations and
Control of Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director and General
Counsel of Mitchell Hutchins
Paul H. Schubert Vice President and First Vice President and
Treasurer Director of the Mutual Fund
Finance Division of Mitchell
Hutchins
Barney A. Taglialatela Vice President and Vice President and a Manager of
Assistant Treasurer the Mutual Fund Finance Division
of Mitchell Hutchins
Mark A. Tincher Vice President Managing Director and Chief
Investment Officer - U.S.
Equities of Mitchell Hutchins
Keith A. Weller Vice President and First Vice President and
Assistant Secretary Associate General Counsel of
Mitchell Hutchins
Ian W. Williams Vice President and Vice President and a Manager of
Assistant Treasurer the Mutual Fund Finance Division
of Mitchell Hutchins
</TABLE>
c) None
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<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser, Mitchell Hutchins, 1285
Avenue of the Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession of
Registrant's transfer agent and custodian.
Item 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
Registrant hereby undertakes to file a Post-Effective Amendment to this
Registration Statement, containing financial statements that need not be
certified, within four to six months from the effective date of this
Registration Statement.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 3 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 8th day of January, 1998.
MITCHELL HUTCHINS PORTFOLIOS
By: /s/ Dianne E. O'Donnell
------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee January 8, 1998
- -------------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman January 8, 1998
- -------------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee January 8, 1998
- --------------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee January 8, 1998
- --------------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee January 8, 1998
- --------------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee January 8, 1998
- --------------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee January 8, 1998
- --------------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee January 8, 1998
- --------------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee January 8, 1998
- --------------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and Treasurer (Chief January 8, 1998
- -------------------------------- Financial and Accounting Officer)
Paul H. Schubert
</TABLE>
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to power of attorney
dated August 21, 1997 and incorporated by reference from Pre-Effective
Amendment No. 1 to the registration statement of Mitchell Hutchins
Portfolios, SEC File 333-26087, filed August 26, 1997.
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
EXHIBIT INDEX
Exhibit
NUMBER
(1) Amended and Restated Trust Instrument (filed herewith)
(2) Amended and Restated By-Laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(5) Investment Advisory and Administration Contract (filed herewith)
(6) (a) Distribution Contract with respect to Class A Shares
(b) Distribution Contract with respect to Class B Shares (filed herewith)
(c) Distribution Contract with respect to Class C Shares (filed herewith)
(d) Distribution Contract with respect to Class Y Shares (filed herewith)
(e) Exclusive Dealer Agreement with respect to Class A Shares (filed
herewith)
(f) Exclusive Dealer Agreement with respect to Class B Shares (filed
herewith)
(g) Exclusive Dealer Agreement with respect to Class C Shares (filed
herewith)
(h) Exclusive Dealer Agreement with respect to Class Y Shares (filed
herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Form of Custodian Agreement (filed herewith)
(9) Form of Transfer Agency Agreement (filed herewith)
(10) Opinion of Counsel (filed herewith)
(11) Other opinions, appraisals, rulings and consents: Auditors' consent
(filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (filed herewith)
(14) Prototype Retirement Plan - none
(15) Rule 12b-1 Plans
(a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class A
Shares (filed herewith)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class B
Shares (filed herewith)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class C
Shares (filed herewith)
(16) Schedule for Computation of Performance Quotations - none
(17) and (27) Financial Data Schedule (not applicable)
(18) Plan Pursuant to Rule 18f-3 (filed herewith)
- ----------
1/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles VI and IX of Registrant's By-Laws.
MITCHELL HUTCHINS PORTFOLIOS
AMENDED AND RESTATED TRUST INSTRUMENT
November 19, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS....................................................................1
ARTICLE II
TRUSTEES 2
Section 1. Management of the Trust..................................2
Section 2. Initial Trustees; Number and Election of Trustees........2
Section 3. Term of Office...........................................2
Section 4. Vacancies; Appointment of Trustees.......................2
Section 5. Temporary Vacancy or Absence.............................3
Section 6. Chairman.................................................3
Section 7. Action by the Trustees...................................3
Section 8. Ownership of Trust Property..............................3
Section 9. Effect of Trustees Not Serving...........................4
Section 10. Trustees, etc. as Shareholders............................4
ARTICLE III
POWERS OF THE TRUSTEES.........................................................4
Section 1. Powers...................................................4
Section 2. Certain Transactions.....................................6
ARTICLE IV
SERIES; CLASSES; SHARES........................................................6
Section 1. Establishment of Series or Class.........................6
Section 2. Shares...................................................7
Section 3. Investment in the Trust..................................7
Section 4. Assets and Liabilities of Series.........................7
Section 5. Ownership and Transfer of Shares.........................8
Section 6. Status of Shares; Limitation of Shareholder Liability....9
ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS..................................................9
Section 1. Distributions............................................9
Section 2. Redemptions..............................................9
Section 3. Determination of Net Asset Value........................10
Section 4. Suspension of Right of Redemption.......................10
i
<PAGE>
Section 5. Redemptions Necessary for Qualification as Regulated
Investment Company....................................10
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS......................................10
Section 1. Voting Power............................................10
Section 2. Meetings of Shareholders................................11
Section 3. Quorum; Required Vote...................................11
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS..............................................12
Section 1. Investment Adviser......................................12
Section 2. Principal Underwriter...................................12
Section 3. Transfer Agency, Shareholder Services, and
Administration Agreements...............................12
Section 4. Custodian...............................................12
Section 5. Parties to Contracts with Service Providers.............12
Section 6. Requirements of the 1940 Act............................13
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES..............................................13
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION...................................13
Section 1. Limitation of Liability.................................13
Section 2. Indemnification.........................................14
Section 3. Indemnification of Shareholder..........................15
ARTICLE X
MISCELLANEOUS.................................................................16
Section 1. Trust Not a Partnership.................................16
Section 2. Trustee Action; Expert Advice; No Bond or Surety........16
Section 3. Record Dates............................................16
Section 4. Termination of the Trust................................16
Section 5. Reorganization..........................................17
Section 6. Trust Instrument........................................17
Section 7. Applicable Law..........................................18
Section 8. Amendments..............................................18
Section 9. Fiscal Year.............................................18
Section 10. Severability.............................................19
ii
<PAGE>
MITCHELL HUTCHINS PORTFOLIOS
AMENDED AND RESTATED TRUST INSTRUMENT
This AMENDED AND RESTATED TRUST INSTRUMENT is adopted on November 19,
1997 with respect to the business trust established by the Trustees on August 9,
1996 and previously named "PaineWebber Journey Portfolios" for the investment
and reinvestment of funds contributed to the Trust by investors. The Trustees
declare that all money and property contributed to the Trust shall be held and
managed in trust pursuant to this Trust Instrument. The name of the Trust
created by this Trust Instrument has been changed to Mitchell Hutchins
Portfolios.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "By-laws" means the By-laws of the Trust adopted by the Trustees,
as amended from time to time;
(b) "Class" means the class of Shares of a Series established pursuant
to Article IV;
(c) "Commission," "Interested Person," and "Principal Underwriter" have
the meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article IX, Section
2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(g) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(h) "Outstanding Shares" means Shares shown on the books of the Trust
or its transfer agent as then issued and outstanding, but does not include
Shares which have been repurchased or redeemed by the Trust;
(i) "Series" means a series of Shares established pursuant to Article
IV;
(j) "Shareholder" means a record owner of Outstanding Shares;
(k) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class is divided
from time to time (including whole Shares and fractions of Shares);
(l) "Trust" means Mitchell Hutchins Portfolios established hereby, and
reference to the Trust, when applicable to one or more Series, refers to that
Series;
<PAGE>
(m) "Trustees" means the persons who have signed this Trust Instrument,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder;
(n) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or any Series
or the Trustees on behalf of the Trust or any Series; and
(o) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
TRUSTEES
SECTION 1. MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by or under the direction of the Trustees, and they shall
have all powers necessary or desirable to carry out that responsibility. The
Trustees may execute all instruments and take all action they deem necessary or
desirable to promote the interests of the Trust. Any determination made by the
Trustees in good faith as to what is in the interests of the Trust shall be
conclusive.
SECTION 2. INITIAL TRUSTEES; NUMBER AND ELECTION OF TRUSTEES. The
initial Trustees shall be the persons initially signing this Trust Instrument.
The number of Trustees (other than the initial Trustees) shall be fixed from
time to time by a majority of the Trustees; provided, that there shall be at
least two (2) Trustees. The Shareholders shall elect the Trustees (other than
the initial Trustees) on such dates as the Trustees may fix from time to time.
SECTION 3. TERM OF OFFICE. Each Trustee shall hold office for life or
until his or her successor is elected or the Trust terminates; except that (a)
any Trustee may resign by delivering to the other Trustees or to any Trust
officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee may be removed with or without cause at any
time by a written instrument signed by at least two-thirds of the other
Trustees, specifying the effective date of removal; (c) any Trustee who requests
to be retired, or who has become physically or mentally incapacitated or is
otherwise unable to serve, may be retired by a written instrument signed by a
majority of the other Trustees, specifying the effective date of retirement; and
(d) any Trustee may be removed at any meeting of the Shareholders by a vote of
at least two-thirds of the Outstanding Shares.
SECTION 4. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a vacancy shall
exist in the Board of Trustees, regardless of the reason for such vacancy, the
remaining Trustees shall appoint any person as they determine in their sole
discretion to fill that vacancy, consistent with the limitations under the 1940
Act. Such appointment shall be made by a written instrument signed by a majority
of the Trustees or by a resolution of the Trustees, duly adopted and recorded in
the records of the Trust, specifying the effective date of the appointment. The
Trustees may appoint a new Trustee as provided above in anticipation of a
vacancy expected to occur because of the retirement, resignation, or removal of
a Trustee, or an increase in number of Trustees, provided that such appointment
shall become effective only at or after the expected vacancy occurs. As soon as
any such Trustee has accepted his or her appointment in writing, the trust
2
<PAGE>
estate shall vest in the new Trustee, together with the continuing Trustees,
without any further act or conveyance, and he or she shall be deemed a Trustee
hereunder.
SECTION 5. TEMPORARY VACANCY OR ABSENCE. Whenever a vacancy in the
Board of Trustees shall occur, until such vacancy is filled, or while any
Trustee is absent from his or her domicile (unless that Trustee has made
arrangements to be informed about, and to participate in, the affairs of the
Trust during such absence), or is physically or mentally incapacitated, the
remaining Trustees shall have all the powers hereunder and their certificate as
to such vacancy, absence, or incapacity shall be conclusive. Any Trustee may, by
power of attorney, delegate his or her powers as Trustee for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees to the
extent permitted by the 1940 Act.
SECTION 6. CHAIRMAN. The Trustees shall appoint one of their number to
be Chairman of the Board of Trustees. The Chairman shall preside at all meetings
of the Trustees, shall be responsible for the execution of policies established
by the Trustees and the administration of the Trust, and may be the chief
executive, financial and/or accounting officer of the Trust.
SECTION 7. ACTION BY THE TRUSTEES. The Trustees shall act by majority
vote at a meeting duly called (including at a telephonic meeting, unless the
1940 Act requires that a particular action be taken only at a meeting of
Trustees in person) at which a quorum is present or by written consent of a
majority of Trustees (or such greater number as may be required by applicable
law) without a meeting. A majority of the Trustees shall constitute a quorum at
any meeting. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Board of Trustees or by any two other Trustees. Notice of the
time, date and place of all Trustees meetings shall be given to each Trustee by
telephone, facsimile or other electronic mechanism sent to his or her home or
business address at least twenty-four hours in advance of the meeting or by
written notice mailed to his or her home or business address at least
seventy-two hours in advance of the meeting. Notice need not be given to any
Trustee who attends the meeting without objecting to the lack of notice or who
signs a waiver of notice either before or after the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
Trustee or Trustees authority to approve particular matters or take particular
actions on behalf of the Trust. Any written consent or waiver may be provided
and delivered to the Trust by facsimile or other similar electronic mechanism.
SECTION 8. OWNERSHIP OF TRUST PROPERTY. The Trust Property of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. All of the Trust Property and legal title thereto
shall at all times be considered as vested in the Trustees on behalf of the
Trust, except that the Trustees may cause legal title to any Trust Property to
be held by or in the name of the Trust, or in the name of any person as nominee.
No Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or of any Series or any right of partition or possession
thereof, but each Shareholder shall have, as provided in Article IV, a
proportionate undivided beneficial interest in the Trust or Series represented
by Shares.
SECTION 9. EFFECT OF TRUSTEES NOT SERVING. The death, resignation,
retirement, removal, incapacity, or inability or refusal to serve of the
3
<PAGE>
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Trust Instrument.
SECTION 10. TRUSTEES, ETC. AS SHAREHOLDERS. Subject to any restrictions
in the By-laws, any Trustee, officer, agent or independent contractor of the
Trust may acquire, own and dispose of Shares to the same extent as any other
Shareholder; the Trustees may issue and sell Shares to and buy Shares from any
such person or any firm or company in which such person is interested, subject
only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
SECTION 1. POWERS. The Trustees in all instances shall act as
principals, free of the control of the Shareholders. The Trustees shall have
full power and authority to take or refrain from taking any action and to
execute any contracts and instruments that they may consider necessary or
desirable in the management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable to trust
investments, but shall have full power and authority to make any investments
which they, in their sole discretion, deem proper to accomplish the purposes of
the Trust. The Trustees may exercise all of their powers without recourse to any
court or other authority. Subject to any applicable limitation herein or in the
By-laws, operating documents or resolutions of the Trust, the Trustees shall
have power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
current or future law or custom concerning investments by trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or
all of the Trust Property; to invest in obligations and securities of any kind,
and without regard to whether they may mature before the possible termination of
the Trust; and without limitation to invest all or any part of its cash and
other property in securities issued by a registered investment company or series
thereof, subject to the provisions of the 1940 Act;
(b) To operate as and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt By-laws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such
agents as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(f) To retain one or more transfer agents and Shareholder servicing
agents, or both;
4
<PAGE>
(g) To provide for the distribution of Shares either through a
Principal Underwriter as provided herein or by the Trust itself, or both, or
pursuant to a distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the
By-laws;
(i) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, independent contractor, manager,
investment adviser, custodian or underwriter;
(j) To sell or exchange any or all of the assets of the Trust, subject
to Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
(l) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable form,
or (ii) either in the Trust's or Trustees' own name or in the name of a
custodian or a nominee or nominees, subject to safeguards according to the usual
practice of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article IV;
(o) To the full extent permitted by Section 3804 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article IV,
Section 4;
(p) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust;
(q) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(r) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for;
(s) To borrow money;
5
<PAGE>
(t) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder;
(u) To establish committees for such purposes, with such membership,
and with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened;
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued; and
(w) To carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary or desirable to
accomplish any purpose or to further any of the foregoing powers, and to take
every other action incidental to the foregoing business or purposes, objects or
powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Trust Instrument, the presumption shall be in favor of a grant of power to the
Trustees.
SECTION 2. CERTAIN TRANSACTIONS. Except as prohibited by applicable
law, the Trustees may, on behalf of the Trust, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustee or officer of
the Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such person
is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
custodian or in any other capacity upon customary terms.
ARTICLE IV
SERIES; CLASSES; SHARES
SECTION 1. ESTABLISHMENT OF SERIES OR CLASS. The Trust shall consist of
one or more Series. The Trustees hereby establish the Series listed in Schedule
A attached hereto and made a part hereof. Each additional Series shall be
established by the adoption of a resolution by the Trustees. The Trustees may
6
<PAGE>
designate the relative rights and preferences of the Shares of each Series. The
Trustees may divide the Shares of any Series into Classes. In such case each
Class of a Series shall represent interests in the assets of that Series and
have identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that expenses allocated to a Class may be borne solely by
such Class as determined by the Trustees and a Series or Class may have
exclusive voting rights with respect to matters affecting only that Series or
Class. The Trust shall maintain separate and distinct records for each Series
and hold and account for the assets thereof separately from the other assets of
the Trust or of any other Series. A Series may issue any number of Shares and
need not issue Shares. Each Share of a Series shall represent an equal
beneficial interest in the net assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his or her pro rata share of all
distributions made with respect to such Series, provided that, if Classes of a
Series are outstanding, each holder of Shares of a Class shall be entitled to
receive his or her pro rata share of all distributions made with respect to such
Class of the Series. Upon redemption of his or her Shares, such Shareholder
shall be paid solely out of the assets and property of such Series. The Trustees
may change the name of the Trust, or any Series or Class without shareholder
approval.
SECTION 2. SHARES. The beneficial interest in the Trust shall be
divided into Shares of one or more separate and distinct Series or Classes
established by the Trustees. The number of Shares of the Trust and of each
Series and Class is unlimited and each Share shall have a par value of $0.001
per Share. All Shares issued hereunder shall be fully paid and nonassessable.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust. The Trustees shall
have full power and authority, in their sole discretion and without obtaining
Shareholder approval: to issue original or additional Shares and fractional
Shares at such times and on such terms and conditions as they deem appropriate;
to establish and to change in any manner Shares of any Series or Classes with
such preferences, terms of conversion, voting powers, rights and privileges as
the Trustees may determine (but the Trustees may not change Outstanding Shares
in a manner materially adverse to the Shareholders of such Shares); to divide or
combine the Shares of any Series or Classes into a greater or lesser number; to
classify or reclassify any unissued Shares of any Series or Classes into one or
more Series or Classes of Shares; to abolish any one or more Series or Classes
of Shares; to issue Shares to acquire other assets (including assets subject to,
and in connection with, the assumption of liabilities) and businesses; and to
take such other action with respect to the Shares as the Trustees may deem
desirable.
SECTION 3. INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which that Series
is authorized to invest, valued as provided in Article V, Section 3. Investments
in a Series shall be credited to each Shareholder's account in the form of full
and fractional Shares at the Net Asset Value per Share next determined after the
investment is received or accepted in good form as may be determined by the
Trustees; provided, however, that the Trustees may, in their sole discretion,
(a) impose a sales charge upon investments in any Series or Class, or (b)
determine the Net Asset Value per Share of the initial capital contribution. The
Trustees shall have the right to refuse to accept investments in any Series at
any time without any cause or reason therefor whatsoever.
SECTION 4. ASSETS AND LIABILITIES OF SERIES. All consideration received
by the Trust for the issue or sale of Shares of a particular Series, together
7
<PAGE>
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof (including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be), shall be held and accounted for separately from the other assets of the
Trust and every other Series and are referred to as "assets belonging to" that
Series. The assets belonging to a Series shall belong only to that Series for
all purposes, and to no other Series, subject only to the rights of creditors of
that Series. Any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more Series
as the Trustees deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series for all purposes, and
such assets, earnings, income, profits or funds, or payments and proceeds
thereof shall be referred to as assets belonging to that Series. The assets
belonging to a Series shall be so recorded upon the books of the Trust, and
shall be held by the Trustees in trust for the benefit of the Shareholders of
that Series. The assets belonging to a Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses allocated
solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of the Trust generally or of any other Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be set
forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, with respect to that Series. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or belonging
to any other Series.
SECTION 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust shall maintain a
register containing the names and addresses of the Shareholders of each Series
and Class thereof, the number of Shares of each Series and Class held by such
Shareholders, and a record of all Share transfers. The register shall be
conclusive as to the identity of Shareholders of record and the number of Shares
held by them from time to time. The Trustees shall not be required to, but may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates.
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SECTION 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY.
Shares shall be deemed to be personal property giving Shareholders only the
rights provided in this Trust Instrument. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Trust Instrument and to have become a party hereto.
No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or any Series. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the Shareholder. Shareholders
shall have the same limitation of personal liability as is extended to
shareholders of a private corporation for profit incorporated in the State of
Delaware. Every written obligation of the Trust or any Series shall contain a
statement to the effect that such obligation may only be enforced against the
assets of the Trust or such Series; however, the omission of such statement
shall not operate to bind or create personal liability for any Shareholder or
Trustee.
ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS
SECTION 1. DISTRIBUTIONS. The Trustees may declare and pay dividends
and other distributions, including dividends on Shares of a particular Series
and other distributions from the assets belonging to that Series. The amount and
payment of dividends or distributions and their form, whether they are in cash,
Shares or other Trust Property, shall be determined by the Trustees. Dividends
and other distributions may be paid pursuant to a standing resolution adopted
once or more often as the Trustees determine. All dividends and other
distributions on Shares of a particular Series shall be distributed pro rata to
the Shareholders of that Series in proportion to the number of Shares of that
Series they held on the record date established for such payment, except that
such dividends and distributions shall appropriately reflect expenses allocated
to a particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
SECTION 2. REDEMPTIONS. Each Shareholder of a Series shall have the
right at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his or her Shares at a redemption price per Share
equal to the Net Asset Value per Share at such time as the Trustees shall have
prescribed by resolution less such charges as are determined by the Trustees and
described in the Trust's Registration Statement for that Series under the
Securities Act of 1933 or any prospectus or statement of additional information
contained therein, as supplemented. In the absence of such resolution, the
redemption price per Share shall be the Net Asset Value next determined after
receipt by the Series of a request for redemption in proper form less such
charges as are determined by the Trustees and described in the Trust's
Registration Statement for that Series under the Securities Act of 1933 or any
prospectus or statement of additional information contained therein, as
supplemented.
The Trustees may specify conditions, prices, and places of redemption,
and may specify binding requirements for the proper form or forms of requests
for redemption. Payment of the redemption price may be wholly or partly in
securities or other assets at the value of such securities or assets used in
such determination of Net Asset Value, or may be in cash. Upon redemption,
Shares may be reissued from time to time. The Trustees may require Shareholders
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to redeem Shares for any reason under terms set by the Trustees, including the
failure of a Shareholder to supply a personal identification number if required
to do so, or to have the minimum investment required, or to pay when due for the
purchase of Shares issued to him or her. To the extent permitted by law, the
Trustees may retain the proceeds of any redemption of Shares required by them
for payment of amounts due and owing by a Shareholder to the Trust or any Series
or Class. Notwithstanding the foregoing, the Trustees may postpone payment of
the redemption price and may suspend the right of the Shareholders to require
any Series or Class to redeem Shares during any period of time when and to the
extent permissible under the 1940 Act.
SECTION 3. DETERMINATION OF NET ASSET VALUE. The Trustees shall cause
the Net Asset Value of Shares of each Series or Class to be determined from time
to time in a manner consistent with applicable laws and regulations. The
Trustees may delegate the power and duty to determine Net Asset Value per Share
to one or more Trustees or officers of the Trust or to an investment manager,
administrator or investment adviser, custodian, depository or other agent
appointed for such purpose. The Net Asset Value of Shares shall be determined
separately for each Series or Class at such times as may be prescribed by the
Trustees or, in the absence of action by the Trustees, as of the close of
trading on the New York Stock Exchange on each day for all or part of which such
Exchange is open for unrestricted trading.
SECTION 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred to in
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no right of redemption or payment
until the Trustees declare the end of the suspension. If the right of redemption
is suspended, a Shareholder may either withdraw his request for redemption or
receive payment based on the Net Asset Value per Share next determined after the
suspension terminates.
SECTION 5. REDEMPTIONS NECESSARY FOR QUALIFICATION AS REGULATED
INVESTMENT COMPANY. If the Trustees shall determine that direct or indirect
ownership of Shares of any Series has or may become concentrated in any person
to an extent which would disqualify any Series as a regulated investment company
under the Internal Revenue Code, then the Trustees shall have the power (but not
the obligation) by lot or other means they deem equitable to (a) call for
redemption by any such person of a number, or principal amount, of Shares
sufficient to maintain or bring the direct or indirect ownership of Shares into
conformity with the requirements for such qualification and (b) refuse to
transfer or issue Shares to any person whose acquisition of Shares in question
would, in the Trustees' judgment, result in such disqualification. Any such
redemption shall be effected at the redemption price and in the manner provided
in this Article. Shareholders shall upon demand disclose to the Trustees in
writing such information concerning direct and indirect ownership of Shares as
the Trustees deem necessary to comply with the requirements of any taxing
authority.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 1. VOTING POWER. The Shareholders shall have power to vote only
with respect to (a) the election of Trustees as provided in Section 2 of this
Article; (b) the removal of Trustees as provided in Article II, Section 3(d);
(c) any investment advisory or management contract as provided in Article VII,
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Section 1; (d) any termination of the Trust as provided in Article X, Section 4;
(e) the amendment of this Trust Instrument to the extent and as provided in
Article X, Section 8; and (f) such additional matters relating to the Trust as
may be required or authorized by law, this Trust Instrument, or the By-laws or
any registration of the Trust with the Commission or any State, or as the
Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall
be voted by individual Series, except (a) when required by the 1940 Act, Shares
shall be voted in the aggregate and not by individual Series, and (b) when the
Trustees have determined that the matter affects only the interests of one or
more Classes, then the Shareholders of only such Class or Classes shall be
entitled to vote thereon. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the By-laws. The By-laws may provide that proxies may be
given by any electronic or telecommunications device or in any other manner, but
if a proposal by anyone other than the officers or Trustees is submitted to a
vote of the Shareholders of any Series or Class, or if there is a proxy contest
or proxy solicitation or proposal in opposition to any proposal by the officers
or Trustees, Shares may be voted only in person or by written proxy. Until
Shares of a Series are issued, as to that Series the Trustees may exercise all
rights of Shareholders and may take any action required or permitted to be taken
by Shareholders by law, this Trust Instrument or the By-laws.
SECTION 2. MEETINGS OF SHAREHOLDERS. The first Shareholders' meeting
shall be held to elect Trustees at such time and place as the Trustees
designate. Annual meetings shall not be required. Special meetings of the
Shareholders of any Series or Class may be called by the Trustees and shall be
called by the Trustees upon the written request of Shareholders owning at least
ten percent of the Outstanding Shares of such Series or Class, or at least ten
percent of the Outstanding Shares of the Trust entitled to vote. Special
meetings of Shareholders shall be held, notice of such meetings shall be
delivered and waiver of notice shall occur according to the provisions of the
Trust's By-laws. Any action that may be taken at a meeting of Shareholders may
be taken without a meeting according to the procedures set forth in the By-laws.
SECTION 3. QUORUM; REQUIRED VOTE. One-third of the Outstanding Shares
of each Series or Class, or one-third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser number shall be
sufficient for adjournments. Any adjourned session of a Shareholders' meeting
may be held within a reasonable time without further notice. Except when a
larger vote is required by law, this Trust Instrument or the By-laws, a majority
of the Outstanding Shares voted, in person or by proxy, shall decide any matters
to be voted upon with respect to the entire Trust and a plurality of such
Outstanding Shares voted shall elect a Trustee; provided, that if this Trust
Instrument or applicable law permits or requires that Shares be voted on any
matter by individual Series or Classes, then a majority of the Outstanding
Shares of that Series or Class (or, if required or permitted by law, regulation,
Commission order, or no-action letter, a Majority Shareholder Vote of that
Series or Class) voted, in person or by proxy, on the matter shall decide that
matter insofar as that Series or Class is concerned. Shareholders may act as to
the Trust or any Series or Class by the written consent of a majority (or such
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greater amount as may be required by applicable law) of the Outstanding Shares
of the Trust or of such Series or Class, as the case may be.
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
SECTION 1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote,
the Trustees may enter into one or more investment advisory contracts on behalf
of the Trust or any Series, providing for investment advisory services,
statistical and research facilities and services, and other facilities and
services to be furnished to the Trust or Series on terms and conditions
acceptable to the Trustees. Any such contract may provide for the investment
adviser to effect purchases, sales or exchanges of portfolio securities or other
Trust Property on behalf of the Trustees or may authorize any officer or agent
of the Trust to effect such purchases, sales or exchanges pursuant to
recommendations of the investment adviser. The Trustees may authorize the
investment adviser to employ one or more sub-advisers or servicing agents.
SECTION 2. PRINCIPAL UNDERWRITER. The Trustees may enter into contracts
on behalf of the Trust or any Series or Class, providing for the distribution
and sale of Shares by the other party, either directly or as sales agent, on
terms and conditions acceptable to the Trustees. The Trustees may adopt a plan
or plans of distribution with respect to Shares of any Series or Class and enter
into any related agreements, whereby the Series or Class finances directly or
indirectly any activity that is primarily intended to result in sales of its
Shares, subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder, and other applicable law, rules and regulations.
SECTION 3. TRANSFER AGENCY, SHAREHOLDER SERVICES, AND ADMINISTRATION
AGREEMENTS. The Trustees, on behalf of the Trust or any Series or Class, may
enter into transfer agency agreements, Shareholder service agreements, and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
SECTION 4. CUSTODIAN. The Trustees shall at all times place and
maintain the securities and similar investments of the Trust and of each Series
with a custodian meeting the requirements of Section 17(f) of the 1940 Act and
the rules thereunder. The Trustees, on behalf of the Trust or any Series, may
enter into an agreement with a custodian on terms and conditions acceptable to
the Trustees, providing for the custodian, among other things, to (a) hold the
securities owned by the Trust or any Series and deliver the same upon written
order or oral order confirmed in writing, (b) to receive and receipt for any
moneys due to the Trust or any Series and deposit the same in its own banking
department or elsewhere, (c) to disburse such funds upon orders or vouchers, and
(d) to employ one or more sub-custodians.
SECTION 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS. The Trustees
may enter into any contract referred to in this Article with any entity,
although one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, partner, shareholder, or member of such entity, and no such
contract shall be invalidated or rendered void or voidable because of such
relationship. No person having such a relationship shall be disqualified from
voting on or executing a contract in his or her capacity as Trustee and/or
Shareholder, or be liable merely by reason of such relationship for any loss or
expense to the Trust with respect to such a contract or accountable for any
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profit realized directly or indirectly therefrom; provided, that the contract
was reasonable and fair and not inconsistent with this Trust Instrument or the
By-laws.
SECTION 6. REQUIREMENTS OF THE 1940 ACT. Any contract referred to in
Sections 1 and 2 of this Article shall be consistent with and subject to the
applicable requirements of Section 15 of the 1940 Act and the rules and orders
thereunder with respect to its continuance in effect, its termination, and the
method of authorization and approval of such contract or renewal. No amendment
to a contract referred to in Section 1 of this Article shall be effective unless
assented to in a manner consistent with the requirements of Section 15 of the
1940 Act, and the rules and orders thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular Series
shall pay, or shall reimburse the Trustees from the Trust estate or the assets
belonging to the particular Series, for their expenses and disbursements,
including, but not limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; insurance
premiums; applicable fees, interest charges and expenses of third parties,
including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents and fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and its
Series and maintaining its existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of additional information
and reports for Shareholders and delivering them to Shareholders; expenses of
meetings of Shareholders and proxy solicitations therefor (unless otherwise
agreed to by another party); costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust or any Series; costs of Trustee meetings;
Commission registration fees and related expenses; state or foreign securities
laws registration fees and related expenses; and for such non-recurring items as
may arise, including litigation to which the Trust or a Series (or a Trustee or
officer of the Trust acting as such) is a party, and for all losses and
liabilities by them incurred in administering the Trust. The Trustees shall have
a lien on the assets belonging to the appropriate Series, or in the case of an
expense allocable to more than one Series, on the assets of each such Series,
prior to any rights or interests of the Shareholders thereto, for the
reimbursement to them of such expenses, disbursements, losses and liabilities.
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 1. LIMITATION OF LIABILITY. All persons contracting with or
having any claim against the Trust or a particular Series shall look only to the
assets of the Trust or such Series for payment under such contract or claim; and
neither the Trustees nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor. Every
written instrument or obligation on behalf of the Trust or any Series shall
contain a statement to the foregoing effect, but the absence of such statement
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shall not operate to make any Trustee or officer of the Trust liable thereunder.
Provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Trust, the Trustees
and officers of the Trust shall not be responsible or liable for any act or
omission or for neglect or wrongdoing of them or any officer, agent, employee,
investment adviser or independent contractor of the Trust, but nothing contained
in this Trust Instrument or in the Delaware Act shall protect any Trustee or
officer of the Trust against liability to the Trust or to Shareholders to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
SECTION 2. INDEMNIFICATION. (a) Subject to the exceptions and
limitations contained in subsections (b) and (c) below:
(i) every person who is, or has been, a Trustee or an officer,
employee, investment manager and administrator, director,
officer or employee of an investment manager and
administrator, investment adviser or agent of the Trust
("Covered Person") shall be indemnified by the Trust or the
appropriate Series to the fullest extent permitted by law
against liability and against all expenses reasonably incurred
or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a
party or otherwise by virtue of his or her being or having
been a Covered Person and against amounts paid or incurred by
him or her in the settlement thereof; and
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals),
actual or threatened, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person
who is, or has been: an investment manager and administrator; director, officer
or employee of an investment manager and administrator; an investment adviser or
an agent of the Trust and:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad
faith, negligence or reckless disregard of the duties involved
in the conduct of his or her office, or (B) not to have acted
in good faith in the reasonable belief that his or her action
was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in
willful misfeasance, bad faith, negligence or reckless
disregard of the duties involved in the conduct of his or her
office; (A) by the court or other body approving the
settlement; (B) by the vote of at least a majority of those
Trustees who are neither Interested Persons of the Trust nor
are parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon
a review of readily available facts (as opposed to a full
trial-type inquiry).
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(c) No indemnification shall be provided hereunder to a Covered Person
who is, or has been, a Trustee or an officer or employee of the Trust, and
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (B) not to
have acted in good faith in the reasonable belief that his or
her action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office; (A) by the court or other body approving the
settlement; (B) by the vote of at least a majority of those
Trustees who are neither Interested Persons of the Trust nor
are parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon
a review of readily available facts (as opposed to a full
trial-type inquiry).
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, and shall inure to the benefit of the heirs, executors
and administrators of a Covered Person.
(e) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him or her to the Trust or
applicable Series if it is ultimately determined that he or she is not entitled
to indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the proceeding, or independent legal counsel
in a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(f) Any repeal or modification of this Article IX by the Shareholders
of the Trust, or adoption or modification of any other provision of the Trust
Instrument or By-laws inconsistent with this Article, shall be prospective only,
to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification or adoption.
SECTION 3. INDEMNIFICATION OF SHAREHOLDER. If any Shareholder or former
Shareholder of any Series shall be held personally liable solely by reason of
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his or her being or having been a Shareholder and not because of his or her acts
or omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or in
the case of any entity, its general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by such Shareholder,
assume the defense of any claim made against such Shareholder for any act or
obligation of the Series and satisfy any judgment thereon from the assets of the
Series.
ARTICLE X
MISCELLANEOUS
SECTION 1. TRUST NOT A PARTNERSHIP. This Trust Instrument creates a
trust and not a partnership. No Trustee shall have any power to bind personally
either the Trust's officers or any Shareholder.
SECTION 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY. The
exercise by the Trustees of their powers and discretion hereunder in good faith
and with reasonable care under the circumstances then prevailing shall be
binding upon everyone interested. Subject to the provisions of Article IX, the
Trustees shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Trust Instrument, and subject to the provisions of
Article IX, shall not be liable for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is obtained.
SECTION 3. RECORD DATES. The Trustees may fix in advance a date up to
ninety (90) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
any such change, conversion or exchange of Shares. Record dates for adjourned
meetings of Shareholders shall be set according to the Trust's By-laws.
SECTION 4. TERMINATION OF THE TRUST. (a) This Trust shall have
perpetual existence. Subject to a Majority Shareholder Vote of the Trust or of
each Series to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another Series or to
another entity which is an investment company as defined in
the 1940 Act, or is a series thereof, for adequate
consideration, which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued
or contingent, of the Trust or any affected Series, and which
may include shares of or interests in such Series, entity, or
series thereof; or
(ii) at any time sell and convert into money all or
substantially all of the assets of the Trust or any affected
Series.
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Upon making reasonable provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of the Trust or any affected
Series then outstanding; however, the payment to any particular Class of such
Series may be reduced by any fees, expenses or charges allocated to that Class.
Nothing in this Declaration of Trust shall preclude the Trustees from
distributing such remaining proceeds or assets so that holders of the Shares of
a particular Class of the Trust or any affected Series receive as their ratable
distribution shares solely of an analogous class, as determined by the Trustees,
of such trust, partnership, association or corporation.
(b) The Trustees may take any of the actions specified in subsection
(a) (i) and (ii) above without obtaining a Majority Shareholder Vote of the
Trust or any Series if a majority of the Trustees determines that the
continuation of the Trust or Series is not in the best interests of the Trust,
such Series, or their respective Shareholders as a result of factors or events
adversely affecting the ability of the Trust or such Series to conduct its
business and operations in an economically viable manner. Such factors and
events may include the inability of the Trust or a Series to maintain its assets
at an appropriate size, changes in laws or regulations governing the Trust or
the Series or affecting assets of the type in which the Trust or Series invests,
or economic developments or trends having a significant adverse impact on the
business or operations of the Trust or such Series.
(c) Upon completion of the distribution of the remaining proceeds or
assets pursuant to subsection (a), the Trust or affected Series shall terminate
and the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder with respect thereto and the right, title and
interest of all parties therein shall be canceled and discharged. Upon
termination of the Trust, following completion of winding up of its business,
the Trustees shall cause a certificate of cancellation of the Trust's
certificate of trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
SECTION 5. REORGANIZATION. Notwithstanding anything else herein, to
change the Trust's form of organization the Trustees may, without Shareholder
approval, (a) cause the Trust to merge or consolidate with or into one or more
entities, if the surviving or resulting entity is the Trust or another open-end
management investment company under the 1940 Act, or a series thereof, that will
succeed to or assume the Trust's registration under the 1940 Act, or (b) cause
the Trust to incorporate to the extent permitted by law. Any agreement of merger
or consolidation or certificate of merger may be signed by a majority of
Trustees and facsimile signatures conveyed by electronic or telecommunication
means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of
the Delaware Act, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 5 may effect any amendment to the Trust
Instrument or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
SECTION 6. TRUST INSTRUMENT. The original or a copy of this Trust
Instrument and of each amendment hereto or Trust Instrument supplemental shall
be kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by a Trustee or an
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officer of the Trust as to the authenticity of the Trust Instrument or any such
amendments or supplements and as to any matters in connection with the Trust.
The masculine gender herein shall include the feminine and neuter genders.
Headings herein are for convenience only and shall not affect the construction
of this Trust Instrument. This Trust Instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
SECTON 7. APPLICABLE LAW. This Trust Instrument and the Trust created
hereunder are governed by and construed and administered according to the
Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware
Code, or (b) any provisions of the laws (statutory or common) of the State of
Delaware (other than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or agency of trustee
accounts or schedules of trustee fees and charges, (ii) affirmative requirements
to post bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards of responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a Delaware business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust under Delaware law. The
Trust specifically reserves the right to exercise any of the powers or
privileges afforded to trusts or actions that may be engaged in by trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
SECTION 8. AMENDMENTS. The Trustees may, without any Shareholder vote,
amend or otherwise supplement this Trust Instrument by making an amendment, a
Trust Instrument supplemental hereto or an amended and restated trust
instrument; provided, that Shareholders shall have the right to vote on any
amendment (a) which would affect the voting rights of Shareholders granted in
Article VI, Section 1, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, or (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, any amendment to Article IX
which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon.
SECTION 9. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the By-laws. The Trustees may change the fiscal
year of the Trust without Shareholder approval.
18
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SECTION 10. SEVERABILITY. The provisions of this Trust Instrument are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Trust Instrument; provided, however, that such determination
shall not affect any of the remaining provisions of this Trust Instrument or
render invalid or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
this Trust Instrument.
19
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Schedule A
Series of the Trust
- -------------------
Mitchell Hutchins Aggressive Portfolio
Mitchell Hutchins Moderate Portfolio
Mitchell Hutchins Conservative Portfolio
Classes of Shares of Each Series
- --------------------------------
An unlimited number of shares of beneficial interest have been established by
the Board as Class A shares, Class B shares, Class C shares and Class Y shares
of each of the above Series. Each of the Class A shares, Class B shares, Class C
shares and Class Y shares of a Series represents interests in the assets of only
that Series and has the same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of shares, except as provided in the Trust's Trust
Instrument and as set forth below with respect to the Class B shares of each
Series:
1. Each Class B share, other than a share purchased through the
reinvestment of a dividend or a distribution with respect to the
Class B share, shall be converted automatically, and without any
action or choice on the part of the holder thereof, into Class A
shares of the same Series, based on the relative net asset value
of each such class at the time of the calculation of the net
asset value of such class of shares on the date that is the first
Business Day (as defined in the Series' prospectus and/or
statement of additional information) of the month in which the
sixth anniversary of the issuance of such Class B shares occurs
(which, for the purpose of calculating the holding period
required for conversion, shall mean (i) the date on which the
issuance of such Class B shares occurred or (ii) for Class B
shares obtained through an exchange, the date on which the
issuance of the Class B shares of an eligible PaineWebber fund
occurred, if such shares were exchanged directly, or through a
series of exchanges for the Series' Class B shares (the
"Conversion Date")).
2. Each Class B share purchased through the reinvestment of a
dividend or a distribution with respect to the Class B shares and
the dividends and distributions on such shares shall be
segregated in a separate sub-account on the stock records of the
Series for each of the holders of record thereof. On any
Conversion Date, a number of the shares held in the sub-account
of the holder of record of the share or shares being converted,
calculated in accordance with the next following sentence, shall
be converted automatically, and without any action or choice on
the part of the holder thereof, into Class A shares of the same
Series. The number of shares in the holder's sub-account so
converted shall bear the same relation to the total number of
shares maintained in the sub-account on the Conversion Date as
the number of shares of the holder converted on the Conversion
Date pursuant to Paragraph 2(a) hereof bears to the total number
of Class B shares of the holder on the Conversion Date not
purchased through the automatic reinvestment of dividends or
distributions with respect to the Class B shares.
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3. The number of Class A shares into which a Class B share is
converted pursuant to paragraphs 1 and 2 hereof shall equal the
number (including for this purpose fractions of a share) obtained
by dividing the net asset value per share of the Class B shares
for purposes of sales and redemptions thereof at the time of the
calculation of the net asset value on the Conversion Date by the
net asset value per share of the Class A shares for purposes of
sales and redemptions thereof at the time of the calculation of
the net asset value on the Conversion Date.
4. On the Conversion Date, the Class B shares converted into Class A
shares will cease to accrue dividends and will no longer be
outstanding and the rights of the holders thereof will cease
(except the right to receive declared but unpaid dividends to the
Conversion Date).
5. For purposes of Paragraph 1 above, the term "eligible PaineWebber
fund" includes any and all mutual funds for which PaineWebber
Incorporated or Mitchell Hutchins Asset Management Inc. serves as
investment adviser that offer shares with a contingent deferred
sales charge imposed upon certain redemptions of such shares and
that are exchangeable with the Class B shares of the Series.
21
AMENDED AND RESTATED
BY-LAWS
OF
MITCHELL HUTCHINS PORTFOLIOS
September 22, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PRINCIPAL OFFICE AND SEAL.....................................................1
Section 1. Principal Office..........................................1
Section 2. Seal......................................................1
ARTICLE II
MEETINGS OF TRUSTEES..........................................................1
Section 1. Action by Trustees........................................1
Section 2. Compensation of Trustees..................................1
Section 3. Retirement of Trustees....................................1
ARTICLE III
COMMITTEES....................................................................2
Section 1. Establishment.............................................2
Section 2. Proceedings; Quorum; Action...............................2
Section 3. Compensation of Committee Members.........................2
ARTICLE IV
OFFICERS 2
Section 1. General...................................................2
Section 2. Election..................................................2
Section 3. Vacancies and Newly Created Offices.......................2
Section 4. Removal and Resignation...................................2
Section 5. Chairman..................................................3
Section 6. President.................................................3
Section 7. Vice President(s).........................................3
Section 8. Treasurer and Assistant Treasurer(s)......................3
Section 9. Secretary and Assistant Secretaries.......................4
Section 10.Compensation of Officers..................................4
Section 11.Surety Bond...............................................4
ARTICLE V
MEETINGS OF SHAREHOLDERS......................................................4
Section 1. No Annual Meetings.......................................4
Section 2. Special Meetings.........................................4
Section 3. Notice of Meetings; Waiver...............................5
<PAGE>
Section 4. Adjourned Meetings.......................................5
Section 5. Validity of Proxies......................................5
Section 6. Record Date..............................................6
Section 7. Action Without a Meeting.................................6
ARTICLE VI
SHARES OF BENEFICIAL INTEREST.................................................6
Section 1. No Share Certificates....................................6
Section 2. Transfer of Shares.......................................6
ARTICLE VII
CUSTODY OF SECURITIES.........................................................6
Section 1. Employment of a Custodian................................6
Section 2. Termination of Custodian Agreement.......................6
Section 3. Other Arrangements.......................................6
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT....................................................6
Section 1. Fiscal Year..............................................7
Section 2. Accountant...............................................7
ARTICLE IX....................................................................7
AMENDMENTS....................................................................7
Section 1. General..................................................7
Section 2. By Shareholders Only.....................................7
ARTICLE X
NET ASSET VALUE...............................................................7
ARTICLE XI
MISCELLANEOUS.................................................................8
Section 1. Inspection of Books......................................8
Section 2. Severability.............................................8
Section 3. Headings.................................................8
ii
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MITCHELL HUTCHINS PORTFOLIOS
These Amended and Restated By-laws of Mitchell Hutchins Portfolios
("Trust"), a Delaware business trust, are subject to the Trust Instrument of the
Trust dated as of May 27, 1997, as amended and restated as of July 22, 1997, and
as of August 20, 1997, and as from time to time further amended, supplemented or
restated ("Trust Instrument"). Capitalized terms used herein have the same
meanings as in the Trust Instrument.
ARTICLE I
PRINCIPAL OFFICE AND SEAL
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located in New York, New York, or such other location as the Trustees determine.
The Trust may establish and maintain other offices and places of business as the
Trustees determine
SECTION 2. SEAL. The Trustees may adopt a seal for the Trust in such
form and with such inscription as the Trustees determine. Any Trustee or officer
of the Trust shall have authority to affix the seal to any document.
ARTICLE II
MEETINGS OF TRUSTEES
SECTION 1. ACTION BY TRUSTEES. Trustees may take actions at meetings
held at such places and times as the Trustees may determine, or without
meetings, all as provided in Article II, Section 7, of the Trust Instrument.
SECTION 2. COMPENSATION OF TRUSTEES. Each Trustee who is neither an
employee of an investment adviser of the Trust or any Series nor an employee of
an entity affiliated with the investment adviser may receive such compensation
from the Trust for services as the Trustees may determine. Each Trustee may
receive such reimbursement for expenses as the Trustees may determine.
SECTION 3. RETIREMENT OF TRUSTEES. Each Trustee who has attained the
age of seventy-two (72) years as of December 31 of any year shall retire from
service as a Trustee on such date unless that retirement would cause the Trust
to be required to call a meeting of Shareholders to fill the resulting vacancy
on the Board of Trustees. Notwithstanding anything in this Section, a Trustee
may retire at any time as provided for in the Trust Instrument.
<PAGE>
ARTICLE III
COMMITTEES
SECTION 1. ESTABLISHMENT. The Trustees may designate one or more
committees of the Trustees, which may include an Executive Committee, a
Nominating Committee, and an Audit Committee. The Trustees shall determine the
number of members of each committee and its powers and shall appoint its members
and its chair. Each committee member shall serve at the pleasure of the
Trustees. The Trustees may abolish any committee at any time. Each committee
shall maintain records of its meetings and report its actions to the Trustees.
The Trustees may rescind any action of any committee, but such rescission shall
not have retroactive effect. The Trustees may delegate to any committee any of
its powers, subject to the limitations of applicable law.
SECTION 2. PROCEEDINGS; QUORUM; ACTION. Each committee may adopt such
rules governing its proceedings, quorum and manner of acting as it shall deem
proper and desirable. In the absence of such rules, a majority of any committee
shall constitute a quorum, and a committee shall act by the vote of a majority
of a quorum.
SECTION 3. COMPENSATION OF COMMITTEE MEMBERS. Each committee member who
is not an "interested person" of the Trust, as defined in the 1940 Act
("Disinterested Trustees") may receive such compensation from the Trust for
services as the Trustees may determine. Each Trustee may receive such
reimbursement for expenses as the Trustees may determine.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Trust shall be a Chairman, a
President, one or more Vice Presidents, a Treasurer, and a Secretary, and may
include one or more Assistant Treasurers or Assistant Secretaries and such other
officers ("Other Officers") as the Trustees may determine.
SECTION 2. ELECTION. Tenure and Qualifications of Officers. The
Trustees shall elect the officers of the Trust. Each officer elected by the
Trustees shall hold office until his or her successor shall have been elected
and qualified or until his or her earlier death, inability to serve, or
resignation. Any person may hold one or more offices, except that the Chairman
and the Secretary may not be the same individual. A person who holds more than
one office in the Trust may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer. No officer other than the
Chairman need be a Trustee or Shareholder.
SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy
shall occur in any office or if any new office is created, the Trustees may fill
such vacancy or new office.
SECTION 4. REMOVAL AND RESIGNATION. Officers serve at the pleasure of
the Trustees and may be removed at any time with or without cause. The Trustees
may delegate this power to the Chairman or President with respect to any Other
Officer. Such removal shall be without prejudice to the contract rights, if any,
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<PAGE>
of the person so removed. Any officer may resign from office at any time by
delivering a written resignation to the Trustees, Chairman, or the President.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
SECTION 4. CHAIRMAN. The Chairman shall preside at all meetings of the
Trustees and shall in general exercise the powers and perform the duties of the
Chairman of the Trustees. The Chairman shall exercise such other powers and
perform such other duties as the Trustees may assign to the Chairman.
SECTION 6. PRESIDENT. The President shall be the chief executive
officer of the Trust. The President shall preside at any Shareholders' meetings.
Subject to the direction of the Trustees, the President shall have general
charge, supervision and control over the Trust's business affairs and shall be
responsible for the management thereof and the execution of policies established
by the Trustees. Except as the Trustees may otherwise order, the President shall
have the power to grant, issue, execute or sign such powers of attorney,
proxies, agreements or other documents. The President also shall have the power
to employ attorneys, accountants and other advisers and agents for the Trust,
except as otherwise required by the 1940 Act. At the request or in the absence
or disability of the Chairman, the President shall perform all the duties of the
Chairman and, when so acting, shall have all the powers of the Chairman.
SECTION 7. VICE PRESIDENT(S). The Vice President(s) shall have such
powers and perform such duties as the Trustees or the Chairman may determine. At
the request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) shall perform all the duties of the
President and, when so acting, shall have all the powers of the President. The
Trustees may designate a Vice President as the principal financial officer of
the Trust or to serve one or more other functions. If a Vice President is
designated as principal financial officer of the Trust, he or she shall have
general charge of the finances and books of the Trust and shall report to the
Trustees annually regarding the financial condition of each Series as soon as
possible after the close of such Series' fiscal year. The Trustees also may
designate one of the Vice Presidents as Executive Vice President.
SECTION 8. TREASURER AND ASSISTANT TREASURER(S). The Treasurer may be
designated as the principal financial officer or as the principal accounting
officer of the Trust. If designated as principal financial officer, the
Treasurer shall have general charge of the finances and books of the Trust, and
shall report to the Trustees annually regarding the financial condition of each
Series as soon as possible after the close of such Series' fiscal year. The
Treasurer shall be responsible for the delivery of all funds and securities of
the Trust to such company as the Trustees shall retain as Custodian. The
Treasurer shall furnish such reports concerning the financial condition of the
Trust as the Trustees may request. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the Trustees' supervision, and
shall perform such additional duties as the Trustees may designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
3
<PAGE>
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all votes and proceedings of the meetings of Trustees and Shareholders in
books to be kept for that purpose. The Secretary shall be responsible for giving
and serving notices of the Trust. The Secretary shall have custody of any seal
of the Trust and shall be responsible for the records of the Trust, including
the Share register and such other books and documents as may be required by the
Trustees or by law. The Secretary shall perform all acts incidental to the
office of Secretary, subject to the supervision of the Trustees, and shall
perform such additional duties as the Trustees may designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
SECTION 10. COMPENSATION OF OFFICERS. Each officer may receive such
compensation from the Trust for services and reimbursement for expenses as the
Trustees may determine.
SECTION 11. SURETY BOND. The Trustees may require any officer or agent
of the Trust to execute a bond (including, without limitation, any bond required
by the 1940 Act and the rules and regulations of the Securities and Exchange
Commission ("Commission")) to the Trust in such sum and with such surety or
sureties as the Trustees may determine, conditioned upon the faithful
performance of his or her duties to the Trust, including responsibility for
negligence and for the accounting of any of the Trust's property, funds or
securities that may come into his or her hands.
ARTICLE V
MEETINGS OF SHAREHOLDERS
SECTION 1. NO ANNUAL MEETINGS. There shall be no annual Shareholders'
meetings, unless required by law.
SECTION 2. SPECIAL MEETINGS. The Secretary shall call a special meeting
of Shareholders of any Series or Class whenever ordered by the Trustees.
The Secretary also shall call a special meeting of Shareholders of any
Series or Class upon the written request of Shareholders owning at least ten
percent of the Outstanding Shares of such Series or Class entitled to vote at
such meeting; provided, that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the Shareholders
requesting such meeting shall have paid to the Trust the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Shareholders. If the Secretary fails for more than
thirty days to call a special meeting when required to do so, the Trustees or
the Shareholders requesting such a meeting may, in the name of the Secretary,
call the meeting by giving the required notice. The Secretary shall not call a
special meeting upon the request of Shareholders of any Series or Class to
consider any matter that is substantially the same as a matter voted upon at any
special meeting of Shareholders of such Series or Class held during the
preceding twelve months, unless requested by the holders of a majority of the
Outstanding Shares of such Series or Class entitled to be voted at such meeting.
4
<PAGE>
A special meeting of Shareholders of any Series or Class shall be held
at such time and place as is determined by the Trustees and stated in the notice
of that meeting.
SECTION 3. NOTICE OF MEETINGS; WAIVER. The Secretary shall call a
special meeting of Shareholders by giving written notice of the place, date,
time, and purposes of that meeting at least fifteen days before the date of such
meeting. The Secretary may deliver or mail, postage prepaid, the written notice
of any meeting to each Shareholder entitled to vote at such meeting. If mailed,
notice shall be deemed to be given when deposited in the United States mail
directed to the Shareholder at his or her address as it appears on the records
of the Trust.
SECTION 4. ADJOURNED MEETINGS. A Shareholders' meeting may be adjourned
one or more times for any reason, including the failure of a quorum to attend
the meeting. No notice of adjournment of a meeting to another time or place need
be given to Shareholders if such time and place are announced at the meeting at
which the adjournment is taken or reasonable notice is given to Persons present
at the meeting, and if the adjourned meeting is held within a reasonable time
after the date set for the original meeting. Any business that might have been
transacted at the original meeting may be transacted at any adjourned meeting.
If after the adjournment a new record date is fixed for the adjourned meeting,
the Secretary shall give notice of the adjourned meeting to Shareholders of
record entitled to vote at such meeting. Any irregularities in the notice of any
meeting or the nonreceipt of any such notice by any of the Shareholders shall
not invalidate any action otherwise properly taken at any such meeting.
SECTION 5. VALIDITY OF PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy;
provided, that either (1) the Shareholder or his or her duly authorized attorney
has signed and dated a written instrument authorizing such proxy to act, or (2)
the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, but if a proposal by anyone other than the officers or Trustees is
submitted to a vote of the Shareholders of any Series or Class, or if there is a
proxy contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees, Shares may be voted only in person or by written
proxy. Unless the proxy provides otherwise, it shall not be valid for more than
eleven months before the date of the meeting. All proxies shall be delivered to
the Secretary or other person responsible for recording the proceedings before
being voted. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of such proxy the Trust receives a specific written notice to the contrary from
any one of them. Unless otherwise specifically limited by their terms, proxies
shall entitle the Shareholder to vote at any adjournment of a Shareholders'
meeting. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. At every meeting of
Shareholders, unless the voting is conducted by inspectors, the chairman of the
meeting shall decide all questions concerning the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes. Subject to the
5
<PAGE>
provisions of the Delaware Business Trust Act, the Trust Instrument, or these
By-laws, the General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder shall govern all matters
concerning the giving, voting or validity of proxies, as if the Trust were a
Delaware corporation and the Shareholders were shareholders of a Delaware
corporation.
SECTION 6. RECORD DATE. The Trustees may fix in advance a date up to
ninety days before the date of any Shareholders' meeting as a record date for
the determination of the Shareholders entitled to notice of, and to vote at, any
such meeting. The Shareholders of record entitled to vote at a Shareholders'
meeting shall be deemed the Shareholders of record at any meeting reconvened
after one or more adjournments, unless the Trustees have fixed a new record
date. If the Shareholders' meeting is adjourned for more than sixty days after
the original date, the Trustees shall establish a new record date.
SECTION 7. ACTION WITHOUT A MEETING. Shareholders may take any action
without a meeting if a majority (or such greater amount as may be required by
law) of the Outstanding Shares entitled to vote on the matter consent to the
action in writing and such written consents are filed with the records of
Shareholders' meetings. Such written consent shall be treated for all purposes
as a vote at a meeting of the Shareholders.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 1. NO SHARE CERTIFICATES. Neither the Trust nor any Series or
Class shall issue certificates certifying the ownership of Shares, unless the
Trustees may otherwise specifically authorize such certificates.
SECTION 2. TRANSFER OF SHARES. Shares shall be transferable only by a
transfer recorded on the books of the Trust by the Shareholder of record in
person or by his or her duly authorized attorney or legal representative. Shares
may be freely transferred and the Trustees may, from time to time, adopt rules
and regulations regarding the method of transfer of such Shares.
ARTICLE VII
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall at all times
place and maintain all cash, securities and other assets of the Trust and of
each Series in the custody of a custodian meeting the requirements set forth in
Article VII, Section 4 of the Trust Instrument ("Custodian"). The Custodian
shall be appointed from time to time by the Board of Trustees, who shall
determine its remuneration
SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of any
Custodian Agreement or the inability of the Custodian to continue to serve as
custodian, in either case with respect to the Trust or any Series, the Board of
6
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Trustees shall (a) use its best efforts to obtain a successor Custodian; and (b)
require that the cash, securities and other assets owned by the Trust or any
Series be delivered directly to the successor Custodian.
SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT
SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall end on May
31.
SECTION 2. ACCOUNTANT. The Trust shall employ independent certified
public accountants as its Accountant to examine the accounts of the Trust and to
sign and certify financial statements filed by the Trust. The Accountant's
certificates and reports shall be addressed both to the Trustees and to the
Shareholders. A majority of the Disinterested Trustees shall select the
Accountant at any meeting held within ninety days before or after the beginning
of the fiscal year of the Trust, acting upon the recommendation of the Audit
Committee. The Trust shall submit the selection for ratification or rejection at
the next succeeding Shareholders' meeting, if such a meeting is to be held
within the Trust's fiscal year. If the selection is rejected at that meeting,
the Accountant shall be selected by majority vote of the Trust's outstanding
voting securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of Shareholders called for the purpose of selecting an
Accountant. The employment of the Accountant shall be conditioned upon the right
of the Trust to terminate such employment without any penalty by vote of a
Majority Shareholder Vote at any Shareholders' meeting called for that purpose.
ARTICLE IX
AMENDMENTS
SECTION 1. GENERAL. Except as provided in Section 2 of this Article,
these By-laws may be amended by the Trustees, or by the affirmative vote of a
majority of the Outstanding Shares entitled to vote at any meeting.
SECTION 2. BY SHAREHOLDERS ONLY. After the issue of any Shares, this
Article may only be amended by the affirmative vote of the holders of the lesser
of (a) at least two-thirds of the Outstanding Shares present and entitled to
vote at any meeting, or (b) at least fifty percent of the Outstanding Shares.
ARTICLE X
NET ASSET VALUE
The term "Net Asset Value" of any Series shall mean that amount by
which the assets belonging to that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. Net Asset Value per Share
shall be determined separately for each Series and each Class and shall be
determined on such days and at such times as the Trustees may determine. The
7
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Trustees shall make such determination with respect to securities for which
market quotations are readily available, at the market value of such securities,
and with respect to other securities and assets, at the fair value as determined
in good faith by the Trustees; provided, however, that the Trustees, without
Shareholder approval, may alter the method of appraising portfolio securities
insofar as permitted under the 1940 Act and the rules, regulations and
interpretations thereof promulgated or issued by the SEC or insofar as permitted
by any order of the SEC applicable to the Series or to the Class. The Trustees
may delegate any of their powers and duties under this Article X with respect to
appraisal of assets and liabilities. At any time the Trustees may cause the Net
Asset Value per Share last determined to be determined again in a similar manner
and may fix the time when such redetermined values shall become effective.
ARTICLE XI
MISCELLANEOUS
SECTION 1. INSPECTION OF BOOKS. The Board of Trustees shall from time
to time determine whether and to what extent, and at what times and places, and
under what conditions the accounts and books of the Trust or any Series or Class
shall be open to the inspection of Shareholders. No Shareholder shall have any
right to inspect any account or book or document of the Trust except as
conferred by law or otherwise by the Board of Trustees or by resolution of
Shareholders.
SECTION 2. SEVERABILITY. The provisions of these By-laws are severable.
If the Board of Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of these By-laws; provided, however, that such determination shall not
affect any of the remaining provisions of these By-laws or render invalid or
improper any action taken or omitted prior to such determination. If any
provision hereof shall be held invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall attach only to such provision only in
such jurisdiction and shall not affect any other provision of these Bylaws
SECTION 3. HEADINGS. Headings are placed in these By-laws for
convenience of reference only and in case of any conflict, the text of these
By-laws rather than the headings shall control.
8
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of , 1998 between MITCHELL HUTCHINS PORTFOLIOS, a
Delaware business trust ("Trust"), and MITCHELL HUTCHINS ASSET MANAGEMENT INC.
("Mitchell Hutchins"), a Delaware corporation registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and as an
investment adviser under the Investment Advisers Act of 1940, as amended,
WHEREAS the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
intends to offer for public sale three distinct series of shares of beneficial
interest ("Series"), which correspond to distinct portfolios and which have been
designated as Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins Moderate
Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS, the Trust and each Series has been organized for the purpose
of investing its assets in registered open-end management investment companies
or series thereof that are Underlying PaineWebber Funds and such other
additional investments as may be permitted under the 1940 Act. (As used in this
Contract, the term "Underlying PaineWebber Funds" shall mean investment
companies that hold themselves out to investors as related companies for
purposes of investment and investor services and for which Mitchell Hutchins,
PaineWebber Incorporated ("PaineWebber") or any entity controlling, controlled
by or under common control with Mitchell Hutchins or PaineWebber now or in the
future acts as investment adviser or principal underwriter); and
WHEREAS, the Trust desires to retain Mitchell Hutchins as investment
adviser and administrator to furnish certain administrative, investment advisory
and portfolio management services to the Trust and each Series as now exists and
as hereafter may be established for the purpose of investing its assets in
Underlying PaineWebber Funds, and Mitchell Hutchins is willing to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints Mitchell Hutchins as
investment adviser and administrator of the Trust and each Series for the period
and on the terms set forth in this Contract. Mitchell Hutchins accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties as Investment Adviser.
----------------------------
(a) Subject to the supervision of the Trust's Board of Trustees
("Board"), Mitchell Hutchins will provide a continuous investment program for
each Series, including investment research and management with respect to all
securities and investments and cash equivalents in each Series. Mitchell
Hutchins will determine from time to time what securities and other investments
will be purchased, retained or sold by each Series.
<PAGE>
(b) Mitchell Hutchins agrees that in placing orders with brokers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of any Series, Mitchell Hutchins may, in its
discretion, use brokers who provide the Series with research, analysis, advice
and similar services to execute portfolio transactions on behalf of the Series,
and Mitchell Hutchins may pay to those brokers in return for brokerage and
research services a higher commission than may be charged by other brokers,
subject to Mitchell Hutchins' determining in good faith that such commission is
reasonable in terms either of the particular transaction or of the overall
responsibility of Mitchell Hutchins to such Series and its other clients and
that the total commissions paid by such Series will be reasonable in relation to
the benefits to the Series over the long term. In no instance will portfolio
securities be purchased from or sold to Mitchell Hutchins, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder. Whenever Mitchell Hutchins simultaneously
places orders to purchase or sell the same security on behalf of a Series and
one or more other accounts advised by Mitchell Hutchins, such orders will be
allocated as to price and amount among all such accounts in a manner believed to
be equitable to each account. The Trust recognizes that in some cases this
procedure may adversely affect the results obtained for the Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series, and will
furnish the Board with such periodic and special reports as the Board reasonably
may request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Mitchell Hutchins hereby agrees that all records which it maintains for the
Trust are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-l under the 1940
Act and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) Mitchell Hutchins will oversee the computation of the net asset
value and the net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement)
or as more frequently requested by the Board.
(e) The Trust hereby authorizes Mitchell Hutchins and any entity or
person associated with Mitchell Hutchins which is a member of a national
securities exchange to effect any transaction on such exchange for the account
of any Series, which transaction is permitted by Section 11(a) of the 1934 Act
and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation by Mitchell Hutchins or any person or entity associated with
Mitchell Hutchins for such transactions in accordance with Rule
11a2-2(T)(a)(2)(iv).
3. Duties as Administrator. Mitchell Hutchins will administer the
affairs of the Trust and each Series subject to the supervision of the Board and
the following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of
the Trust and each Series, including oversight of transfer agency, custodial and
accounting services, except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Trust and
each Series.
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<PAGE>
(b) Mitchell Hutchins will provide the Trust and each Series with such
corporate, administrative and clerical personnel (including officers of the
Trust) and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the Trust and
each Series.
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement, proxy material, tax returns and required reports to each
Series' shareholders and the Securities and Exchange Commission and other
appropriate federal or state regulatory authorities.
(d) Mitchell Hutchins will provide the Trust and each Series with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery supplies and
similar items.
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
4. Further Duties. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Declaration of
Trust, By-Laws, and Registration Statement of the Trust and with the
instructions and directions of the Board and will comply with the requirements
of the 1940 Act, the rules thereunder, and all other applicable federal and
state laws and regulations.
5. Delegation of Mitchell Hutchins' Duties as Investment Adviser and
Administrator. With respect to any or all Series, Mitchell Hutchins may enter
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
a sub-adviser or sub-administrator in which Mitchell Hutchins delegates to such
sub-adviser or sub-administrator any or all its duties specified in Paragraphs 2
and 3 of this Contract, provided that each Sub-Advisory or Sub-Administration
Contract imposes on the sub-adviser or sub-administrator bound thereby all the
duties and conditions to which Mitchell Hutchins is subject by Paragraphs 2, 3
and 4 of this Contract, and further provided that each Sub-Advisory or
Sub-Administration Contract meets all requirements of the 1940 Act and rules
thereunder.
6. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a Trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature.
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<PAGE>
7. Expenses.
--------
(a) During the term of this Contract, each Series will bear all
expenses, not specifically assumed by Mitchell Hutchins, incurred in its
operations and the offering of its shares.
(b) Expenses borne by each Series will include but not be limited to
the following (or each Series' proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Series and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Mitchell Hutchins under this
Contract; (iii) expenses of organizing the Trust and the Series; (iv) filing
fees and expenses relating to the registrations and qualification of the Series'
shares and the Trust under federal and/or securities laws and maintaining such
registration and qualifications; (v) fees and salaries payable to the Trust's
Trustees and officers who are not interested persons of the Trust or Mitchell
Hutchins; (vi) all expenses incurred in connection with the Trustees' services,
including travel expenses; (vii) taxes (including any income or franchise taxes)
and governmental fees; (viii) costs of any liability, uncollectible items of
deposit and other insurance and fidelity bonds; (ix) any costs, expenses or
losses arising out of a liability of or claim for damages or other relief
asserted against the Trust or Series for violation of any law; (x) legal,
accounting and auditing expenses, including legal fees of special counsel for
those Trustees of the Trust who are not interested persons of the Trust; (xi)
charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders;
(xiv) costs of mailing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials to
existing shareholders; (xv) any extraordinary expenses (including fees and
disbursements of counsel, costs of actions, suits or proceedings to which the
Trust is a party and the expenses the Trust may incur as a result of its legal
obligation to provide indemnification to its officers, Trustees, agents and
shareholders) incurred by the Trust or Series; (xvi) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; (xvii) cost of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xviii) the cost
of investment company literature and other publications provided by the Trust to
its Trustees and officers; and (xix) costs of mailing, stationery and
communications equipment.
(c) The Trust or a Series may pay directly any expenses incurred by it
in its normal operations and, if any such payment is consented to by Mitchell
Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to
this Contract, the Series may reduce the fee payable to Mitchell Hutchins
pursuant to Paragraph 8 thereof by such amount. To the extent that such
deductions exceed the fee payable to Mitchell Hutchins on any monthly payment
date, such excess shall be carried forward and deducted in the same manner from
the fee payable on succeeding monthly payment dates.
(d) Mitchell Hutchins will assume the cost of any compensation for
services provided to the Trust received by the officers of the Trust and by
those Trustees who are interested persons of the Trust.
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<PAGE>
(e) The payment or assumption by Mitchell Hutchins of any expenses of
the Trust or a Series that Mitchell Hutchins is not required by this Contract to
pay or assume shall not obligate Mitchell Hutchins to pay or assume the same or
any similar expense of the Trust or a Series on any subsequent occasion.
8. Compensation.
------------
(a) For the services provided and the expenses assumed pursuant to this
Contract, the Trust will pay to Mitchell Hutchins a fee with respect to each
Series at the rate specified below and expressed as an annual percentage of each
Series' average daily net assets, such fee to be computed daily and paid
monthly:
Mitchell Hutchins Aggressive Portfolio 0.35%
Mitchell Hutchins Moderate Portfolio 0.35%
Mitchell Hutchins Conservative Portfolio 0.35%
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any Series hereafter established, the Trust will pay to
Mitchell Hutchins from the assets of such Series a fee in an amount to be agreed
upon in a written fee agreement ("Fee Agreement") executed by the Trust on
behalf of such Series and by Mitchell Hutchins. All such Fee Agreements shall
provide that they are subject to all terms and conditions of this Contract.
(c) The fee shall be computed daily and paid monthly to Mitchell
Hutchins on or before the first business day of the next succeeding calendar
month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective day to the end of the month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. Limitation of Liability of Mitchell Hutchins. Mitchell Hutchins and
its delegates, including any Sub-Adviser or Sub-Administrator to any Series or
the Trust, shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Series, the Trust or any of its shareholders, in
connection with the matters to which this Contract relates, except to the extent
that such a loss results from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or become
an officer, Trustee, employee or agent of the Trust shall be deemed, when
rendering services to any Series or the Trust or acting with respect to any
business of such Series or the Trust, to be rendering such service to or acting
solely for the Series or the Trust and not as an officer, director, employee, or
agent or one under the control or direction of Mitchell Hutchins even though
paid by it.
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<PAGE>
10. Limitation of Liability of the Trustees and Shareholders of the
Trust. The Trustees of the Trust and the shareholders of any Series shall not be
liable for any obligations of any Series or the Trust under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Trust in
settlement of such right or claim, and not to such Trustees or shareholders.
11. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written provided that, with respect to any Series, this Contract shall not take
effect unless it has first been approved (i) by a vote of a majority of those
Trustees of the Trust who are not parties to this Contract or interested persons
of any such party cast in person at a meeting called for the purpose of voting
on such approval, and (ii) by vote of a majority of that Series' outstanding
voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those Trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Mitchell Hutchins or
by Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Trust. Termination of this Contract with respect to
any given Series shall in no way affect the continued validity of this Contract
or the performance thereunder with respect to any other Series. This Contract
will automatically terminate in the event of its assignment.
12. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this contract as to any
given Series shall be effective until approved by vote of a majority of such
Series' outstanding voting securities.
13. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act. To the extent that
the applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
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<PAGE>
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "national
securities exchange," "net assets," "prospectus," "sale," "sell" and "security"
shall have the same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the Securities and Exchange Commission by any
rule, regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this contract is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
----------------------------- --------------------------------
MITCHELL HUTCHINS PORTFOLIOS
Attest: By:
----------------------------- --------------------------------
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MITCHELL HUTCHINS PORTFOLIOS
DISTRIBUTION CONTRACT
CLASS A SHARES
CONTRACT made as of _____________________, 1997, between MITCHELL
HUTCHINS PORTFOLIOS, a Delaware business trust ("Fund"), and MITCHELL HUTCHINS
ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently has three distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as the Mitchell
Hutchins Aggressive Portfolio, Mitchell Hutchins Moderate Portfolio and Mitchell
Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class A Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class A Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class A Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class A Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class A Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class A Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class A Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Fund and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class A Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class A Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class A Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office plus the applicable initial
sales charge, if any, computed as set forth in the Registration Statement. The
Fund shall promptly furnish Mitchell Hutchins with a statement of each
computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class A Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class A Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
2
<PAGE>
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class A Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class A Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class A Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
retain the initial sales charge, if any, on purchases of Class A Shares as set
forth in the Registration Statement. Mitchell Hutchins is authorized to collect
the gross proceeds derived from the sale of the Class A Shares, remit the net
asset value thereof to the fund upon receipt of the proceeds and retain the
initial sales charge, if any.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class A
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the initial sales
charges, contingent deferred sales charges, or service fees which it is paid
under this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
3
<PAGE>
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Class A Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class A Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class A Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class A Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class A Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class A Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class A Shares under the 1933 Act to the end that there will be available for
sale such number of Class A Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class A Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class A Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Class A Shares with the Securities and Exchange Commission and
qualifying the Class A shares with state and other regulatory bodies, and shall
4
<PAGE>
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class A Shares for sale and of
the Fund as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class A Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class A Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class A Shares as
may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
5
<PAGE>
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained herein be so construed as to protect
Mitchell Hutchins against any liability to the Fund or to the shareholders of
any Series to which Mitchell Hutchins would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations under this
Contract. The Fund shall not be liable to Mitchell Hutchins under this indemnity
agreement with respect to any claim made against Mitchell Hutchins or any person
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class A Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Fund, its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
FUND. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
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Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders.
11. Services Provided to the Fund by Employees of Mitchell Hutchins.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees") cast in person at a meeting called for the
purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class A Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class A Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
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<PAGE>
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
By:
- --------------------------- ----------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
By:
- --------------------------- ----------------------------------
8
MITCHELL HUTCHINS PORTFOLIOS
DISTRIBUTION CONTRACT
CLASS B SHARES
CONTRACT made as of ____________________, 1997, between MITCHELL
HUTCHINS PORTFOLIOS, a Delaware business trust ("Fund") and MITCHELL HUTCHINS
ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently has three distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as the Mitchell
Hutchins Aggressive Portfolio, Mitchell Hutchins Moderate Portfolio and Mitchell
Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class B shares ("Class B Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class B Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class B Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class B Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class B Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class B Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Fund and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class B Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class B Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class B Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class B Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class B Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
2
<PAGE>
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class B Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class B Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class B Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive from the Fund a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Fund with respect to the Class B Shares of
the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class B
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Class B Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
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<PAGE>
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class B Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class B Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class B Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class B Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class B Shares under the 1933 Act to the end that there will be available for
sale such number of Class B Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class B Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class B Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Class B Shares with the Securities and Exchange Commission and
qualifying the Class B shares with state and other regulatory bodies, and shall
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
4
<PAGE>
to shareholders; and (iv) the qualifications of Class B Shares for sale and of
the Fund as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class B Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class B Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class B Shares as
may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained herein be so construed as to protect
Mitchell Hutchins against any liability to the Fund or to the shareholders of
5
<PAGE>
any Series to which Mitchell Hutchins would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations under this
Contract. The Fund shall not be liable to Mitchell Hutchins under this indemnity
agreement with respect to any claim made against Mitchell Hutchins or any person
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class B Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Fund, its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
FUND. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders.
11. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF MITCHELL HUTCHINS.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
6
<PAGE>
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class B Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class B Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
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16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
_____________________________ By: _____________________________
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
_____________________________ By: _____________________________
8
MITCHELL HUTCHINS PORTFOLIOS
DISTRIBUTION CONTRACT
CLASS C SHARES
CONTRACT made as of _____________________, 1997 between MITCHELL
HUTCHINS PORTFOLIOS, a Delaware business trust ("Fund"), and MITCHELL HUTCHINS
ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently has three distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as the Mitchell
Hutchins Aggressive Portfolio, Mitchell Hutchins Moderate Portfolio and Mitchell
Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class C shares ("Class C Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class C Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class C Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class C Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class C Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Fund and upon the terms described in the Registration Statement.
<PAGE>
(b) Upon the later of the date of this Contract or the initial
offering of the Class C Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class C Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class C Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class C Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class C Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class C Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
2
<PAGE>
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class C Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class C Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive from the Fund a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Fund with respect to the Class C Shares of
the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class C
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Class C Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class C Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class C Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class C Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
3
<PAGE>
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class C Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class C Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class C Shares under the 1933 Act to the end that there will be available for
sale such number of Class C Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class C Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class C Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Class C Shares with the Securities and Exchange Commission and
qualifying the Class C shares with state and other regulatory bodies, and shall
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class C Shares for sale and of
the Fund as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
4
<PAGE>
with the sale of Class C Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class C Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class C Shares as
may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained herein be so construed as to protect
Mitchell Hutchins against any liability to the Fund or to the shareholders of
any Series to which Mitchell Hutchins would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations under this
Contract. The Fund shall not be liable to Mitchell Hutchins under this indemnity
agreement with respect to any claim made against Mitchell Hutchins or any person
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
indemnity agreement. The Fund shall be entitled to participate at its own
5
<PAGE>
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class C Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Fund, its officers and trustees and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
FUND. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders.
11. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF MITCHELL HUTCHINS.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
6
<PAGE>
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class C Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
7
<PAGE>
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
By:
- ---------------------------- ----------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
By:
- ---------------------------- ----------------------------------
8
MITCHELL HUTCHINS PORTFOLIOS
DISTRIBUTION CONTRACT
CLASS Y SHARES
CONTRACT made as of ____________________, 1997 between MITCHELL
HUTCHINS PORTFOLIOS, a Delaware business trust ("Fund"), and MITCHELL HUTCHINS
ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently has three distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as Mitchell
Hutchins Aggressive Portfolio, Mitchell Hutchins Moderate Portfolio and Mitchell
Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class Y shares ("Class Y Shares"); and
WHEREAS the Fund desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class Y Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class Y Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class Y Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class Y Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class Y Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class Y Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Fund and upon the terms described in the Registration Statement.
<PAGE>
(b) Upon the later of the date of this Contract or the initial
offering of the Class Y Shares by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class Y Shares of that Series and will accept such orders on behalf of the Fund
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Fund's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class Y Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class Y Shares.
(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class Y Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.
(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER CONTRACTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class Y Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class Y Shares. In a separate contract or as part of any such exclusive
dealer agreement, Mitchell Hutchins also may delegate to PaineWebber or another
registered and qualified dealer ("sub-distributor") any or all of its duties
specified in this Contract, provided that such separate contract or exclusive
dealer agreement imposes on the sub-distributor bound thereby all applicable
duties and conditions to which Mitchell Hutchins is subject under this Contract,
and further provided that such separate contract or exclusive dealer agreement
meets all requirements of the 1940 Act and rules thereunder.
2
<PAGE>
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION AND REIMBURSEMENT OF DISTRIBUTION EXPENSES. The Fund
shall have no obligation to compensate or reimburse Mitchell Hutchins for any
services performed by it hereunder.
6. DUTIES OF THE FUND.
(a) The Fund reserves the right at any time to withdraw offering
Class Y Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class Y Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class Y Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class Y Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class Y Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class Y Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class Y Shares under the 1933 Act to the end that there will be available for
sale such number of Class Y Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class Y Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
3
<PAGE>
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class Y Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class Y Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualifications.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Class Y Shares with the Securities and Exchange Commission and
qualifying the Class Y shares with state and other regulatory bodies, and shall
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class Y Shares for sale and of
the Fund as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class Y Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class Y Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class Y Shares as
may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
4
<PAGE>
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Fund or who controls the Fund within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained herein be so construed as to protect
Mitchell Hutchins against any liability to the Fund or to the shareholders of
any Series to which Mitchell Hutchins would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations under this
Contract. The Fund shall not be liable to Mitchell Hutchins under this indemnity
agreement with respect to any claim made against Mitchell Hutchins or any person
indemnified unless Mitchell Hutchins or other such person shall have notified
the Fund in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon Mitchell Hutchins or such other person (or after
Mitchell Hutchins or the person shall have received notice of service on any
designated agent). However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to Mitchell Hutchins or
any person against whom such action is brought otherwise than on account of this
indemnity agreement. The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Fund
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Fund and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Fund elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Fund does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Fund agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class Y Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Fund, its officers and trustees, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
5
<PAGE>
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
FUND. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders.
11. SERVICES PROVIDED TO THE FUND BY EMPLOYEES OF MITCHELL HUTCHINS.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in this Contract or in any agreements related thereto (all such
Trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class Y Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
6
<PAGE>
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate in
the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
By:
- ---------------------------- -----------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
By:
- ---------------------------- ----------------------------------
EXCLUSIVE DEALER AGREEMENT
CLASS A SHARES OF MITCHELL HUTCHINS PORTFOLIOS
AGREEMENT made as of _____________________, 1997, between Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation,
and PaineWebber Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Portfolios ("Fund") is a Delaware business trust
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company; and
WHEREAS the Fund currently has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as the Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class A
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class A Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class A
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class A Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class A Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class A Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
<PAGE>
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class A Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class A Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class A Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class A Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class A Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office, plus the applicable initial sales
charge, if any, as set forth in the Registration Statement. Mitchell Hutchins
shall promptly furnish or arrange for the furnishing to PaineWebber of a
statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain
number of Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class A Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
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<PAGE>
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Conduct Rules of the NASD;
(ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class A Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf
of Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it
incurs in selling the Class A Shares and in complying with the terms and
conditions of this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class A Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class A Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class A Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber hereunder
are not to be deemed exclusive and PaineWebber shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of PaineWebber who may also be a director,
trustee, officer or employee of Mitchell Hutchins or the Fund, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar or a
dissimilar nature.
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<PAGE>
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class A Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class A Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class A Shares, PaineWebber shall retain that
portion of the offering price constituting the Discount to Selected Dealers
("Discount"), if any, set forth in the Registration Statement for Class A shares
sold with an initial sales charge under this Agreement. PaineWebber is
authorized to collect the gross proceeds derived from the sale of such Class A
Shares; remit the net asset value thereof to the Fund's Transfer Agent; remit to
Mitchell Hutchins the difference between the offering price of the Class A
Shares and the applicable Discount; and retain said Discount. Whether the
offering price of the Class A Shares includes any initial sales charge out of
which a Discount may be retained by PaineWebber shall be determined in
accordance with the Registration Statement.
(c) Mitchell Hutchins shall pay to PaineWebber such commissions and
other compensation for sales of the Class A Shares by PaineWebber employees,
correspondent firms and other dealers as Mitchell Hutchins and PaineWebber may
from time to time agree upon.
(d) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell Hutchins
shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(e) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
-4-
<PAGE>
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class A Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class A
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class A Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class A Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales and
advertising materials relating to the Class A Shares as Mitchell Hutchins in its
discretion determines appropriate. PaineWebber agrees to submit all sales and
advertising materials developed by it relating to the Class A Shares to Mitchell
Hutchins for approval. PaineWebber agrees not to publish or distribute such
materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class A Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and expenses
of (i) preparing, printing, and distributing any materials not prepared by the
Fund or Mitchell Hutchins and other materials used by PaineWebber in connection
with its offering of Class A Shares for sale to the public; (ii) any expenses of
advertising incurred by PaineWebber in connection with such offering; (iii) the
expenses of registration or qualification of PaineWebber as a dealer or broker
under federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to PaineWebber's Investment
-5-
<PAGE>
Executives or other employees and others for selling Class A Shares, and all
expenses of PaineWebber, its Investment Executives and employees and others who
engage in or support the sale of Class A Shares as may be incurred in connection
with their sales efforts. PaineWebber shall bear such additional costs and
expenses as it and Mitchell Hutchins may agree upon, such agreement to be
evidenced in a writing signed by both parties. Mitchell Hutchins shall advise
the Board of any such agreement as to additional costs and expenses borne by
PaineWebber at their first regular meeting held after such agreement but shall
not be required to obtain prior approval for such agreements from the Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class A Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
-6-
<PAGE>
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Agreement
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or with respect to any given Series by vote of a
majority of the outstanding voting securities of the Class A Shares of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class A Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
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<PAGE>
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class A Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware and the 1940 Act. To the extent that
the applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: ______________________ By:_____________________________
PAINEWEBBER INCORPORATED
Attest: ______________________ By:_____________________________
-9-
EXCLUSIVE DEALER AGREEMENT
CLASS B SHARES OF MITCHELL HUTCHINS PORTFOLIOS
AGREEMENT made as of ___________________, 1997, between Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and
PaineWebber Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Portfolios ("Fund") is a Delaware business trust
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company; and
WHEREAS the Fund currently has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as the Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class B shares ("Class B Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class B
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class B Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class B
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class B Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class B Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class B Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
<PAGE>
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class B Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class B Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class B Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class B Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class B Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain
number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class B Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
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<PAGE>
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Conduct Rules of the NASD;
(ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class B Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf
of Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it
incurs in selling the Class B Shares and in complying with the terms and
conditions of this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class B Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class B Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class B Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber hereunder
are not to be deemed exclusive and PaineWebber shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of PaineWebber who may also be a director,
trustee, officer or employee of Mitchell Hutchins or the Fund, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar or a
dissimilar nature.
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<PAGE>
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class B Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class B Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class D shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell Hutchins
shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class B Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class B Shares
and in the performance of PaineWebber under this Agreement.
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<PAGE>
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class B Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales and
advertising materials relating to the Class B Shares as Mitchell Hutchins in its
discretion determines appropriate. PaineWebber agrees to submit all sales and
advertising materials developed by it relating to the Class B Shares to Mitchell
Hutchins for approval. PaineWebber agrees not to publish or distribute such
materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class B Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and expenses
of (i) preparing, printing, and distributing any materials not prepared by the
Fund or Mitchell Hutchins and other materials used by PaineWebber in connection
with its offering of Class B Shares for sale to the public; (ii) any expenses of
advertising incurred by PaineWebber in connection with such offering; (iii) the
expenses of registration or qualification of PaineWebber as a dealer or broker
under federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to PaineWebber's Investment
Executives or other employees and others for selling Class B Shares, and all
expenses of PaineWebber, its Investment Executives and employees and others who
engage in or support the sale of Class B Shares as may be incurred in connection
with their sales efforts. PaineWebber shall bear such additional costs and
expenses as it and Mitchell Hutchins may agree upon, such agreement to be
evidenced in a writing signed by both parties. Mitchell Hutchins shall advise
the Board of any such agreement as to additional costs and expenses borne by
PaineWebber at their first regular meeting held after such agreement but shall
not be required to obtain prior approval for such agreements from the Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
-5-
<PAGE>
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class B Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.
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<PAGE>
(b) Unless sooner terminated as provided herein, this Agreement
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or with respect to any given Series by vote of a
majority of the outstanding voting securities of the Class B Shares of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class B Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
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<PAGE>
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class B Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware and the 1940 Act. To the extent that
the applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: _________________________ By: ___________________________
PAINEWEBBER INCORPORATED
Attest: _________________________ By: ___________________________
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EXCLUSIVE DEALER AGREEMENT
CLASS C SHARES OF MITCHELL HUTCHINS PORTFOLIOS
AGREEMENT made as of _____________________, 1997, between Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation,
and PaineWebber Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Portfolios ("Fund") is a Delaware business trust
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company; and
WHEREAS the Fund currently has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as the Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class C shares ("Class C Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class C
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class C Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class C
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class C Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class C Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class C Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
<PAGE>
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class C Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class C Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class C Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class C Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class C Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class C Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
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<PAGE>
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Conduct Rules of the NASD;
(ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class C Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class C Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class C Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class C Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class C Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
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<PAGE>
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class C Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class C Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class C shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell Hutchins
shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class C Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class C
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class C Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class C Shares.
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<PAGE>
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class C Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class C Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class C Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class C Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class C Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class C Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class C Shares
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<PAGE>
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees") cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Agreement
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
-6-
<PAGE>
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or with respect to any given Series by vote of a
majority of the outstanding voting securities of the Class C Shares of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class C Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class C Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
-7-
<PAGE>
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: _________________________ By: ___________________________
PAINEWEBBER INCORPORATED
Attest: _________________________ By: ___________________________
-8-
EXCLUSIVE DEALER AGREEMENT
CLASS Y SHARES OF MITCHELL HUTCHINS PORTFOLIOS
AGREEMENT made as _____________________, 1997 between Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and
PaineWebber Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Portfolios ("Fund") is a Delaware business trust
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company; and
WHEREAS the Fund currently has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as the Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class Y shares ("Class Y Shares"); and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class Y
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class Y Shares established; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class Y Shares of each
such Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Fund under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class Y Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class Y Shares on the
terms and for the period set forth in this Contract. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class Y Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Contract,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class Y Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Contract and the Registration
Statement.
(b) Upon the later of the date of this Contract or the initial
offering of Class Y Shares by a Series, PaineWebber will hold itself available
to receive orders, satisfactory to PaineWebber and Mitchell Hutchins, for the
purchase of Class Y Shares and will accept such orders on behalf of Mitchell
Hutchins and the Fund as of the time of receipt of such orders and will promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) PaineWebber in its discretion may sell Class Y Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class Y Shares.
(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class Y Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement.
(g) PaineWebber represents and warrants that: (i) it is a member in
good standing of the National Association of Securities Dealers, Inc. and agrees
to abide by the Conduct Rules of such Association; (ii) it is registered as a
broker-dealer with the Securities and Exchange Commission; (iii) it will
2
<PAGE>
maintain any filings and licenses required by federal and state laws to conduct
the business contemplated under this Agreement; and (iv) it will comply with all
federal and state laws and regulations applicable to the offer and sale of the
Class Y Shares.
(h) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class Y Shares and in complying with the terms and conditions of
this Contract as more specifically set forth in paragraph 8.
(i) PaineWebber shall not permit any employee or agent to offer or
sell Class Y Shares unless such person is duly licensed under applicable federal
and state laws and regulations.
(j) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class Y Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class Y Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. COMPENSATION.
Mitchell Hutchins shall not be obligated to pay any compensation to
PaineWebber hereunder nor to reimburse any of PaineWebber's expenses incurred
hereunder.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class Y Shares of any or all Series by written notice
to Mitchell Hutchins.
3
<PAGE>
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class Y
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class Y Shares
and in the performance of PaineWebber under this Contract.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class Y Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class Y Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class Y Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials without first receiving such approval in writing. Mitchell
Hutchins shall assist PaineWebber in obtaining any regulatory approvals of such
materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class Y Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class Y Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's investment executives or other employees and others for selling
Class Y Shares, and all expenses of PaineWebber, its investment executives and
employees and others who engage in or support the sale of Class Y Shares as may
4
<PAGE>
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold PaineWebber,
its officers and directors, and any person who controls PaineWebber within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class Y Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Contract.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
5
<PAGE>
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Contract.
10. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of this Contract or in any agreements related thereto
(all such trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board with respect to any given Series or by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Contract may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class Y Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
6
<PAGE>
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series. This Contract will
automatically terminate in the event of its assignment or in the event that the
Distribution contract is terminated.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Contract may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class Y Shares, but
only for so long as this Contract or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Contract shall be construed in accordance
with the laws of the State of Delaware and the 1940 Act. To the extent that
the applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: __________________________ By: __________________________
PAINEWEBBER INCORPORATED
Attest: __________________________ By: ___________________________
7
FORM OF CUSTODIAN AGREEMENT
Between
MITCHELL HUTCHINS PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
PAGE
1. Employment of Custodian and Property to be Held by It............ 1
2. Duties of the Custodian with Respect to Property of the Trust
Held by the Custodian in the United States....................... 2
2.1 Holding Securities.......................................... 2
2.2 Delivery of Securities...................................... 2
2.3 Registration of Securities.................................. 4
2.4 Bank Accounts............................................... 4
2.5 Availability of Federal Trusts.............................. 5
2.6 Collection of Income........................................ 5
2.7 Payment of Trust Monies..................................... 5
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased................................................... 6
2.9 Appointment of Agents....................................... 7
2.10 Deposit of Trust Assets in U.S. Securities System........... 7
2.11 Trust Assets Held in the Custodian's Direct Paper System.... 8
2.12 Segregated Account.......................................... 9
2.13 Ownership Certificates for Tax Purposes..................... 9
2.14 Proxies ................................................... 9
2.15 Communications Relating to Portfolio Securities............. 10
3. Duties of the Custodian with Respect to Property of the Trust
Held Outside of the United States................................ 10
3.1 Appointment of Foreign Sub-Custodians....................... 10
3.2 Assets to be Held........................................... 10
3.3 Foreign Securities Systems.................................. 10
3.4 Holding Securities.......................................... 11
3.5 Agreements with Foreign Banking Institutions................ 11
3.6 Access of Independent Accountants of the Trust.............. 11
3.7 Reports by Custodian........................................ 11
3.8 Transactions in Foreign Custody Account..................... 12
3.9 Liability of Foreign Sub-custodians......................... 12
3.10 Liability of Custodian...................................... 12
3.11 Reimbursement for Advances.................................. 13
3.12 Monitoring Responsibilities................................. 13
3.13 Branches of U.S. Banks...................................... 13
3.14 Tax Law ................................................... 13
4. Payments for Sales or Repurchases or Redemptions of Shares of
the Trust........................................................ 14
<PAGE>
5. Proper Instructions.............................................. 14
6. Actions Permitted Without Express Authority...................... 15
7. Evidence of Authority............................................ 15
8. Duties of Custodian With Respect to the Books of Account
and Calculations of Net Asset Value and Net Income............... 15
9. Records.......................................................... 16
10. Opinion of Trust's Independent Accountants....................... 16
11. Reports to Trust by Independent Public Accountants............... 16
12. Compensation of Custodian........................................ 16
13. Responsibility of Custodian...................................... 16
14. Effective Period, Termination and Amendment...................... 18
15. Successor Custodian.............................................. 18
16. Interpretive and Additional Provisions........................... 19
17. Additional Trusts................................................ 19
18. Massachusetts Law to Apply....................................... 20
19. Prior Contracts.................................................. 20
20. Reproduction of Documents........................................ 20
21. Shareholder Communications Election.............................. 20
<PAGE>
FORM OF CUSTODIAN AGREEMENT
This Contract between Mitchell Hutchins Portfolios, a business trust
organized and existing under the laws of Delaware, having its principal place of
business at 1285 Avenue of the Americas, New York, New York 10019 hereinafter
called the "Trust", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Trust intends to initially offer shares in three series,
designated as Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Conservative Portfolio and Mitchell Hutchins Moderate Portfolio (such series
together with all other series subsequently established by the Trust and made
subject to this Contract in accordance with paragraph 17, being herein referred
to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Trust hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Trust, including securities which the Trust, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Trust
Instrument. The Trust on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Trust representing interests in the Portfolios, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of a Portfolio held or received by the Portfolio and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Trust on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Trust on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Trust's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
<PAGE>
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE TRUST HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
(each, a U.S. Securities System") and (b) commercial paper of an issuer
for which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian (the "Direct Paper System") pursuant to
Section 2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Trust on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article l; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
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7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Trust on behalf of
the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Trust on behalf of the Portfolio requiring a pledge of assets by the
Trust on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Trust on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Trust;
13) For delivery in accordance with the provisions of any agreement
among the Trust on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
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organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Trust;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Trust, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the currently effective prospectus
and statement of additional information of the Trust, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Trust on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee signed by an officer of
the Trust and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Trust on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Trust has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Trust directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Trust on
such securities and to notify the Trust on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Trust, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Trusts held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; PROVIDED, however,
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that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the Trusts to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Trust. Such Trusts
shall be deposited by the Custodian in its capacity as Custodian and shall
be withdrawable by the Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL TRUSTS. Upon mutual agreement between the Trust on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Trust on behalf of
a Portfolio, make federal Trusts available to such Portfolio as of
specified times agreed upon from time to time by the Trust and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Trust. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Trust with such information or data as may be necessary to
assist the Trust in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 PAYMENT OF TRUST MONIES. Upon receipt of Proper Instructions from the
Trust on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Portfolio or
in the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of repurchase
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agreements entered into between the Trust on behalf of the Portfolio
and the Custodian, or another bank or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written evidence of
the agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of the
Trust in any bank whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Trust as
defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof,
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Trust whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Trust;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in addition
to Proper Instructions from the Trust on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Trust signed by an officer of the Trust
and certified by its Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to
be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Trust on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Trust for such securities to the same
extent as if the securities had been received by the Custodian.
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2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; PROVIDED, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 DEPOSIT OF TRUST ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Portfolio.
The Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Trust at its request. Upon request,
the Custodian shall furnish the Trust on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Trust on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
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4) The Custodian shall provide the Trust for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Trust on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Trust, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.11 TRUST ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Trust on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Trust on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
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Paper on the next business day following such transfer and shall
furnish to the Trust on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Trust on behalf of the Portfolio
with any report on its system of internal accounting control as the
Trust may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Trust on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Trust on behalf of the Portfolio,
the Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Trust on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Trust and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
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2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Trust for
each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put
options written by the Trust on behalf of the Portfolio and the maturity
of futures contracts purchased or sold by the Portfolio) received by the
Custodian from issuers of the securities being held for the Portfolio.
With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Portfolio
shall notify the Custodian at least three business days prior to the date
on which the Custodian is to take such action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE TRUST HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Trust hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Trust's Board of Trustees, the
Custodian and the Trust may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Trust may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Trust may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Trust, the
foreign securities of the Trust held by each foreign sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Trust, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof (Foreign Securities
Systems and U.S. Securities Systems are collectively referred to herein as
the "Securities Systems"). Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5
hereof.
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3.4 HOLDING SECURITIES. The Custodian may hold securities and other non-cash
property for all of its customers, including the Trust, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, PROVIDED HOWEVER, that (i) the
records of the Custodian with respect to securities and other non-cash
property of the Trust which are maintained in such account shall identify
by book-entry those securities and other non-cash property belonging to
the Trust and (ii) the Custodian shall require that securities and other
non-cash property so held by the foreign sub-custodian be held separately
from any assets of the foreign sub-custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Trust, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE TRUST. Upon request of the Trust,
the Custodian will use its best efforts to arrange for the independent
accountants of the Trust to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Trust from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained
by a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of such
securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and
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2.7 of this Contract shall apply, MUTATIS MUTANDIS to the foreign
securities of the Trust held outside the United States by foreign
sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Trust agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Trust from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Trust, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Trust has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Trust for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
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3.11 REIMBURSEMENT FOR ADVANCES. If the Trust requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Trust fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Trust, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Trust in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Trust in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Trust or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Trust in the United Kingdom shall
be maintained in an interest bearing account established for the Trust
with the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.14 TAX LAW. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Trust or the Custodian as
custodian of the Trust by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the responsibility
of the Trust to notify the Custodian of the obligations imposed on the
Trust or the Custodian as custodian of the Trust by the tax law of
jurisdictions other than those mentioned in the above sentence, including
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to
use reasonable efforts to assist the Trust with respect to any claim for
exemption or reTrust under the tax law of jurisdictions for which the
Trust has provided such information.
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4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE TRUST
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Trust and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Trust. The Custodian will provide timely
notification to the Trust on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
From such Trusts as may be available for the purpose but subject to the
limitations of the Trust Instrument and any applicable votes of the Board of
Trustees of the Trust pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make Trusts available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire Trusts to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Trust, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Trust to the holder of Shares, when presented to the Custodian in accordance
with such procedures and controls as are mutually agreed upon from time to time
between the Trust and the Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Trust shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the
Trust accompanied by a detailed description of procedures approved by the Board
of Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
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6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Trust on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to
the Trust on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments;and
4) in general attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Trust.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Trust. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Trust as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Trust Instrument as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Trust to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Trust on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Trust's currently effective prospectus related to such Portfolio and shall
advise the Trust and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Trust to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Trust's currently effective prospectus related to such
Portfolio.
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9. RECORDS
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Trust under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Trust and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Trust and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Trust's request, supply the Trust with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Trust and for such compensation as shall be agreed upon between the
Trust and the Custodian, include certificate numbers in such tabulations.
10. OPINION OF TRUST'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Trust on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Trust's independent accountants with respect to
its activities hereunder in connection with the preparation of the Trust's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. REPORTS TO TRUST BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Trust, on behalf of each of the Portfolios
at such times as the Trust may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Trust to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Trust on behalf of each applicable Portfolio and the Custodian.
13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
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upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Trust for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Trust) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Trust for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Trust or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Trust,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Trust on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Trust or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Trust on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Trust requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
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taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Trust fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Trust has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio; PROVIDED FURTHER, however, that
the Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Trust
Instrument, and further provided, that the Trust on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Trust on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Trust, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Trust, the Custodian shall
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
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If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Trust, deliver at the office of the Custodian and transfer such
securities, Trusts and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, Trusts and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, Trusts and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, Trusts and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Trust on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Trust Instrument of the Trust. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17. ADDITIONAL TRUSTS
In the event that the Trust establishes one or more series of Shares in
addition to Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Conservative Portfolio and Mitchell Hutchins Moderate Portfolio with respect to
which it desires to have the Custodian render services as custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
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18. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Trust on behalf of each of the Portfolios and the
Custodian relating to the custody of the Trust's assets.
20. REPRODUCTION OF DOCUMENTS
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. SHAREHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Trust to indicate whether it authorizes the
Custodian to provide the Trust's name, address, and share position to requesting
companies whose securities the Trust owns. If the Trust tells the Custodian
"no", the Custodian will not provide this information to requesting companies.
If the Trust tells the Custodian "yes" or does not check either "yes" or "no"
below, the Custodian is required by the rule to treat the Trust as consenting to
disclosure of this information for all securities owned by the Trust or any
Trusts or accounts established by the Trust. For the Trust's protection, the
Rule prohibits the requesting company from using the Trust's name and address
for any purpose other than corporate communications. Please indicate below
whether the Trust consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Trust's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Trust's name,
address, and share positions.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1997.
--- ------------
22. LIMITATION OF LIABILITY
The Custodian agrees that the Contract may only be enforced against the
assets of the Trust or the particular Portfolio of the Trust.
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ATTEST MITCHELL HUTCHINS PORTFOLIOS
By
- -------------------------- -----------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- -------------------------- -----------------------------------
Executive Vice President
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Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Mitchell Hutchins
Portfolios for use as sub-custodians for the Trust's securities and other
assets:
(Insert banks and securities depositories)
Certified:
- --------------------------
Trust's Authorized Officer
Date:
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23
DRAFT
FORM OF TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of , 1998 by and between PFPC INC., a Delaware
corporation ("PFPC"), and Mitchell Hutchins Portfolios, a [Delaware business
trust](the "Trust").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Trust, and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Trust and any other
person duly authorized by the Trust's Board of Directors or Trustees ("Board")
to give Oral Instructions and Written Instructions on behalf of the Trust and
<PAGE>
listed on the Authorized Persons Appendix attached hereto and made a part hereof
or any amendment thereto as may be received by PFPC. An Authorized Person's
scope of authority may be limited by the Trust by setting forth such limitation
in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from
an Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(h) "SHARES" mean the shares of common stock or beneficial interest of
any series or class of the Trust.
(i) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Trust hereby appoints PFPC to serve as transfer
aent, registrar, dividend disbursing agent and shareholder servicing agent
to the Trust in accordance with the terms set forth in this Agreement. PFPC
accepts such appointment and agrees to furnish such services.
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3. DELIVERY OF DOCUMENTS. The Trust has provided or, where applicable,
will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the
Trust's Board approving the appointment of PFPC to provide services to the Trust
and approving this Agreement;
(b) A copy of each executed broker-dealer agreement with respect to
each Trust; and
(c) Copies (certified or authenticated if requested by PFPC) of any
post-effective amendment to the Trust's registration statement, advisory
agreement, distribution agreement, shareholder servicing agreement and all
amendments or supplements to the foregoing upon request.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Trust or any
of its series or investment portfolios (each, a "Portfolio").
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
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<PAGE>
received hereunder is not in any way inconsistent with the provisions of
organizational documents or of any vote, resolution or proceeding of the Trust's
Board or of the Trust's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Trust agrees to forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the next day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to the Trust in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions comply with
the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE TRUST. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Trust.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Trust, the Trust's investment adviser or PFPC, at the option of PFPC).
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(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from the
Trust, and the advice it receives from counsel, PFPC may rely upon and follow
the advice of counsel. In the event PFPC so relies on the advice of counsel,
PFPC remains liable for any action or omission on the part of PFPC which
constitutes willful misfeasance, bad faith, negligence or reckless disregard by
PFPC of any duties, obligations or responsibilities set forth in this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Trust or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be construed
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
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<PAGE>
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Trust, including (a) all those records required to be prepared and maintained by
the Trust under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Trust, which are in the
possession or under the control of PFPC, shall be the property of the Trust. The
Trust and Authorized Persons shall have access to such books and records in the
possession of PFPC at all times during PFPC's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records in the
possession of PFPC shall be provided by PFPC to the Trust or to an Authorized
Person, at the Trust's expense. Upon reasonable notice by the Trust, PFPC shall
make available during regular business hours its facilities and premises
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employed in connection with its performance of this Agreement for reasonable
visits by the Trust, any agent or person designated by the Trust or any
regulatory agency having authority over the Trust.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Trust and information relating to the Trust and its shareholders (past, present
and future), its investment adviser and its principal underwriter, unless the
release of such records or information is otherwise consented to, in writing, by
the Trust prior to its release. The Trust agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Trust's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Trust.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
periodic backup of computer files and data with respect to the Trust and
emergency use of electronic data processing equipment. In the event of equipment
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<PAGE>
failures, PFPC shall, at no additional expense to the Trust, take reasonable
steps to minimize service interruptions. PFPC shall have no liability with
respect to the loss of data or service interruptions caused by equipment
failure, provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations under this Agreement and provided further that PFPC has complied
with the provisions of this paragraph 10.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Trust will pay to PFPC a fee or fees as
may be agreed to from time to time in writing by the Trust and PFPC.
12. INDEMNIFICATION.
(a) The Trust agrees to indemnify and hold harmless PFPC and its
affiliates from all taxes, charges, expenses, assessments, penalties, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from (i) any
action or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Trust or (b) upon Oral
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<PAGE>
Instructions or Written Instructions or (ii) the acceptance, processing and/or
negotitation of checks or other methods utilized for the purchase of Shares.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement, provided that in
the absence of a finding to the contrary the acceptance, processing and/or
negotiation of a fraudulent payment for the purchase of Shares shall be presumed
not to have been the result of PFPC's or its affiliates' own willful
misfeasance, bad faith, negligence or reckless disregard of such duties and
obligations.
(b) PFPC agrees to indemnify and hold harmless the Trust from all
taxes, charges, expenses, assessments, penalties, claims and liabilities arising
from PFPC's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws, and any state and
foreign securities and blue sky laws, and amendments thereto) and expenses,
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of PFPC's or its nominee's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
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<PAGE>
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
(d) The members of the Board of the Trust and Shareholders of the
Trust, or any Portfolio thereof, shall not be liable for any obligations of the
Trust, or any such Portfolio, under this Agreement, and PFPC agrees that in
asserting any rights or claims under this Agreement, it shall look only to the
assets and property of the Trust or the particular Portfolio in settlement of
such rights or claims and not to such members of the Board or Shareholders. PFPC
further agrees that it will look only to the assets and property of a particular
Portfolio of the Trust, should the Trust have established separate series, in
asserting any rights or claims under this Agreement with respect to services
rendered with respect to that Portfolio and will not seek to obtain settlement
of such rights or claims from the assets of any other Portfolio of the Trust.
Notwithstanding the foregoing, in asserting any rights or claims under this
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Agreement, PFPC shall not be prevented from looking to the assets and property
of the Trust sponsor or any other appropriate party(ies) in settlement of such
rights or claims.
13. INSURANCE. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
no provision of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Trust, PFPC or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
14. SECURITY.
(a) PFPC represents and warrants that, to the best of its knowledge,
the various procedures and systems which PFPC has implemented with regard to the
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access) of the
Trust's blank checks, certificates, records and other data and PFPC's equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate, and that it will make such changes therein from time to
time as in its judgment are required for the secure performance of its
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<PAGE>
obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Trust shall have reasonable access to review these
systems and procedures.
(b) Y2K Compliance. PFPC further represents and warrants that any and
all electronic data processing systems and programs that it uses in connection
with the provision of services hereunder and over which PFPC has control prior
to 1999 will be year 2000 compliant.
15. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Trust except as specifically set forth herein or as may be specifically agreed
to by PFPC in writing. PFPC shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good faith and to use its
best efforts in performing services provided for under this Agreement. PFPC
shall be liable for any damages arising out of PFPC's failure to perform its
duties under this Agreement to the extent such damages arise out of PFPC's
willful misfeasance, bad faith, negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
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Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Trust for any
consequential, special or indirect losses or damages which the Trust may incur
or suffer by or as a consequence of PFPC's or its affiliates' performance of the
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
16. DESCRIPTION OF SERVICES.
(a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE.
(i) Calculate 12b-1 payments to financial intermediaries and
financial intermediary trail commissions;
(ii) Develop, monitor and maintain, in consultation with the
Trust, all systems necessary to implement and operate the four-tier distribution
system, including Class B conversion feature, as described in the registration
statement and related documents of the Trust, as they may be amended from time
to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Trust shares and deduct such amounts from redemption proceeds;
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<PAGE>
(iv) Calculate front-end sales load amounts at time of purchase
of shares;
(v) Determine dates of Class B conversion and effect the same;
(vi) Establish and maintain proper shareholder registrations;
(vii) Review new applications and correspond with shareholders to
complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in con- junction with
proxy solicitations;
(x) Prepare and mail to shareholders confirmation of activity;
(xi) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(xii) Send duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the broker-dealer or directly with
PFPC;
(xiii) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the clients as agreed to by PFPC and the
Trust from time to time;
(xiv) Provide detailed data for underwriter/broker confirmations;
(xv) Prepare periodic mailing of year-end tax and statement
information;
(xvi) Notify on a daily basis the investment adviser, accounting
agent, and custodian of Trust activity; and
(xvii) Perform, itself or through a delegate, all of the
services, whether or not included within the scope of another paragraph of this
Paragraph 16(a), specified on Annex A hereto; and
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<PAGE>
(xviii) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN
INSTRUCTIONS.
(i) Accept and post daily Trust and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Cancel certificates.
(c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an
investor, in the manner described in the Trust's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
(iii) Confirmation of receipt or crediting of Trusts for such
order to the Trust's custodian.
(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that
function is properly authorized by the Trust's organizational documents or
resolutions of the Trust's Board. Shares shall be redeemed and payment therefor
shall be made in accordance with the Trust's or Portfolio's prospectus.
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<PAGE>
(i) BROKER-DEALER ACCOUNTS.
When a broker-dealer notifies PFPC of a redemption desired by
a customer, and the Trust's Custodian (the "Custodian")
provides PFPC with Trusts, PFPC shall prepare and send the
redemption check to the broker-dealer and made payable to the
broker-dealer on behalf of its customer.
(ii) TRUST-ONLY ACCOUNTS.
If Shares are received in proper form, at the Trust's request
Shares may be redeemed before the Trusts are provided to PFPC
from the Custodian. If the recordholder has not directed that
redemption proceeds be wired, when the Custodian provides
PFPC with Trusts, the redemption check shall be sent to and
made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed by the recordholder; or
[(ii) transfer authorizations are signed by the recordholder when
Shares are held in book- entry form.
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the
Trust's Board authorizing the declaration and payment of dividends and
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<PAGE>
distributions, PFPC shall issue dividends and distributions declared by the
Trust in Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if provided for in the appropriate Trust's or Portfolio's
prospectus. Such issuance or payment, as well as payments upon redemption as
described above, shall be made after deduction and payment of the required
amount of Trusts to be withheld in accordance with any applicable tax laws or
other laws, rules or regulations. PFPC shall mail to the Trust's shareholders
such tax forms and other information, or permissible substitute notice, relating
to dividends and distributions paid by the Trust as are required to be filed and
mailed by applicable law, rule or regulation. PFPC shall prepare, maintain and
file with the IRS and other appropriate taxing authorities reports relating to
all dividends above a stipulated amount paid by the Trust to its shareholders as
required by tax or other law, rule or regulation.
(f) SHAREHOLDER ACCOUNT SERVICES.
(i) PFPC will arrange, in accordance with the appropriate
Trust's or Portfolio's pro- spectus, for issuance of Shares
obtained through:
- The transfer of Trusts from shareholders' accounts at
financial institutions, provided PFPC receives advance Oral
Instruction of such transfer;
- Any pre-authorized check plan; and
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<PAGE>
- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC will arrange, in accordance with the appropriate
Trust's or Portfolio's pro- spectus, for a shareholder's:
- Exchange of Shares for shares of another Trust with which
the Trust has exchange privileges;
- Automatic redemption from an account where that shareholder
participates in a systematic withdrawal plan; and/or
- Redemption of Shares from an account with a checkwriting
privilege.
(g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written Instructions,
PFPC shall mail all communications by the Trust to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Trust shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Trust, PFPC will receive and tabulate the proxy cards
cards for the meetings of the Trust's shareholders and supply personnel to serve
as inspectors of election.
(h) RECORDS. PFPC shall maintain those records required by the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdication with respect to the duties to be performed by PFPC
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<PAGE>
hereunder with respect to shareholder accounts or by transfer agents generally,
including records of the accounts for each shareholder showing the following
information:
(i) Name, address and United States Tax Identification or Social
Security number;
(ii) Number and class of Shares held and number and class of
Shares for which certificates, if any, have been issued,
including certificate numbers and denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid and
the date and price for all transactions on a shareholder's
account;
(iv) Any stop or restraining order placed against a shareholder's
account;
(v) Any correspondence relating to the current maintenance of a
shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation.
(J) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any
Trust shareholder to inspect stock records, PFPC will notify the Trust, and the
Trust will issue instructions granting or denying each such request. Unless PFPC
has acted contrary to the Trust's instructions, the Trust agrees and does
hereby, release PFPC from any liability for refusal of permission for a
particular shareholder to inspect the Trust's shareholder records.
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(k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES.
Upon receipt of Written Instructions, PFPC shall cancel outstanding
certificates surrendered by the Trust to reduce the total amount of outstanding
shares by the number of shares surrendered by the Trust.
17. DURATION AND TERMINATION.
(a) This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the "Initial Term"). Upon
the expiration of the Initital Term, this Agreement shall automatically renew
for successive terms of one (1) year ("Renewal Terms") each provided that it may
be terminated by either party during a Renewal Term upon written notice given at
least ninety (90) days prior to termination. During either the Initial Term or
the Renewal Terms, this Agreement may also be terminated on an earlier date by
either party for cause.
(b) With respect to the Trust, cause includes, but is not limited to,
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute "cause" under this Paragraph, PFPC must receive written notice from
the Trust specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
20
<PAGE>
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of the Securities Laws or other applicable laws related to
its business of performing transfer agency services;
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Trust to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Trust shall be effective
thirty (30) days from the date of any such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Trust shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Trust designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Trust,
transfer to such successor all relevant books, records and other data
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<PAGE>
established or maintained by PFPC hereunder including, a certified list of the
shareholders of the Trust or any Portfolio thereof with name, address, and if
provided, taxpayer identification or Social Security number, and a complete
record of the account of each shareholder. To the extent that PFPC incurs
expenses related to a transfer of responsibilities to a successor, other than
expenses involved in PFPC's providing the Trust's books and records described in
the preceding sentence to the successors, PFPC shall be entitled to be
reimbursed for such extraordinary expenses, including any out-of-pocket expenses
reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Trust or any Portfolio thereof upon the liquidation, merger, or
other dissolution of the Trust or Portfolio or upon the Trust's ceasing to be a
registered investment company.
18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is currently
registered with the appropriate federal agency for the registration of transfer
agents, or is otherwise permitted to lawfully conduct its activities without
such registration and that it will remain so registered or able to so conduct
such activities for the duration of this Agreement. PFPC agrees that it will
22
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promptly notify the Trust in the event of any material change in its status as a
registered transfer agent. Should PFPC fail to be registered with the SEC as a
transfer agent at any time during this Agreement, and such failure to register
does not permit PFPC to lawfully conduct its activities, the Trust may, on
written notice to PFPC, terminate this Agreement upon five days written notice
to PFPC.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Trust, at the
address of the Trust or (c) if to neither of the foregoing, at such other
address as shall have been given by like notice to the sender of any such notice
or other communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device during regular business
hours, it shall be deemed to have been given immediately; if sent at a time
other than regular business hours, such notice shall be deemed to have been
given at the opening of the next business day. If notice is sent by first-class
mail, it shall be deemed to have been given three days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
23
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it is delivered. All postage, cable, telegram, telex and facsimile sending
device charges arising from the sending of a notice hereunder shall be paid by
the sender.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
21. ADDITIONAL SERIES. In the event that the Trust establishes one or more
investment series in addition to and with respect to which it desires to have
PFPC render services as transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment series shall become a Portfolio hereunder, subject
to such additional terms, fees and conditions as are agreed to by the parties.
22. DELEGATION; ASSIGNMENT.
(a) PFPC may, at its own expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Trust
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Trust to comply with all relevant provisions of the Securities
Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such
information as the Trust may request, and respond to such questions as the Trust
24
<PAGE>
may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee). The assignment and
delegation of any of PFPC's duties under this subparagraph (a) shall not relieve
PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to
perform the services described on Annex A hereto. In addition, PFPC may assign
its rights and delegate its other duties hereunder to PaineWebber Incorporated
or Mitchell Hutchins Asset Management Inc. or an affiliated person of either,
provided that (i) PFPC gives the Trust thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PFPC and the Trust to comply with
all relevant provisions of the 1940 Act; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Trust may request, and
respond to such questions as the Trust may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee). In assigning its rights and delegating its duties under this
paragraph, PFPC may impose such conditions or limitations as it determines
appropriate including the condition that PFPC be retained as a sub-transfer
agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
25
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23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to services to be performed and fees payable under this Agreement.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
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<PAGE>
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
-----------------------------------
Title:
--------------------------------
Mitchell Hutchins Portfolios
By:
-----------------------------------
Title:
--------------------------------
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AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, DC 20036
January 9, 1998
Mitchell Hutchins Portfolios
1285 Avenue of the Americas
New York, New York 10019
Dear Sir/Madam:
Mitchell Hutchins Portfolios ("Trust") is a business trust organized
under the laws of the state of Delaware on August 9, 1996. You have requested
our opinion regarding certain matters in connection with the Trust's issuance of
Class A, Class B, Class C and Class Y shares of beneficial interest (the
"Shares") in each of the three series designated as Mitchell Hutchins Aggressive
Portfolio, Mitchell Hutchins Conservative Portfolio and Mitchell Hutchins
Moderate Portfolio.
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine, of the Trust Instrument and By-Laws of the
Trust, the minutes of meetings of its board of trustees and other documents
relating to its organization and operation, and we are generally familiar with
its business affairs. Based upon the foregoing, it is our opinion that the
unlimited number of Shares of Mitchell Hutchins Aggressive Portfolio, Mitchell
Hutchins Conservative Portfolio and Mitchell Hutchins Moderate Portfolio that
are currently being registered may be legally and validly issued in accordance
with the Trust's Trust Instrument and By-Laws and subject to compliance with the
Securities Act of 1933, the Investment Company Act of 1940 and applicable state
laws and, when so issued, the Shares will be legally issued, fully paid and
non-assessable by the Trust.
We hereby consent to the filing of this opinion in connection with
Pre-Effective Amendment No. 3 to the Trust's Registration Statement on Form N-1A
(File No. 333-26087) to be
<PAGE>
filed with the Securities and Exchange Commission. We also consent to the
reference to our firm under the caption "Counsel" in the Statement of Additional
Information filed as part of the Registration Statement.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Elinor W. Gammon
------------------------------
Elinor W. Gammon
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Auditors" in the
"Statement of Additional Information" and to the use of our report dated
December 30, 1997, in this Registration Statement (Form N-1A No 333-26087) of
Mitchell Hutchins Portfolios.
/s/ Ernst & Young LLP
-------------------------
ERNST & YOUNG LLP
New York, New York
January 9, 1998
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019-6028
212-713-4000
MITCHELL HUTCHINS
January 5, 1998
Mitchell Hutchins Portfolios
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
We are writing in connection with the 800 Class A shares, 800 Class B
shares, 800 Class C shares and 800 Class Y shares of beneficial interest of each
of Mitchell Hutchins Aggressive Portfolio and Mitchell Hutchins Moderate
Portfolio, and the 400 Class A shares, 400 Class B shares, 400 Class C shares
and 400 Class Y shares of beneficial interest of Mitchell Hutchins Conservative
Portfolio, which shares we have purchased from you at a price of $12.50 per
share. This is to advise you that such shares were purchased for investment only
with no present intention of selling such shares, and we do not now have any
intention of selling such shares.
Sincerely,
/s/ Dianne E. O'Donnell
--------------------------
Dianne E. O'Donnell
Senior Vice President
MITCHELL HUTCHINS PORTFOLIOS -- CLASS A SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS Mitchell Hutchins Portfolios ("Trust") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class A shares
established; and
WHEREAS the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class A shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class A shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
A shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series' Class A shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Any Series may pay a service fee to Mitchell Hutchins at a lesser
rate than the fee specified in paragraph 1A of this Plan, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in paragraph
4 of this Plan.
2. As Distributor of the Class A shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Series' Class A shares
or the servicing and maintenance of shareholder accounts, including, but not
limited to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials.
<PAGE>
3. If adopted with respect to the Class A shares of a Series after any
public offering of those shares, this Plan shall not take effect with respect to
those shares unless it has first been approved by a vote of a majority of the
voting securities of the Class A shares of that Series.
4. This Plan shall not take effect with respect to the Class A shares
of any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Series' Class
A shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
continue in full force and effect with respect to such Series for so long as
such continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class A shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"service activities," as defined in this paragraph 6, to the Board in support of
the service fee payable hereunder.
"Service activities" shall mean activities covered by the
definition of "service fee" contained in Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc., including the provision by
Mitchell Hutchins or PaineWebber of personal, continuing services to investors
in the Class A shares of the Series. Overhead and other expenses of Mitchell
Hutchins and PaineWebber related to their "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class A shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class A shares of that Series.
8. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof unless such amendment is
approved by a vote of a majority of the outstanding voting securities of each
Series, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in paragraph 5 hereof.
9. The amount of the service fees payable by any Series to Mitchell
Hutchins under paragraph 1A hereof and the Contract is not related directly to
expenses incurred by Mitchell Hutchins on behalf of such Series in serving as
Distributor of the Class A shares, and paragraph 2 hereof and the Contract do
2
<PAGE>
not obligate the Series to reimburse Mitchell Hutchins for such expenses. The
service fees set forth in paragraph 1A hereof will be paid by the Series to
Mitchell Hutchins until either the Plan or the Contract is terminated or not
renewed. If either the Plan or the Contract is terminated or not renewed with
respect to the Class A shares of any Series, any distribution expenses incurred
by Mitchell Hutchins on behalf of the Series in excess of payments of the
service fees specified in paragraph 1A hereof and the Contract which Mitchell
Hutchins has received or accrued through the termination date are the sole
responsibility and liability of Mitchell Hutchins, and are not obligations of
the Series.
10. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons of the Trust.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
13. The Trustees of the Trust and the shareholders of each Series shall
not be liable for any obligations of the Trust or any Series under this Plan,
and Mitchell Hutchins or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Series in settlement of such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution on
the day and year set forth below in New York, New York.
Date: , 1997
-------------------------------
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
By:
- ---------------------------- ------------------------------
3
MITCHELL HUTCHINS PORTFOLIOS -- CLASS B SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS Mitchell Hutchins Portfolios ("Trust") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class B shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class B shares
established; and
WHEREAS the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class B shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class B shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
I. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, a distribution fee at the rate of 0.75% on an annualized basis of the
average daily net assets of the Series' Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series' Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
C. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified in paragraphs 1A and 1B,
respectively, of this Plan, in either case as agreed upon by the Board and
Mitchell Hutchins and as approved in the manner specified in paragraph 4 of this
Plan.
2. As Distributor of the Class B shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Class B shares of the
Series or the servicing and maintenance of shareholder accounts, including, but
not limited to, compensation to employees of Mitchell Hutchins; compensation to
and expenses, including overhead and telephone and other communication expenses,
<PAGE>
of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other
selected dealers who engage in or support the distribution of shares or who
service shareholder accounts; the printing of prospectuses, statements of
additional information, and reports for other than existing shareholders; and
the preparation, printing and distribution of sales literature and advertising
materials.
3. If adopted with respect to the Class B shares of a Series after any
public offering of those shares, this Plan shall not take effect with respect to
those shares unless it first has been approved by a vote of a majority of the
voting securities of the Class B shares of that Series.
4. This Plan shall not take effect with respect to the Class B shares
of any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Series' Class
B shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
take effect and continue in full force and effect with respect to the Class B
shares of such Series for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class B shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts expended for "service activities," as defined in
this paragraph 6, to the Board in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "service activities."
"Service activities" shall mean activities covered by the definition of "service
fee" contained in Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc., including the provision by Mitchell Hutchins or
PaineWebber of personal, continuing services to investors in the Class B shares
of the Series. Overhead and other expenses of Mitchell Hutchins and PaineWebber
related to their "distribution activities" or "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class B shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class B shares of that Series.
2
<PAGE>
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in paragraph 1A hereof or the amount of service
fees provided for in paragraph 1B hereof unless such amendment is approved in
the manner provided for initial approval in paragraphs 3 and 4 hereof, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in paragraph 5 hereof.
9. The amount of the distribution and service fees payable by the
Series to Mitchell Hutchins under paragraphs 1A and 1B hereof and the Contract
is not related directly to expenses incurred by Mitchell Hutchins on behalf of
such Series in serving as Distributor of the Class B shares, and paragraph 2
hereof and the Contract do not obligate the Series to reimburse Mitchell
Hutchins for such expenses. The distribution and service fees set forth in
paragraphs 1A and 1B hereof will be paid by the Series to Mitchell Hutchins
until either the Plan or the Contract is terminated or not renewed. If either
the Plan or the Contract is terminated or not renewed with respect to the Class
B shares of any Series, any distribution expenses incurred by Mitchell Hutchins
on behalf of the Class B shares of the Series in excess of payments of the
distribution and service fees specified in paragraphs 1A and 1B hereof and the
Contract which Mitchell Hutchins has received or accrued through the termination
date are the sole responsibility and liability of Mitchell Hutchins, and are not
obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons of the Trust.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
13. The Trustees of the Trust and the shareholders of each Series shall
not be liable for any obligations of the Trust or any Series under this Plan,
and Mitchell Hutchins or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Series in settlement of such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution on
the day and year set forth below in New York, New York.
Date: , 1997
----------------------
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
By:
- ---------------------------- ------------------------------
3
MITCHELL HUTCHINS PORTFOLIOS -- CLASS C SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, Mitchell Hutchins Portfolios ("Trust") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and has three distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as Mitchell Hutchins Aggressive Portfolio, Mitchell Hutchins
Moderate Portfolio and Mitchell Hutchins Conservative Portfolio; and
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class C shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class C shares
established; and
WHEREAS, the Trust has entered into a Distribution Contract
("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
pursuant to which Mitchell Hutchins has agreed to serve as Distributor of the
Class C shares of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class C shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
I. A. The following Series of the Trust are authorized to pay to
Mitchell Hutchins, as compensation for Mitchell Hutchins' services as
Distributor of the Series' Class C shares, distribution fees at the rate (on an
annualized basis) set forth below of the average daily net assets of the Series'
Class C shares. Such fee shall be calculated and accrued daily and paid monthly
or at such other intervals as the Board shall determine:
Mitchell Hutchins Aggressive Portfolio 0.75%
Mitchell Hutchins Moderate Portfolio 0.75%
Mitchell Hutchins Conservative Portfolio 0.50%
B. Any Series hereafter established is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class C Shares, a distribution fee in the amount to be agreed upon in a
written distribution fee addendum to this Plan ("Distribution Fee Addendum")
executed by the Trust on behalf of such Series. All such Distribution Fee
Addenda shall provide that they are subject to all terms and conditions of this
Plan.
C. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
C shares, a service fee at the rate of 0.25%, on an annualized basis, of the
average daily net assets of the Series' Class C shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
<PAGE>
D. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified above, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in Paragraph
4 of this Plan.
2. As Distributor of the Class C shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Class C shares of the
Series or the servicing and maintenance of shareholder accounts, including, but
not limited to, compensation to employees of Mitchell Hutchins; compensation to
and expenses, including overhead and telephone and other communication expenses,
of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other
selected dealers who engage in or support the distribution of shares or who
service shareholder accounts; the printing of prospectuses, statements of
additional information, and reports for other than existing shareholders; and
the preparation, printing and distribution of sales literature and advertising
materials.
3. If adopted with respect to the Class C shares of a Series after any
public offering of those shares, this Plan shall not take effect with respect to
those shares unless it first has been approved by a vote of a majority of the
voting securities of the Class C shares of that Series.
4. This Plan shall not take effect with respect to the Class C shares
of any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Series' Class
C shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
take effect and continue in full force and effect with respect to the Class C
shares of such Series for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in Paragraph
4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class C shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts expended for "service activities," as defined in
this Paragraph 6, to the Board in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "service activities."
"Service activities" shall mean activities covered by the definition of "service
fee" contained in Rule 2830 of the Conduct Rules of the National Association of
2
<PAGE>
Securities Dealers, Inc., including the provision by Mitchell Hutchins or
PaineWebber of personal, continuing services to investors in the Class C shares
of the Series. Overhead and other expenses of Mitchell Hutchins and PaineWebber
related to their "distribution activities" or "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class C shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class C shares of that Series.
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraph 1A or 1B hereof or the amount of
service fees provided for in Paragraph 1C hereof unless such amendment is
approved in the manner provided for initial approval in paragraphs 3 and 4
hereof, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in Paragraph 5 hereof.
9. The amount of the distribution and service fees payable by the
Series to Mitchell Hutchins under Paragraphs 1 hereof and the Contract is not
related directly to expenses incurred by Mitchell Hutchins on behalf of such
Series in serving as Distributor of the Class C shares, and Paragraph 2 hereof
and the Contract do not obligate the Series to reimburse Mitchell Hutchins for
such expenses. The distribution and service fees set forth in Paragraph 1 hereof
will be paid by the Series to Mitchell Hutchins until either the Plan or the
Contract is terminated or not renewed. If either the Plan or the Contract is
terminated or not renewed with respect to the Class C shares of any Series, any
distribution expenses incurred by Mitchell Hutchins on behalf of the Class C
shares of the Series in excess of payments of the distribution and service fees
specified in Paragraphs 1 hereof and the Contract which Mitchell Hutchins has
received or accrued through the termination date are the sole responsibility and
liability of Mitchell Hutchins, and are not obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons of the Trust.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
13. The Trustees of the Trust and the shareholders of each Series shall
not be liable for any obligations of the Trust or any Series under this Plan,
and Mitchell Hutchins or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Series in settlement of such right or claim, and not to such Trustees or
shareholders.
3
<PAGE>
IN WITNESS WHEREOF, the Trust has caused this Plan of Distribution to
be executed on the day and year set forth below in New York, New York.
Date: , 1997
-----------------------
ATTEST: MITCHELL HUTCHINS PORTFOLIOS
By:
- ---------------------------- -------------------------------
4
MITCHELL HUTCHINS PORTFOLIOS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
Mitchell Hutchins Portfolios hereby adopts this amended and restated
Multiple Class Plan pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended ("1940 Act") on behalf of its current series, Mitchell Hutchins
Aggressive Portfolio, Mitchell Hutchins Moderate Portfolio and Mitchell Hutchins
Conservative Portfolio, and any series that may be established in the future
(referred to hereinafter collectively as the "Funds" and individually as a
"Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. CLASS A SHARES. Class A shares of each Fund are sold to the general
public subject to an initial sales charge. The initial sales charge for each
Fund is waived for certain eligible purchasers and reduced or waived for certain
large volume purchases.
The maximum sales charge is 4% of the public offering price for Class A
shares of a Fund that invests primarily in debt securities or in other
investment companies that invest primarily in debt securities.
The maximum sales charge is 4.5% of the public offering price for Class
A shares of a Fund that invests primarily in equity securities or a combination
of equity and debt securities or in other investment companies that invest
primarily in equity securities or a combination of equity and debt securities.
Class A shares of each Fund are subject to an annual service fee of
0.25% of the average daily net assets of the Class A shares of each Fund paid
pursuant to a plan of distribution adopted pursuant to Rule 12b-1 under the 1940
Act.
Class A shares of each Fund are subject to a contingent deferred sales
charge ("CDSC") on redemptions of shares (i) purchased without an initial sales
charge due to a sales charge waiver for purchases of $1 million or more and (ii)
held less than one year. The Class A CDSC is equal to 1% of the lower of: (i)
the net asset value of the shares at the time of purchase or (ii) the net asset
value of the shares at the time of redemption. Class A shares of each Fund held
one year or longer and Class A shares of each Fund acquired through reinvestment
of dividends or capital gains distributions on shares otherwise subject to a
Class A CDSC are not subject to the CDSC. The CDSC for Class A shares of each
Fund will be waived under certain circumstances.
2. CLASS B SHARES. Class B shares of each Fund are sold to the general
public subject to a CDSC, but without imposition of an initial sales charge.
The maximum CDSC for Class B shares of each Fund is equal to 5% of the
lower of: (i) the net asset value of the shares at the time of purchase or (ii)
the net asset value of the shares at the time of redemption.
Class B shares of each Fund held six years or longer and Class B shares
of each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC.
<PAGE>
Class B shares of each Fund are subject to an annual service fee of
0.25% of average daily net assets and a distribution fee of 0.75% of average
daily net assets of the Class B shares of each Fund, each paid pursuant to a
plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of each Fund convert to Class A shares approximately six
years after issuance at relative net asset value.
3. CLASS C SHARES. Class C shares of each Fund are sold to the general
public without imposition of a sales charge.
Class C shares of a Fund that invests primarily in equity securities or
a combination of equity and debt securities (or in other investment companies
that invest primarily in equity securities or a combination of equity and debt
securities) are subject to an annual service fee of 0.25% of average daily net
assets and a distribution fee of 0.75% of average daily net assets of Class C
shares of such Fund, each pursuant to a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act. Class C shares of such a Fund will be subject to
a CDSC on redemptions of Class C shares held less than one year equal to 1% of
the lower of: (i) the net asset value of the shares at the time of purchase or
(ii) the net asset value of the shares at the time of redemption.
Class C shares of a Fund that invests primarily in debt securities (or
in other investment companies that invest primarily in debt securities) are
subject to an annual service fee of 0.25% of average daily net assets and a
distribution fee of 0.50% of average daily net assets of Class C shares of such
Fund, each pursuant to a plan of distribution adopted pursuant to Rule 12b-1
under the 1940 Act. Class C shares of such a Fund will be subject to a CDSC on
redemptions of Class C shares held less than one year equal to 0.75% of the
lower of: (i) the net asset value of the shares at the time of purchase or (ii)
the net asset value of the shares at the time of redemption.
Class C shares of each Fund held one year or longer and Class C shares
of each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC. The CDSC for Class C shares of each
Fund will be waived under certain circumstances.
4. CLASS Y SHARES. Class Y shares are sold without imposition of an
initial sales charge or CDSC and are not subject to any service or distribution
fees.
Class Y shares of each Fund are available for purchase only by: (i)
employee benefit and retirement plans, other than individual retirement accounts
and self-employed retirement plans, of Paine Webber Group Inc. and its
affiliates; (ii) certain unit investment trusts sponsored by PaineWebber
Incorporated ("PaineWebber"); (iii) participants in certain investment programs
that are currently, or will in the future be, sponsored by PaineWebber or its
affiliates and that charge a separate fee for program services, provided that
shares are purchased through or in connection with such programs; (iv) investors
purchasing $10,000,000 or more at one time in any combination of PaineWebber
proprietary funds in the Flexible Pricing System; (v) an employee benefit plan
qualified under section 401 (including a salary reduction plan qualified under
section 401(k)) or section 403(b) of the Internal Revenue Code (each an
2
<PAGE>
"employee benefit plan"), provided that such employee benefit plan has 5,000 or
more eligible employees; (vi) an employee benefit plan with assets of
$50,000,000 or more,and (vii) any investment company advised by PaineWebber or
its affiliates.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of shares of
each Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a
specific Class;
(2) Blue Sky fees incurred by a specific Class of shares;
(3) SEC registration fees incurred by a specific Class of shares;
(4) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(5) Trustees' fees incurred as a result of issues relating to a
specific Class of shares;
(6) litigation expenses or other legal expenses relating to a
specific Class of shares; and
(7) transfer agent fees identified as being attributable to a
specific Class.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Class B and Class C shares of each Fund may be exchanged for
shares of the corresponding Class of other PaineWebber mutual funds or may be
acquired through an exchange of shares of the corresponding Class of those
funds. Class Y shares of the Funds are not exchangeable.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Trustees of Mitchell Hutchins
Portfolios, a Fund may alter the nomenclature for the designations of one or
more of its classes of shares.
3
<PAGE>
E. ADDITIONAL INFORMATION:
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This Multiple Class Plan is qualified by and subject to the terms of
the then current prospectus for the applicable Classes; provided, however, that
none of the terms set forth in any such prospectus shall be inconsistent with
the terms of the Classes contained in this Plan. The prospectus for each Fund
contains additional information about the Classes and each Fund's multiple class
structure.
F. DATE OF EFFECTIVENESS:
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This Multiple Class Plan is effective as of the date hereof, provided
that this Plan shall not become effective with respect to any Fund unless such
action has first been approved by the vote of a majority of the Board and by
vote of a majority of those trustees of the Fund who are not interested persons
of Mitchell Hutchins Portfolios.
July 24, 1997
