FORM N-1A
As filed with the Securities and Exchange Commission on May 28, 1997
1933 Act Registration No. __________
1940 Act Registration No. __________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.
PAINEWEBBER INDEX TRUST
(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.
JENNIFER R. GONZALEZ, 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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PAINEWEBBER INDEX TRUST
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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PAINEWEBBER INDEX TRUST
Form N-1A Cross Reference Sheet
PART A ITEM NO. AND CAPTION PROSPECTUS CAPTION
--------------------------- ------------------
1. Cover Page Cover Page
2. Synopsis The Fund at a Glance; Expense Table
3. Condensed Financial Performance
Information
4. General Description of The Fund at a Glance; Investment
Registrant Objective & Policies; Investment
Philosophy & Process; The Fund's
Investments; 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[SERVICEMARK]
Securities Dividends & Taxes; General Information
7. Purchase of Securities Being Flexible Pricing[SERVICEMARK]; How to Buy
Offered 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
STATEMENT OF ADDITIONAL INFORMATION
PART B ITEM NO. AND CAPTION CAPTION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Other Information
History
13. Investment Objective and Investment Policies and Restrictions;
Policies Hedging and Other Strategies
Using Derivative Contracts; Portfolio
Transactions
14. Management of the Fund Trustees and Officers; Principal Holders
of Securities
15. Control Persons and Principal Trustees and Officers; Principal Holders
Holders of Securities of Securities
16. Investment Advisory and Investment Advisory and Distribution
Other Services Arrangements
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STATEMENT OF ADDITIONAL INFORMATION
PART B ITEM NO. AND CAPTION CAPTION
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17. Brokerage Allocation and Portfolio Transactions
Other Services
18. Capital Stock and Other Other Information
Securities
19. Purchase, Redemption and Redemption Information and Other Services;
Pricing of Securities Being Valuation of Shares
Offered
20. Tax Status Taxes
21. Underwriters Investment Advisory and Distribution
Arrangements
22. Calculation of Performance Performance Information
Data
23. Financial Statements To Be Supplied
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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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1997
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PAINEWEBBER S&P 500 INDEX FUND
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS - _______________, 1997
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The PaineWebber S&P 500 Index Fund ("Fund") is designed for long-term investors
who seek investment results, before fees and expenses, that track the
performance results of the Standard & Poor's 500 Composite Stock Price Index
("S&P 500 Index"). The Fund, a series of PaineWebber Index Trust, seeks to
replicate the total return of the S&P 500 Index, which is composed of 500
selected large capitalization common stocks. The Fund is newly organized and has
no operating history.
This Prospectus concisely sets forth information that a prospective investor
should know about the Fund before investing. Please read it carefully and retain
a copy of this Prospectus for future reference.
A Statement of Additional Information dated _____________, 1997 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 the Fund, your
investment executive at PaineWebber or one of its correspondent firms or by
calling toll-free 1-800-647-1568.
This Prospectus offers Class A and Class Y shares. The Class Y shares are
currently offered for sale only to limited groups of investors. See "How to Buy
Shares."
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUND AND ITS DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE
INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OFFER TO
SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE FUND OR ITS 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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY.
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PaineWebber S&P 500 Index Fund
TABLE OF CONTENTS
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PAGE
The Fund At A Glance...................................................3
Expense Table..........................................................4
Investment Objective & Policies........................................6
Investment Philosophy & Process........................................7
Performance............................................................7
The Fund's Investments.................................................7
Flexible Pricing[SERVICEMARK].........................................9
How To Buy Shares.....................................................10
How To Sell Shares....................................................11
Other Services........................................................12
Management............................................................12
Determining The Shares' Net Asset Value...............................14
Dividends & Taxes.....................................................14
General Information...................................................15
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Prospectus Page 2
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PaineWebber S&P 500 Index Fund
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THE FUND AT A GLANCE
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The Fund is not intended to provide a complete investment program, but may be
appropriate as a component of an investor's overall portfolio. Some common
reasons to invest in the Fund are to finance college educations, plan for
retirement or diversify a portfolio. When selling shares, investors should be
aware that they may get more or less for their shares than they originally paid
for them. As with any mutual fund, there is no assurance that the Fund will
achieve its goal.
GOAL: To increase the value of your investment by investing in the common stocks
of U.S. companies represented in the S&P 500 Index.
INVESTMENT OBJECTIVE: To replicate the total return of the S&P 500 Index, before
fees and expenses.
RISKS: Stock prices rise and fall. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when prices generally
decline. Deviations from the performance of the S&P Index may result from
shareholder purchases and sales of shares that can occur daily, as well as from
expenses borne by the Fund. The Fund may use derivatives, such as options and
futures, to simulate full investment in the S&P 500 Index and in its hedging
activities, which may involve special risks. Investors may lose money by
investing in the Fund; the investment is not guaranteed.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the Fund's
investment adviser and administrator.
WHO SHOULD INVEST
The Fund is for investors who seek investment results, before fees and expenses,
that track the performance results of the S&P 500 Index. Unlike other mutual
funds, which generally seek to "beat" stock market averages and often have
unpredictable results, the Fund seeks to "match" the performance of the S&P 500
Index and thus is expected to provide a predictable return relative to its
benchmark.
MINIMUM INVESTMENT
To open an account, investors must invest $10,000; to add to an account,
investors need only $100.
HOW TO PURCHASE SHARES OF THE FUND
Investors may choose between these classes of shares:
CLASS A SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class A shares. As a result, 100% of their purchase is immediately
invested. Class A shares will have higher ongoing expenses than Class Y shares.
CLASS Y SHARES
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. Class Y shares will have lower ongoing expenses than Class A shares.
Class Y shares are currently offered for sale only to a limited group of
investors.
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Prospectus Page 3
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Paine Webber S&P 500 Index Fund
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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 the Class A and Class Y shares of the
Fund. Because the Fund has no operating history, "Other Expenses" shown below
represent those estimated for the first year of operations. For the first year
of operations Mitchell Hutchins intends to waive its management fees and
reimburse Fund expenses, if necessary, so that the total operating expenses for
Class A shares do not exceed 0.40% of the Fund's average net assets and the
total operating expenses for Class Y shares do not exceed 0.35% of the Fund's
average net assets.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS Y
------- -------
Maximum Sales Charge on Purchases of None None
Shares (as a % of offering price)....
Sales Charge on Reinvested Dividends None None
(as a % of offering price)...........
Maximum Contingent Deferred Sales
Charge (as a % of offering price or None None
net asset value at the time of sale,
whichever is less)...................
Exchange Fees........................... N/A N/A
ANNUAL FUND OPERATING EXPENSES (as a %
of average net assets)
Management Fees (after waivers)*......... % %
12b-1 Fees............................... 0.05 None
Other Expenses (after expense
reimbursements)*......................
------- -------
Total Operating Expenses (after expense
reimbursements)*.......................... 0.40% 0.35%
======= =======
* Without taking into account anticipated fee waivers and expense
reimbursements, the Fund's Management Fees, Other Expenses and Total Operating
Expenses would be 0.20%, ____% and ____%, respectively, for Class A shares and
0.20%, ____% and ___%, respectively, for Class Y shares.
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CLASS A SHARES: No initial sales charge is imposed. Class A shares are subject
to 12b-1 service fees.
CLASS Y SHARES: No initial sales charge is imposed, nor are Class Y shares
subject to 12b-1 service fees.
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Prospectus Page 4
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PaineWebber S&P 500 Index Fund
12b-1 distribution fees are asset-based sales charges. 12b-1 fees have two
components, as follows:
CLASS A CLASS Y
------- -------
12b-1 services fees.................... 0.05% None
12b-1 distribution fees................ None None
For more information, see "Management" and "Flexible Pricing[SERVICE MARK]"
EXAMPLE OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various
costs and expenses incurred as shareholders of the Fund. 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 THE FUND MAY BE MORE OR LESS THAN THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in the Fund, assuming a 5% annual return:
1 YEAR 3 YEARS
------ -------
Class A....................................... $ $
Class Y....................................... $ $
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ASSUMPTION MADE IN THE EXAMPLE
Reinvestment of all dividends and other distributions; percentage amounts listed
under "Annual Fund Operating Expenses" remain the same for the years shown.
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Prospectus Page 5
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PaineWebber S&P 500 Index Fund
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INVESTMENT OBJECTIVE & POLICIES
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The Fund's investment objective is to replicate the total return of the S&P 500
Index, before fees and expenses. The investment objective of the Fund may not be
changed without shareholder approval. The Fund's other investment policies,
except where noted, are not fundamental and may be changed by the board of
trustees.
The Fund seeks to achieve its objective through investment in common stocks
issued by companies in the S&P 500 Index. The S&P 500 Index is composed of 500
common stocks that are selected by Standard & Poor's ("S&P") to capture the
price performance of a large cross-section of the U.S. publicly traded stock
market. These 500 securities, most of which trade on the NYSE, represent
approximately 75% of the market value of all U.S. common stocks. Each stock in
the S&P 500 Index is weighted by its total market value relative to total market
value of all securities in the Index. S&P selects the component stocks included
in the S&P 500 Index with the aim of achieving a distribution at the index level
representative of the various components of the U.S. economy. Therefore these
500 stocks do not represent the 500 largest companies. Aggregate market value
and trading activity also are considered in the selection process.
"Standard & Poor's[REGISTERED TRADEMARK]," "S&P[REGISTERED TRADEMARK],"
"S&P 500[REGISTERED TRADEMARK]," and "500" are trademarks of the McGraw-Hill
Companies, Inc. and have been licensed for use by the Fund. The Fund is not
sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or
warranty, express or implied, to the purchasers of the Fund or any member of the
public regarding the advisability of investing in securities generally or the
Fund particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and the S&P 500 Index, which is
determined, composed, and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination or calculation of the equation by which
shares of the Fund are priced or converted into cash. S&P has no obligation or
liability in connection with the administration of the Fund or the marketing or
sale of the Fund's shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE FUND OR ITS SHAREHOLDERS OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
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Prospectus Page 6
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PaineWebber S&P 500 Index Fund
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INVESTMENT PHILOSOPHY & PROCESS
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The Fund is not managed according to traditional methods of "active" management,
which involve the buying and selling of securities based upon economic,
financial and market analysis and investment judgment. Instead, it uses a
"passive" investment approach attempting to duplicate the investment performance
of an index.
The Fund expects to invest in substantially all 500 stocks in the S&P 500 Index
in proportion to their weighting in the S&P 500 Index, and, under normal
circumstances, will invest in at least 450 stocks that are represented in the
S&P 500 Index.
Because the Fund seeks to replicate the performance of the S&P 500 Index, a
close correlation between the Fund's performance and the performance of the S&P
500 Index is anticipated in both rising and falling markets.
The Fund attempts to achieve a correlation between the performance of its
investments and that of the S&P 500 Index, over time of at least 0.95, before
deduction of fees and expenses. A correlation of 1.00 would represent perfect
correlation between the Fund and the S&P 500 Index. There can be no assurance
that the Fund will achieve its expected results.
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PERFORMANCE
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The Fund performs 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 the Fund as a steady compound
annual rate of return. Actual year-by-year returns fluctuate and may be higher
or lower than standardized return. One-, five- and ten-year periods will be
shown, unless the Fund or class has been in existence for a shorter period. If
so, returns will be shown for the period since inception.
The Fund may use other total return presentations 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.
Total return information reflects past performance and does not indicate future
results. The investment return and principal value of shares of the Fund will
fluctuate. The amount investors receive when selling shares may be more or less
than what they paid.
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THE FUND'S INVESTMENTS
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EQUITY SECURITIES. 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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Prospectus Page 7
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PaineWebber S&P 500 Index Fund
RISKS
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 the Fund may experience a
substantial or complete loss on an individual common stock investment.
INDEX INVESTING AND OPEN-END INVESTMENT COMPANIES. While the Fund attempts to
duplicate, before deduction of operating expenses, the investment results of the
S&P 500 Index, its investment results generally will not be identical to those
of the S&P 500 Index. Deviations from the performance of the S&P 500 Index may
result from shareholder purchases and sales of shares that can occur daily, as
well as from expenses borne by the Fund.
DERIVATIVES. Some of the instruments in which the Fund 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 and futures contracts 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 takes these risks
into account in its management of the Fund.
COUNTERPARTIES. The Fund may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the board, monitors and evaluates the
creditworthiness of the parties with which the Fund does business.
INVESTMENT TECHNIQUES AND STRATEGIES
HEDGING AND OTHER STRATEGIES USING DERIVATIVE CONTRACTS. The Fund may use
derivative contracts, which may include options (both exchange traded and
over-the-counter) and futures contracts in strategies intended to simulate full
investment in the S&P 500 Index while retaining a cash balance for Fund
management purposes, facilitate trading, reduce transaction costs or reduce the
overall risk of its investments ("hedge"). New financial products and risk
management techniques continue to be developed, and may be used by the Fund if
consistent with its investment objective and policies. The Statement of
Additional Information contains further information on these derivative
contracts and related strategies.
The Fund might not use any derivative contracts or strategies, and there can be
no assurance that using them will succeed. If Mitchell Hutchins is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Fund may have lower net income and a net loss on the
investment. Each of these strategies involves certain risks, which include:
. the fact that the skills needed to implement a strategy using derivative
contracts are different from those needed to select investment securities;
. the possibility of imperfect correlation between price movements of
derivative contracts used in hedging strategies and price movements of the
securities being hedged;
. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund
to maintain "cover" or to segregate securities; and
. the possibility that the Fund is unable to close out or liquidate its
hedged position.
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Prospectus Page 8
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PaineWebber S&P 500 Index Fund
LENDING PORTFOLIO SECURITIES. The Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets. Lending securities enables the Fund to earn additional
income, but could result in a loss or delay in recovering these securities.
CASH RESERVES. The Fund may invest up to 35% of its total assets in cash or
investment grade U.S. money market instruments, including repurchase agreements,
for liquidity purposes or pending investment in other securities.
Repurchase agreements are transactions in which the 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. 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 Fund if the other party to
the repurchase agreement becomes insolvent.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiquid
securities, including certain cover for over-the-counter options and securities
whose disposition is restricted under the federal securities laws. The Fund does
not consider securities that are eligible for resale pursuant to SEC Rule 144A
to be illiquid securities if Mitchell Hutchins has determined such securities to
be liquid, based upon the trading markets for the securities under procedures
approved by the Fund's board.
OTHER INFORMATION. The Fund may sell securities short "against the box" to defer
realization of gains or losses for tax or other purposes. When a security is
sold against the box, the seller owns the security. The Fund may borrow money
for temporary or emergency purposes in an amount up to 33 1/3% of its total
assets, including up to 5% of its net assets in reverse repurchase agreements.
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FLEXIBLE PRICING[SERVICEMARK]
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The Fund offers through this Prospectus two classes of shares that differ in
terms of expenses. Class Y shares will have lower ongoing expenses than Class A
shares but are available only to a limited group of investors.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or PFPC Inc., the Fund's transfer agent
("Transfer Agent"), receives the purchase order. Because investors do not pay an
initial sales charge when they buy Class A shares, 100% of their purchase is
immediately invested. Class A shares are subject to rule 12b-1 service fees.
CLASS Y SHARES
HOW PRICE IS CALCULATED. Class Y shares are sold to eligible investors at the
net asset value next determined 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. The ongoing expenses for Class Y shares are lower than for
Class A shares because Class Y shares are not subject to rule 12b-1 service
fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
. a participant in INSIGHT when Class Y shares are purchased through that
program;
. an investor who buys $10 million or more at any one time in any
combination of PaineWebber mutual funds in the Flexible
Pricing[SERVICEMARK] System;
. an employee benefit plan qualified under section 401 (including a salary
reduction plan qualified under section 401(k)) or 403(b) of the Internal
Revenue Code that has either 5,000 or more eligible employees or $50
million or more in assets; and
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Prospectus Page 9
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PaineWebber S&P 500 Index Fund
. an investment company advised by PaineWebber or an affiliate of
PaineWebber.
INSIGHT. An investor who purchases $50,000 or more of shares of the mutual funds
that are available to INSIGHT participants (which include the PaineWebber mutual
funds in the Flexible Pricing[SERVICEMARK] System and certain other specified
mutual funds) may take part in INSIGHT, a total portfolio asset allocation
program sponsored by PaineWebber, and thus become eligible to purchase Class Y
shares. INSIGHT offers comprehensive investment services, including a
personalized asset allocation investment strategy using an appropriate
combination of funds, monitoring of investment performance and comprehensive
quarterly reports that cover market trends, portfolio summaries and personalized
account information.
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. INSIGHT clients may elect to have their INSIGHT fees
charged to their PaineWebber accounts (by the automatic redemption of money
market fund shares) or, if a qualified plan, invoiced.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available to INSIGHT participants or for other INSIGHT information.
ACQUISITION OF CLASS Y SHARES BY OTHERS. The Fund is authorized to offer Class Y
shares to employee benefit and retirement plans of Paine Webber Group Inc. ("PW
Group") and its affiliates and certain other investment programs that are
sponsored by PaineWebber and that may invest in PaineWebber mutual funds. At
present, however, INSIGHT participants are the only purchasers in these
categories.
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HOW TO BUY SHARES
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Prices are calculated for the Fund'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.
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, the Funds will
automatically receive Class A shares. Investors in Class Y shares must provide
satisfactory information to PaineWebber or the Fund 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 $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's New
York City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its correspondent
firms. Payment is due on the third Business Day after PaineWebber's New York
City headquarters office receives the purchase order.
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Prospectus Page 10
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PaineWebber S&P 500 Index Fund
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up an
account through the Transfer Agent by completing an account application which
may be obtained by calling 1-800-647-1568. The application and check must be
mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
DE 19899. Investors do not have to send an application when making additional
investments in the Fund.
MINIMUM INVESTMENTS FOR CLASS A SHARES
To open an account ....................$ 10,000
To add to an account ..................$ 100
The Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan.
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HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the share
price for that class as next calculated after the order is received and
accepted. 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 Fund will assume they are first selling their
Class A shares, then Class Y shares.
If a shareholder wants to sell shares which were purchased recently, the Fund
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
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Fund's Transfer Agent, may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder accounts,
it reserves the right to purchase back all of its shares in any shareholder
account with a net asset value of less than $5,000. If the Fund elects to do so,
it will notify the shareholder of the opportunity to increase the amount
invested to $5,000 or more within 60 days of the notice. The Fund will not
purchase back accounts that fall below $5,000 solely due to a reduction in net
asset value per share.
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Prospectus Page 11
<PAGE>
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PaineWebber S&P 500 Index Fund
- --------------------------------------------------------------------------------
OTHER SERVICES
- --------------------------------------------------------------------------------
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 Fund's Class A 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 the Fund will deduct $50 or more each month
from the investor's bank account to invest directly in the Fund. 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) or semiannual (June and December)
withdrawals from their accounts. To participate in this Plan, an investor's
Class A shares must have a minimum value of $[5,000]; the minimum value of
withdrawals is $[100].
An investor may not withdraw more than 12% of the value of the Fund account when
the investor signed up for the Plan during the first year under the Plan.
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
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of the Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund 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 Fund,
the shareholder may be able to hold Fund shares in an account with the other
firm.
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MANAGEMENT
- --------------------------------------------------------------------------------
The Fund is governed by a board of trustees, which oversees its operations. The
Fund has appointed Mitchell Hutchins as investment adviser and administrator
responsible for the Fund's operations (subject to the authority of the board).
As investment adviser and administrator, Mitchell Hutchins supervises all
aspects of the Fund's operations and makes and implements all investment
decisions for the Fund.
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York
10019, is the asset management subsidiary of PaineWebber Incorporated, which is
wholly owned by PW Group, a publicly owned financial services holding company.
On__________, 1997, Mitchell Hutchins was adviser or sub-adviser of ___
investment companies with __ separate portfolios and aggregate assets of
approximately $_____ billion.
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Prospectus Page 12
<PAGE>
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PaineWebber S&P 500 Index Fund
In accordance with procedures adopted by the board, brokerage transactions for
the Fund may be conducted through PaineWebber or its affiliates and the Fund may
pay fees, including fees calculated as a percentage of earnings, to PaineWebber
for its services as lending agent in its portfolio securities lending program.
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 is responsible for the day-to-day management of the Fund's
portfolio. 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.
MANAGEMENT FEES & OTHER EXPENSES
The Fund incurs various expenses in its operations, such as the management fee
paid to Mitchell Hutchins, 12b-1 services fees paid with respect to Class A
shares, custody and transfer agency fees, 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 receive a management fee at the annual rate of
0.20% of the Fund's average daily net assets. Mitchell Hutchins has agreed to
waive its fee and reimburse Fund expenses, if necessary, so that the total
annual operating expenses do not exceed 0.40% of annual average net assets for
Class A shares and 0.35% of net assets for Class Y shares.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of the Fund'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 Fund's Class Y shares. Under the
distribution plan for Class A shares ("Class A Plan"), the Fund pays Mitchell
Hutchins monthly service fees at the annual rate of 0.05% of the average daily
net assets of Class A shares.
Mitchell Hutchins primarily uses the service fees under the Class A Plan, to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.05% of
the aggregate investment amounts maintained in the Fund 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.
The Class A Plan and the related distribution contracts ("Distribution
Contracts") specify that the service fees paid to Mitchell Hutchins are not
reimbursement for specific expenses incurred. Therefore, even if Mitchell
Hutchins' expenses exceed the service it receives, the Fund 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 fees received or accrued through the
termination date of the Plan will be Mitchell Hutchins' sole responsibility and
not that of the Fund. Annually, the Fund's board reviews the Class A Plan and
Mitchell Hutchins' corresponding expenses for that class of shares.
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Prospectus Page 13
<PAGE>
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PaineWebber S&P 500 Index Fund
- --------------------------------------------------------------------------------
DETERMINING THE SHARES'
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of the Fund'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. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund, plus any cash or other assets, minus all liabilities, by the total
number of Fund shares outstanding.
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.
- --------------------------------------------------------------------------------
DIVIDENDS & TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
The Fund will pay an annual dividend from its net investment income and
short-term capital gain, if any. The Fund will also distribute annually
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any. The Fund 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 the Fund are
calculated at the same time and in the same manner. Dividends on Class A shares
of the Fund are expected to be lower than those on its Class Y shares because
Class A shares have higher expenses resulting from their service fees.
The Fund's dividends and other distributions are paid in additional Fund 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
The Fund intends to qualify for treatment as a regulated investment company
under the Internal Revenue 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 gains) and net capital gain
that it distributes to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to its shareholders as ordinary
income. Distributions of the Fund's net capital gain (whether paid in cash or
additional shares) are taxable to its shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. Shareholders who are
not subject to tax on their income generally will not be required to pay tax on
distributions.
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Prospectus Page 14
<PAGE>
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PaineWebber S&P 500 Index Fund
YEAR-END TAX REPORTING
Following the end of each calendar year, the Fund 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.
WITHHOLDING REQUIREMENTS
The Fund 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 Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to such shareholders who otherwise are
subject to backup withholding.
TAXES ON THE SALE OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends upon whether the shareholders receive more or less than their
adjusted basis for the shares. In addition, if the Fund's shares are bought
within 30 days before or after selling other shares of the Fund (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.
****
Because the foregoing only summarizes some of the important tax considerations
affecting the Fund and its shareholders, prospective shareholders are urged to
consult their tax advisers.
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GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION
The Fund is a newly created diversified series of PaineWebber Index Trust
("Trust"), an open-end management investment company formed on May 27, 1997 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.
SHARES
The shares of the Fund are divided into two classes, Class A and Class Y. Each
class represents an identical interest in the Fund's investment portfolio and
has the same rights, privileges and preferences. However, each class differs
with respect to service fees, other expenses allocable exclusively to that class
and voting rights on matters exclusively affecting that class. The different
charges applicable to the different classes of shares of the Fund will affect
the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on Class A shares are likely to
be lower than for Class Y shares, which bear lower expenses.
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Prospectus Page 15
<PAGE>
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PaineWebber S&P 500 Index Fund
VOTING RIGHTS
Shareholders of the Fund 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 Fund as a group may
elect all the board members of the Trust. The shares of the Fund 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. Mitchell Hutchins is the sole shareholder of the Fund and may be
deemed a controlling person of the Fund until additional shareholders purchase
Fund shares.
SHAREHOLDER MEETINGS
The Fund 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
The Fund sends its shareholders audited annual and unaudited semiannual reports,
each of which includes a list of the investment securities held by the Fund as
of the end of the period covered by the report. The Statement of Additional
Information, which is incorporated by this reference, is available to
shareholders upon request.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as custodian and recordkeeping agent for the
Fund. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Fund's transfer
and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.
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Prospectus Page 16
<PAGE>
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PAINEWEBBER S&P 500 INDEX FUND
PROSPECTUS -- __________, 1997
SUBJECT TO COMPLETION [ DATE ]
- --------------------------------------------------------------------------------
[COPYRIGHT] 1997 PaineWebber Incorporated
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED ________, 1997
PAINEWEBBER S&P 500 INDEX FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber S&P 500 Index Fund is a diversified series of PaineWebber
Index Trust ("Trust"), an open-end management investment company organized as
Delaware business trust. The Fund seeks to replicate the total return of the
Standard & Poor's 500 Composite Price Index ("S&P 500 Index").
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), is the
investment adviser, administrator and distributor for the Fund. As distributor,
Mitchell Hutchins has appointed PaineWebber to serve as the exclusive dealer for
the sale of the Fund shares.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Fund's current Prospectus dated __________,
1997. 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. Participants in the PaineWebber Savings Investment Plan may
obtain a copy of the Prospectus by contacting the PaineWebber Benefits
Department, 1000 Harbor Boulevard, 10th Floor, Weehawken, New Jersey 07087 or by
calling 1-201-902-4444. This Statement of Additional Information is dated
__________, 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOME
EFFECTIVE. THIS SAI SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations. Except as indicated
in this Prospectus or the Statement of Additional Information, there are no
policy limitations on the Fund's ability to use the investments as techniques
discussed in these documents.
MONEY MARKET INSTRUMENTS. Money market instruments in which the Fund may
invest include: U.S. Treasury bills and other obligations issued or guaranteed
as to interest and principal by the U.S. government, its agencies and
instrumentalities; obligations of U.S. banks (including certificates of deposit
and bankers' acceptances) with total assets in excess of $1.5 billion at the
time of purchase; interest-bearing savings deposits in U.S. commercial and
savings banks with principal amounts not greater than are fully insured by the
Federal Deposit Insurance Corporation (the aggregate amount of these deposits
may not exceed 5% of the value of the Fund's assets); commercial paper and other
short-term corporate obligations; and variable and floating-rate securities and
repurchase agreements. In addition, the Fund may hold cash and may invest in
participation interests in the money market securities mentioned above without
limitation. These participation interests are the interests of securities held
by others on a pro-rata basis.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. To the extent the
Fund holds U.S. dollar-denominated securities of foreign issuers, such
securities may not be registered with the SEC, nor are the issuers thereof
subject to its reporting requirements. Accordingly, there may be less publicly
available information concerning foreign issuers of securities held by a Fund
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.
The Fund invests in securities of foreign issuers only if such securities
are traded in the U.S. securities markets directly or through American
Depository Receipts ("ADRs"). Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. For purposes of the Fund's
investment policies, ADRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR evidencing ownership of
common stock will be treated as common stock.
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United State and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Fund would be subject.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
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 Fund maintains custody of the securities prior to their repurchase; thus,
the obligation of the bank or dealer to pay the repurchase price on the date
agreed to 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 the
Fund 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 Fund securities and delays and costs to a Fund if the other party to a
repurchase agreement becomes insolvent.
2
<PAGE>
The Fund intends 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
(sometimes referred to as the "board"). Mitchell Hutchins reviews and monitors
the creditworthiness of those institutions under the board's general
supervision.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its 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 the 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 has determined are liquid pursuant to guidelines
established by the Fund's board. The assets used as cover for OTC options
written by the Fund will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the 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"). Where
registration is required, the 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 the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the 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
of Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the 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.
3
<PAGE>
The board has delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins pursuant to guidelines approved by the board.
Mitchell Hutchins 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 monitors the liquidity of
restricted securities in the Fund's portfolio and reports periodically on such
decisions to the Fund's board.
LENDING OF PORTFOLIO SECURITIES. The 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 the 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. The Fund will retain authority to terminate any loans at any time. The
Fund may pay reasonable administrative and custodial 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. The Fund will receive 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. The
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.
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 Fund securities, and a
warrant ceases to have value if it is not exercised prior to its expiration
date.
SHORT SALES "AGAINST THE BOX." The Fund 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 defer realization of gains or losses for tax or other purposes. To make
delivery to the purchaser in a short sale, the executing broker borrows the
securities being sold short on behalf of the Fund, and the Fund is obligated to
replace the securities borrowed at a date in the future. When the 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 Fund will
maintain with its custodian, in a segregated account, the securities that could
be used to cover the short sale. The Fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales "against the box."
The Fund might make a short sale "against the box" in order to hedge
against market risks when Mitchell Hutchins believes that the price of a
security may decline, thereby causing a decline in the value of a security owned
by the Fund or a security convertible into or exchangeable for a security owned
by the Fund, or when Mitchell Hutchins wants to sell a security that the Fund
owns at a current price, but also wishes to defer recognition of gain or loss
for federal income tax purposes. In such case, any loss in the Fund's long
position after the short sale should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which gains or losses in the long position are
reduced will depend upon the amount of the securities sold short relative to the
amount of the securities the Fund owns, either directly or indirectly, and in
the case where the Fund owns convertible securities, changes in the investment
values or conversion premiums of such securities.
4
<PAGE>
SEGREGATED ACCOUNTS. When the 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 "Hedging and Other Strategies Using
Derivative Contracts," segregated accounts may also be required in connection
with certain transactions involving options and futures contracts.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. 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 the Fund's net asset value. When the
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
"Investment Policies and Restrictions--Segregated Accounts." The 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 deems
it advantageous to do so, which may result in a gain or loss to the Fund.
FUNDAMENTAL INVESTMENT LIMITATIONS. The following fundamental investment
limitations cannot be changed for the Fund without the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or
more of the Fund's shares present at a shareholders' meeting if more than 50% of
the outstanding Fund shares are represented at the meeting in person or by
proxy. 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.
The Fund may not:
(1) purchase securities of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Fund'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.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
securities issued by a finance or other special purpose subsidiary that
are not guaranteed by the parent company will be considered to be issued
by a separate issuer from the parent company.
(2) purchase any security if, as a result of that purchase, 25% or
more of the Fund'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 investments in other investment
companies or to securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities or to municipal securities.
(3) 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 Fund'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 Fund may borrow up to an additional 5% of its total assets (not
including the amount borrowed) for temporary or emergency purposes.
5
<PAGE>
(4) 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.
(5) engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities.
(6) 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 Fund 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.
(7) purchase or sell physical commodities unless acquired as a
result of owning securities or other instruments, but the Fund may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts
or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of the Fund's board without
shareholder approval.
The Fund 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 Fund 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 Fund
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 Fund 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.
HEDGING AND OTHER STRATEGIES USING DERIVATIVE CONTRACTS
DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a variety of derivative
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 the Fund. The Fund may also use Derivative
6
<PAGE>
Instruments to increase its exposure to the S&P 500 Index pending investment in
the stocks that make up that Index. The 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, the Fund's use
of these derivative contracts will place at risk a much smaller portion of its
assets. The particular Derivative Instruments used by the Fund are described
below.
OPTIONS ON SECURITIES--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 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 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 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 at the exercise price.
OPTIONS ON SECURITIES INDEXES--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.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities, 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,
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.
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 the Fund's portfolio.
Thus, in a short hedge the 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, the 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, the 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 Fund security
declines, the 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 the Fund intends to acquire. Thus, in a
long hedge, the Fund takes a position in a Derivative Instrument whose price is
expected to move in the same direction as the price of the prospective
7
<PAGE>
investment being hedged. For example, the 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 increased above the exercise
price of the call, the Fund could exercise the call and thus limit its
acquisition cost to the exercise price plus the premium paid and transactions
costs. Alternatively, the 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 the 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 the Fund has invested or expects to invest.
Return strategies include the use of Derivative Instruments to increase or
reduce the Fund's exposure to the stocks in the S&P 500 Index without buying or
selling those securities.
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, the 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 expects to discover additional opportunities
in connection with options, futures contracts and other derivative contracts and
hedging techniques. These new opportunities may become available as Mitchell
Hutchins develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts, or other
derivative contracts and techniques are developed. Mitchell Hutchins may utilize
these opportunities for the Fund to the extent that they are consistent with the
Fund's investment objective and permitted by its investment limitations and
applicable regulatory authorities. The 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) There might be imperfect 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.
(2) 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 the
8
<PAGE>
Fund entered into a short hedge because Mitchell Hutchins projected a
decline in the price of a security in that 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, the Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.
(3) As described below, the 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 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 the 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. The 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 the Fund.
COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose the Fund to an
obligation to another party. The 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. The 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
the 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. The Fund may purchase put and call options, and write (sell)
covered put or call options on securities on which it is permitted to invest and
indices of those securities. 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 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 Fund will be obligated
to purchase the security at more than its market value. The securities or other
assets used as cover for OTC options written by the Fund would be considered
illiquid to the extent described under "Investment Policies and Restrictions --
Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the Fund investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
Fund investment, the historical price volatility of the Fund investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the 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.
9
<PAGE>
Conversely, the 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 the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
The Fund 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 the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when the Fund purchases or writes an OTC option, it relies on the contra
party to make or take delivery of the Fund 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 Fund as well as the loss of any expected benefit of the
transaction. The Fund 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 used by the Fund 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 Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends 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 Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the 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, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the 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 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 without shareholder
vote:
(1) The 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 Fund, does not exceed
5% of its total assets.
(2) The aggregate value of securities underlying put options written
by the Fund determined as of the date the put options are written will not
exceed 50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, stock indices and options on futures contracts) purchased by
the Fund that are held at any time will not exceed 20% of that Fund's net
assets.
FUTURES. The Fund may purchase and sell futures contracts that are related
to securities in which it is permitted to invest, such as securities index
futures contracts. The 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.
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<PAGE>
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the 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 the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the 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 the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the 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 the 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 Fund intends to enter into futures transactions only on exchanges 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 the 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. The Fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, the 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.
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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 board without shareholder vote:
(1) To the extent the 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 the Fund's net assets.
(2) The aggregate premiums paid on all options (including options on
securities, stock indices and options on futures contracts) purchased by
the Fund that are held at any time will not exceed 20% of the Fund's net
assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of its total
assets.
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:
<TABLE>
<CAPTION>
Position With Business Experience;
Name And Address*; Age The Trust Other Directorships
- ---------------------- -------------- --------------------
<S> <C> <C>
Victoria E. Schonfeld; 46 Trustee, President Ms. Schonfeld is a managing director
and Chairman of the and general counsel of Mitchell
Board of Trustees Hutchins. Prior to May 1994, she was
a partner in the law firm of Arnold &
Porter. Ms. Schonfeld is a vice
president of 29 other investment
companies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 44 Trustee, Vice Ms. O'Donnell is a senior vice
President and president and deputy general counsel
Secretary of Mitchell Hutchins. Ms. O'Donnell
is a vice president of 29 investment
companies and secretary of 28
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. Ms. Schonfeld and Ms.
O'Donnell are "interested persons" of the Trust as defined in the 1940 Act by
virtue of their positions with Mitchell Hutchins.
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Position With Business Experience;
Name And Address*; Age The Trust Other Directorships
- ---------------------- -------------- --------------------
Julian F. Sluyters, 36 Vice President and Mr. Sluyters is a senior vice and
Treasurer Treasurer president and chief
administrative officer of Mitchell
Hutchins. Prior to May 1997, he was
the director of the mutual fund
finance division of Mitchell
Hutchins. Mr. Sluyters is a vice
president and treasurer of 30
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
The Trust pays trustees who are not "interested persons" of the Trust
$1,000 for each series and $150 for each board meeting and each separate meeting
of a board committee. Accordingly, the Trust pays each such trustee $1,000
annually for its one series, plus any additional amounts due for board or
committee meetings. The chairmen of the audit and contract review committees of
individual funds within the PaineWebber fund complex receive additional
compensation aggregating $15,000 each from the relevant funds. All trustees are
reimbursed for any expenses incurred in attending meetings. Trustees and
officers own no outstanding shares of the Fund. Because PaineWebber and Mitchell
Hutchins perform substantially all the services necessary for the operation of
the Trust and the Fund, 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 compensation of those trustees
from other PaineWebber funds during the calendar year ended December 31, 1996.
COMPENSATION TABLE(1)
Estimated Total
Aggregate Compensation
Compensation from the Fund
Name of Person, Position from the Trust Complex
- ------------------------ -------------- --------------
(1) Only independent members of the board are compensated by the Trust and
identified above; trustees who are "interested persons," as defined by
the 1940 Act, do not receive compensation.
(2) Estimated for the initial fiscal year of the Trust.
(3) 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 __________, 1997, Mitchell
Hutchins held all outstanding securities of the Fund and thus may be deemed a
controlling person of the Fund until additional shareholders purchase shares.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator to the Fund pursuant to a contract (the "Advisory
Contract") with the Trust dated _______, 1997. Under the Advisory Contract, the
Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate of 0.20% of average daily net assets. Under a service agreement with
the Trust that is reviewed by the board annually, PaineWebber provides certain
services to the Fund not otherwise provided by the Fund's transfer agent.
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<PAGE>
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
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 Fund's shares under federal and state securities laws and
maintenance of such registrations and qualifications; (5) fees and salaries
payable to trustees 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 trustees' services, including travel expenses; (7) taxes
(including any income or franchise taxes) and governmental fees; (8) costs of
any liability, uncollectible items of deposit 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 Fund for violation of
any law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for the independent trustees; (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 and any committees thereof; (17) the cost of investment company
literature and other publications provided to trustees 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 the Fund 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 Fund's
outstanding voting securities on 60 days' written notice to Mitchell Hutchins,
or by Mitchell Hutchins on 60 days' written notice to the Fund.
NET ASSETS. The following table shows the approximate net assets as of May
31, 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)......................... $
Global....................................................
Equity/Balanced...........................................
Fixed Income (excluding Money Market).....................
Taxable Fixed Income............................
Tax-Free Fixed Income...........................
Money Market Funds........................................
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to codes of ethics that describe 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.
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DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
Class A shares of the Fund under a separate distribution contract with the Trust
("Distribution Contract") that requires Mitchell Hutchins to use its best
efforts, consistent with its other businesses, to sell shares of the Fund.
Shares of the Fund are offered continuously. Under a separate exclusive dealer
agreement between Mitchell Hutchins and PaineWebber relating Class A shares of
the Fund ("Exclusive Dealer Agreement"), PaineWebber and its correspondent firms
sell the Fund's shares.
Under a plan of distribution pertaining to the Class A shares adopted by
the Trust in the manner prescribed under Rule 12b-1 under the 1940 Act ("Class A
Plan" or "Plan"), the Fund pays Mitchell Hutchins a service fee, accrued daily
and payable monthly, at the annual rate of 0.05% of the average daily net assets
of Class A shares of the Fund. The Fund pays Mitchell Hutchins no distribution
fees with respect to its Class A shares. There is no distribution plan with
respect to Class Y shares and the Fund pays no service or distribution fees with
respect to its Class Y shares.
Among other things, the Class A 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 the Fund under the Plan
shall not be materially increased without the affirmative vote of the holders of
a majority of the outstanding Class A shares of the Fund 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 Plan to the board, Mitchell
Hutchins allocates expenses attributable to the sale of each class of the Fund'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 the Fund's shares
will not be used to subsidize the sale of any other class of the Fund's shares.
In approving the Class A Plan for the Fund, 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 Fund purchase payments and
instead having the entire amount of their purchase payments immediately invested
in Fund shares, (2) the advantage to investors in being free from contingent
deferred sales charges upon redemption of shares, (3) Mitchell Hutchins' belief
that the ability of PaineWebber investment executives and correspondent firms to
receive continuing service fees, while their customers invest their entire
purchase payments immediately in Class A shares would prove attractive to the
investment executives and correspondent firms, resulting in greater growth to
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund 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-related expenses and costs.
With respect to the Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees. The board also considered the benefits that would accrue
to Mitchell Hutchins under the Plan in that Mitchell Hutchins would receive
service and advisory fees which are calculated based upon a percentage of the
average net assets of the Fund, which would increase if the Plan were successful
and the Fund attained and maintained significant asset levels.
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<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the board, Mitchell Hutchins is
responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
Mitchell Hutchins generally seeks to obtain the best net results for the 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
generally seeks reasonably competitive commission rates, payment of the lowest
commission is not necessarily consistent with obtaining the best net results.
Prices paid to dealers in principal transactions, through which some equity
securities and most debt 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 Fund 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 Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through PaineWebber. The 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 Fund 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
Fund's 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 Fund and subject to the review of the
board, Mitchell Hutchins may cause the Fund to purchase and sell portfolio
securities from and to dealers or through brokers who provide that Fund with
research, analysis, advice and similar services. In return for such services,
the Fund may pay to those brokers a higher commission than may be charged by
other brokers, provided that Mitchell Hutchins 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 the 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 seeks best execution. Although Mitchell Hutchins 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 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 may engage
in agency transactions in OTC equity 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 receiving multiple quotes from dealers before executing the
transactions on an agency basis.
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<PAGE>
Information and research services furnished by brokers or dealers through
which or with which the Fund effects securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts and, conversely, research
services furnished to Mitchell Hutchins by brokers or dealers in connection with
other funds or accounts that either of them advises may be used in advising the
Fund. Information and research received from brokers or dealers will be in
addition to, and not in lieu of, the services required to be performed by
Mitchell Hutchins under the Advisory Contract.
Investment decisions for the 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 the 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 the Fund and such other
account(s) as to amount according to a formula deemed equitable to the 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 Fund is 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 Fund.
The Fund 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 the board 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 Fund.
PORTFOLIO TURNOVER. The Fund's 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 the Fund'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 the Fund's annual portfolio turnover rate will be less than 100%
[will not exceed 50%] during its first fiscal year.
REDEMPTION INFORMATION AND OTHER SERVICES
REDEMPTION INFORMATION. If conditions exist that make cash payments
undesirable, the Fund reserves the right to honor any request for redemption by
making payment in whole or in part in securities chosen by the Fund and valued
in the same way as they would be valued for purposes of computing the Fund's net
asset value. If payment is made in securities, a shareholder may incur brokerage
expenses in converting these securities into cash. The Fund has elected,
however, to be governed by Rule 18f-1 under the 1940 Act, under which it is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
its net asset value during any 90-day period for one shareholder. This election
is irrevocable unless the SEC permits its withdrawal.
The Fund 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 the Fund 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 the Fund'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 the Fund's net asset value per share is low and
fewer shares when the net asset value per share is high. Using this technique,
17
<PAGE>
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 low 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 Fund 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 shareholders. Purchases of additional shares of the Fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities. On or about the 15th of each month for monthly plans and on or
about the 15th of the months selected for quarterly or semi-annual plans,
PaineWebber will arrange for redemption by the Fund of sufficient Fund shares to
provide the withdrawal payments specified by participants in the Fund's
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.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN[SERVICEMARK]
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT[REGISTERED TRADEMARK]
(RMA)[REGISTERED TRADEMARK]
Shares of PaineWebber mutual funds, including the Fund, (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.
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<PAGE>
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 low 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:
. monthly Premier account statements that itemize all account
activity, including investment transactions, checking activity and Gold
MasterCard[REGISTERED TRADEMARK] transactions during the period, and
provide unrealized and realized gain and loss estimates for most
securities held in the account;
. comprehensive preliminary 9-month and year-end summary
statements that provide information on account activity for use in tax
planning and tax return preparation;
. 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;
. 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;
. 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;
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<PAGE>
. 24-hour access to account information through toll-free numbers,
and more detailed personal assistance during business hours from the RMA
Service Center;
. expanded account protection to $50 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
. 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.
VALUATION OF SHARES
The Fund determines its net asset value 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, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are generally valued on the exchange considered by
Mitchell Hutchins as the primary market. Securities traded in the OTC market and
listed on the Nasdaq Stock Market ("Nasdaq") are valued at the last trade price
on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are valued at the
last bid price available prior to valuation (other than short-term investments
that mature in 60 days or less which are valued as described further below).
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the board.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is 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 the Fund's Performance Advertisements are
calculated according to the following formula:
P(1 + T)n[SUPERSCRIPT] = 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 class
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment at the beginning of that
period.
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<PAGE>
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. All dividends and other distributions are assumed to have been
reinvested at net asset value.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
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 (but not limited to) the S&P 500 Index, the
Dow Jones Industrial Average, 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 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 Fund 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 Fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not limited to) 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 Fund 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 the Fund investment are reinvested
in additional Fund shares, any future income or capital appreciation of the Fund
would increase the value, not only of the original Fund investment, but also of
the additional Fund shares received through reinvestment. As a result, the value
of the Fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The Fund may also compare its 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
Fund's 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 Fund are not insured or guaranteed by
the U.S. government and returns and net asset values will fluctuate. The debt
securities held by the Fund may have longer maturities than most CDs and may
reflect interest rate fluctuations for longer term debt securities. An
investment in the Fund involves greater risks than an investment in either a
money market fund or a CD.
The Fund may also compare its performance to general trends in the stock
and bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.*
_____________________________
*Source: Stocks, Bonds, Bills and Inflation 1996 Yearbook[TRADEMARK] Ibbotson
Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
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<PAGE>
[Graphic]
The chart is shown for illustrative purposes only and does not represent
the Fund'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 Index, 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.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund 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. These requirements include the following: (1) the Fund 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) the Fund must derive less
than 30% of its gross income each taxable year from the sale or other
disposition of securities that were held for less than three months
("Short-Short Limitation"); (3) at the close of each quarter of the Fund'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 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 Fund's total
assets and that does not represent more than 10% of the issuer's outstanding
voting securities; and (4) at the close of each quarter of the Fund'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) of any one issuer.
Dividends and other distributions declared by the Fund 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 Fund and received
by the shareholders on December 31 of that year if the distributions are paid by
the Fund 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 the Fund'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 may
not exceed the aggregate dividends received by the Fund from U.S. corporations.
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 shares of the Fund 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.
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<PAGE>
The Fund will be subject to a nondeductible 4% excise tax ("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.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from the disposition of
options and futures contracts will be subject to the Short-Short Limitation if
they are held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The Fund
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to qualify as a RIC.
OTHER INFORMATION
The Trust is a Delaware business trust. The Trust has authority to issue
an unlimited number of shares of beneficial interest. The 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 one
series with two classes of shares.
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 the Fund could,
under certain conflicts of laws jurisprudence in various states, be held
personally liable for the obligations of the Trust or the Fund. However, the
Trust's trust instrument disclaims shareholder liability for acts or obligations
of the Trust or its series (the Fund) 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 the Fund's property for all losses and expenses of any
series shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund 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 the Fund, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The trustees intend to conduct the operations of the
Fund in such a way as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund.
The Fund 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.
23
<PAGE>
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses to the specific classes of the Fund's shares to which those expenses
are attributable.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Fund.
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 Fund.]
FINANCIAL STATEMENTS
[Text to be supplied]
24
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY SAI DATED , 1997
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 FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
Investment Policies And Restrictions..........................................2
Hedging And Other Strategies Using Derivative Contracts.......................6
Trustees And Officers; Principal Holders Of Securities.......................12
Investment Advisory And Distribution Arrangements............................13
Portfolio Transactions.......................................................15
Redemption Information And Other Services....................................17
Valuation Of Shares..........................................................20
Performance Information......................................................20
Taxes........................................................................22
Other Information............................................................23
Financial Statements.........................................................23
[COPYRIGHT]1997 PAINEWEBBER INCORPORATED
<PAGE>
PAINEWEBBER
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
_________, 1997
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements: (to be filed)
(b) Exhibits:
(1) Trust Instrument (filed herewith)
(2) By-Laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest1/
(5) Investment Advisory and Administration Contract (to be filed)
(6) (a) Distribution Contract with respect to Class A Shares (to be filed)
(b) Distribution Contract with respect to Class Y Shares (to be filed)
(c) Exclusive Dealer Agreement with respect to Class A Shares (to be
filed)
(d) Exclusive Dealer Agreement with respect to Class Y Shares (to be
filed)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement (to be filed)
(9) (a) Transfer Agency Agreement (to be filed)
(b) Service Contract (to be filed)
(10) Opinion of Counsel (to be filed)
(11) Other opinions, appraisals, rulings and consents:
Accountants' consent (to be filed)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (to be filed)
(14) Prototype Retirement Plan - none
(15) Rule 12b-1 Plan of Distribution with respect to Class A Shares (to be
filed)
(16) Schedule for Computation of Performance Quotations - none
(17) and (27) Financial Data Schedule (to be filed)
(18) Plan Pursuant to Rule 18f-3 (to be filed)
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
None
- ---------------------------
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.
C-1
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES
-------------------------------
Number of Record
Holders as of
TITLE OF CLASS MAY 12, 1997
- -------------- ------------
Shares of beneficial interest, par value $0.001 per share, in
PaineWebber S&P 500 Index Fund
Class A Shares 0
Class Y Shares 0
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
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
C-2
<PAGE>
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 Paine Webber 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.
C-3
<PAGE>
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.
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
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
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SELECT TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, 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.
Positions and Offices
Positions and Offices With Underwriter or
Name With Registrant Exclusive Dealer
---- --------------------- ----------------------
Dianne E. O'Donnell Trustee, Vice President Senior Vice President and
and Secretary Deputy General Counsel of
Mitchell Hutchins
Victoria E. Schonfeld Trustee, President and Managing Director and General
Chairman of the Board Counsel of Mitchell Hutchins
of Trustees
Paul H. Schubert Vice President and First Vice President and
Treasurer Director of the Mutual Fund
Finance Division of Mitchell
Hutchins
c) None
C-4
<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 caused this 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 28th day of
May, 1997.
PAINEWEBBER INDEX TRUST
By: /s/ Victoria E. Schonfeld
------------------------------
Victoria E. Schonfeld
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Victoria E. Schonfeld Trustee, President and May 28, 1997
- --------------------------- Chairman of the Board of
Victoria E. Schonfeld Trustees (Chief Executive
Officer)
/s/ Dianne E. O'Donnell Trustee May 28, 1997
- ---------------------------
Dianne E. O'Donnell
/s/ Paul H. Schubert Vice President and Treasurer May 28, 1997
- --------------------------- (Chief Financial and Accounting
Paul H. Schubert Officer)
<PAGE>
PAINEWEBBER INDEX TRUST
EXHIBIT INDEX
-------------
Exhibit
Number
- -------
(1) Trust Instrument (filed herewith)
(2) By-Laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest1/
(5) Investment Advisory and Administration Contract (to be filed)
(6) (a) Distribution Contract with respect to Class A Shares(to be filed)
(b) Distribution Contract with respect to Class Y Shares (to be filed)
(c) Exclusive Dealer Agreement with respect to Class A Shares (to be
filed)
(d) Exclusive Dealer Agreement with respect to Class Y Shares (to be
filed)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement (to be filed)
(9) (a) Transfer Agency Agreement (to be filed)
(b) Service Contract (to be filed)
(10) Opinion of Counsel (to be filed)
(11) Other opinions, appraisals, rulings and consents: Accountants' consent (to
be filed)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (to be filed)
(14) Prototype Retirement Plan - none
(15) Rule 12b-1 Plan of Distribution with respect to Class A Shares (to be
filed)
(16) Schedule for Computation of Performance Quotations - none
(17) and (27) Financial Data Schedule (to be filed)
(18) Plan Pursuant to Rule 18f-3 (to be filed)
________________________
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.
PAINEWEBBER INDEX TRUST
TRUST INSTRUMENT
May 27, 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..........................8
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
Section 5. REDEMPTIONS NECESSARY FOR QUALIFICATION AS REGULATED
INVESTMENT COMPANY...................................10
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS....................................11
Section 1. VOTING POWER.............................................11
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..............13
Section 6. REQUIREMENTS OF THE 1940 ACT.............................13
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES............................................13
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION.................................14
Section 1. LIMITATION OF LIABILITY..................................14
Section 2. INDEMNIFICATION..........................................14
Section 3. INDEMNIFICATION OF SHAREHOLDER...........................16
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.................................17
Section 5. REORGANIZATION...........................................18
Section 6. TRUST INSTRUMENT.........................................18
Section 7. APPLICABLE LAW...........................................18
Section 8. AMENDMENTS...............................................19
Section 9. FISCAL YEAR..............................................19
Section 10. SEVERABILITY.............................................19
<PAGE>
PAINEWEBBER INDEX TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on May 27, 1997, by the Trustees, to
establish a business trust 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 is
PaineWebber Index Trust.
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 PaineWebber Index Trust 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
2
<PAGE>
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
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.
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Section 9. EFFECT OF TRUSTEES NOT SERVING. The death, resignation,
retirement, removal, incapacity, or inability or refusal to serve of the
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;
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(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;
(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;
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(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
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
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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 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. ASSSETS AND LIABILITIES OF SERIES. All consideration received
by the Trust for the issue or sale of Shares of a particular Series, together
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
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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.
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.
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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
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.
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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,
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.
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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
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
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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 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 SERVICEP 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
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.
12
<PAGE>
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
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:
13
<PAGE>
(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).
(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
14
<PAGE>
(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
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.
15
<PAGE>
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.
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.
16
<PAGE>
(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
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.
Section 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
17
<PAGE>
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.
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.
18
<PAGE>
SCHEDULE A
SERIES OF THE TRUST
- -------------------
PaineWebber S&P 500 Index Fund
19
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the initial Trustees,
have executed this Trust Instrument as of the date first above written.
/s/ Victoria E. Schonfeld
---------------------------------
Victoria E. Schonfeld, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this 27th day of May, 1997, personally appeared the
above-named Victoria E. Schonfeld, known to me to be the person who executed the
foregoing instrument and who acknowledged that she executed the same.
Ilene Shore
--------------------------
Notary Public
My commission expires: November 28, 1998
/s/ Dianne E. O'Donnell
----------------------------
Dianne E. O'Donnell, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this 27th day of May, 1997, personally appeared the
above-named Dianne E. O'Donnell, known to me to be the person who executed the
foregoing instrument and who acknowledged that she executed the same.
Ilene Shore
------------------------------
Notary Public
My commission expires: November 28, 1998
20
BY-LAWS
OF
PAINEWEBBER INDEX TRUST
May 27, 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.....................................3
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
Section 4. ADJOURNED MEETINGS.........................................5
Section 5. VALIDITY OF PROXIES........................................5
Section 6. RECORD DATE................................................6
Section 7. ACTION WITHOUT A MEETING...................................6
<PAGE>
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.........................7
Section 3. OTHER ARRANGEMENTS.........................................7
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT...................................................7
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..............................................................8
ARTICLE XI
MISCELLANEOUS................................................................8
Section 1. INSPECTION OF BOOKS........................................8
Section 2. SEVERABILITY...............................................8
Section 3. HEADINGS...................................................8
ii
<PAGE>
BY-LAWS
OF
PAINEWEBBER INDEX TRUST
These By-laws of PaineWebber Index Trust (the "Trust"), a Delaware
business trust, are subject to the Trust Instrument of the Trust dated as of May
27, 1997, as from time to time amended, supplemented or restated (the "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.
2
<PAGE>
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,
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 5. 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's 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.
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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.
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
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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.
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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
provisions of the Delaware Business Trust Act, the Trust Instrument, or these
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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
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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
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CUSTODY OF SECURITIES
---------------------
Section 1. EMPLOYMENT OF 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
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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
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
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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
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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.
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ARTICLE X
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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 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
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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.
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