As filed with the Securities and Exchange Commission on October 16, 1997
1933 Act Registration No. 333-27917
1940 Act Registration No. 811-08229
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No [ 1 ]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1
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.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Title of Securities Being Registered: Shares of Beneficial Interest.
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
<TABLE>
<CAPTION>
Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis The Fund at a Glance; Expense Table
3. Condensed Financial Information Performance
4. General Description of Registrant The Fund at a Glance; Investment Objective &
Policies; Investment Philosophy & Process; The
Fund's Investments; General Information
5. Management of the Fund Management; General Information
5A. Management's Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities Cover Page; Flexible PricingSM; Dividends & Taxes;
General Information
7. Purchase of Securities Being Offered Flexible PricingSM; How to Buy Shares; Other
Services; Determining the Shares' Net Asset Value
8. Redemption or Repurchase How to Sell Shares; Other Services
9. Pending Legal Proceedings Not Applicable
Part B Item No. and Caption Statement of Additional Information Caption
--------------------------- -------------------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
13. Investment Objective and Policies Investment Policies and Restrictions; 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 Holders of Trustees and Officers; Principal Holders of
Securities Securities
16. Investment Advisory and Other Services Investment Advisory and Distribution Arrangements
17. Brokerage Allocation and Other Services Portfolio Transactions
18. Capital Stock and Other Securities Other Information
19. Purchase, Redemption and Pricing of Redemption Information and Other Services;
Securities Being Offered Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Distribution Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
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.
<PAGE>
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PAINEWEBBER S&P 500 INDEX FUND
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS - OCTOBER , 1997
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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 October ______, 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.
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.
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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...................................................8
Flexible Pricing(SERVICEMARK)...........................................10
How To Buy Shares.......................................................11
How To Sell Shares......................................................12
Other Services..........................................................12
Management..............................................................12
Determining The Shares' Net Asset Value.................................14
Dividends & Taxes.......................................................14
General Information.....................................................15
Prospectus Page 2
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PaineWebber S&P 500 Index Fund
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 companies 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 500 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 derivative instruments, such as
options and futures contracts, to simulate full investment in the S&P 500 Index
while handling cash flows into and out of the Fund and to reduce transaction
expenses. These derivatives involve special risks. Investors may lose money by
investing in the Fund; investments in the Fund are 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 at least $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 have higher ongoing expenses than Class Y shares.
CLASS Y SHARES
Class Y shares are currently offered for sale only to limited groups of
investors. The price is the net asset value. Investors do not pay an initial
sales charge when they buy Class Y shares. As a result, 100% of their purchase
is immediately invested. Class Y shares have lower ongoing expenses than Class A
shares.
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Prospectus Page 3
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PaineWebber 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 each class of 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.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS Y
<S> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a % of None None
offering price)......................................
Sales Charge on Reinvested Dividends (as a % of offering None None
price)...............................................
Maximum Contingent Deferred Sales Charge (as a % of
offering price or net asset value at the time of None None
sale, whichever is less).............................
Exchange Fees............................................. N/A N/A
ANNUAL FUND OPERATING EXPENSES (as a % of average net
assets)
Management Fees (after waivers)*............................ 0.00% 0.00%
===== =====
12b-1 Fees.................................................. 0.05 None
Other Expenses (after expense reimbursements)*.............. 0.35 0.35
----- -----
Total Operating Expenses (after fee waivers and expense 0.40% 0.35%
reimbursements)*............................................. ===== =====
</TABLE>
* Without taking into account anticipated fee waivers and expense
reimbursements, the Fund's Management Fees, estimated Other Expenses and
estimated Total Operating Expenses would be 0.20%, 0.55% and 0.80%,
respectively, for Class A shares and 0.20%, 0.55% and 0.75%, respectively, for
Class Y shares.
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. Class Y shares may be purchased by participants
in the INSIGHT Investment Advisory Program ("INSIGHT") sponsored by PaineWebber,
when purchased through that program. Participation in INSIGHT is subject to
payment of an advisory fee at the maximum annual rate of 1.50% of assets held
through INSIGHT (generally charged quarterly in advance), which may be charged
to the INSIGHT participant's PaineWebber account. This account charge is not
included in the table because non-INSIGHT participants are permitted to purchase
Class Y shares of the Fund.
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Prospectus Page 4
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PaineWebber S&P 500 Index Fund
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...................................... $4 $22
Class Y...................................... $4 $20
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; .20%
expense waiver in the first year of operations.
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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 its board.
The Fund seeks to achieve its objective by investing substantially all of its
assets in common stocks issued by companies in the S&P 500 Index and in related
derivatives, such as options and futures contracts, that simulate investment in
the S&P 500 Index. Under normal circumstances, the Fund invests at least 65% of
its total assets 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 New York Stock Exchange, 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
industry components of the U.S. market for common stocks. Therefore these 500
stocks do not represent the 500 largest companies. Aggregate market value and
trading activity also are considered in the selection process.
The Fund is not sponsored, endorsed, sold or promoted by S&P. "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. 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 the 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. The performance of the Fund
versus that of the S&P 500 Index is compared at least weekly. If an unexpected
tracking error develops, the Fund will be rebalanced to bring it into line with
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 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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Prospectus Page 7
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PaineWebber S&P 500 Index Fund
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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.
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, the Fund's 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.
FOREIGN SECURITIES. The S&P 500 Index includes some U.S. dollar-denominated
foreign securities that are traded on recognized U.S. exchanges or on the U.S.
over-the-counter ("OTC") market. Investing in the securities of foreign
companies may involve more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or
monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies. In general, less
information may be available about foreign companies than about U.S. companies,
and foreign companies are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies.
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. Derivatives 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 or instrument. The market value of derivatives sometimes is more
volatile than that of other investments, and each type of derivative 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.
INDUSTRY CONCENTRATION POLICY. The Fund may invest 25% or more of its total
assets in securities of issuers in the same industry if necessary to replicate
the weighting of that particular industry in the S&P 500 Index.
INVESTMENT TECHNIQUES AND STRATEGIES
STRATEGIES USING DERIVATIVES. The Fund may use derivatives, which may include
options (both exchange traded and OTC) and futures contracts in strategies
intended to simulate full investment in the S&P 500 Index while retaining a cash
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Prospectus Page 8
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PaineWebber S&P 500 Index Fund
balance for Fund management purposes, such as to provide liquidity to meet
anticipated sales of its shares by shareholders and for Fund operating expenses.
The Fund may also use these derivatives to reduce the risk of adverse price
movements in the securities in the S&P 500 Index while investing cash received
from investor purchases of Fund shares, to facilitate trading and to reduce
transaction costs. New financial products and 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 derivatives and related strategies.
The Fund might not use any derivative instruments 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 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 possibility of imperfect correlation between price movements of
derivatives used in the Fund's strategies and price movements of the
securities in the S&P 500 Index;
. 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
position in derivatives.
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 MANAGEMENT. The Fund expects to use derivatives to provide liquidity for
anticipated sales of its shares by shareholders, to manage cash flows into the
Fund pending investment in securities in the S&P 500 Index and for Fund
operating expenses. The Fund may also invest in cash or investment grade U.S.
money market instruments, including repurchase agreements, for liquidity
purposes or pending investment in other securities. The Fund is authorized to
invest up to 35% of its total assets in cash or money market instruments,
although it expects these investments will represent a much smaller portion of
its total assets under normal circumstances.
Repurchase agreements are transactions in which the Fund purchases securities
from banks or recognized securities dealers 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 OTC 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 purchase securities on a when-issued basis or
may purchase or sell securities for delayed delivery. The Fund would not pay for
such securities or start earning interest on them until they are delivered, but
it would immediately assume the risks of ownership, including the risk of price
fluctuation. 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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Prospectus Page 9
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PaineWebber S&P 500 Index Fund
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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 have lower ongoing expenses than Class A
shares but are available only to limited groups 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 calculated after PaineWebber's New York City headquarters
or the Transfer Agent receives the purchase order. Because investors do not pay
an initial sales charge when they buy Class Y shares, 100% of their purchase is
immediately invested. 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
. 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.
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Prospectus Page 10
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PaineWebber S&P 500 Index Fund
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 by PaineWebber's New York
City headquarters or the Transfer Agent.
When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares. 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 $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's New
York City headquarters. Investors may pay for their purchases with checks drawn
on U.S. banks or with funds they have in their brokerage accounts at PaineWebber
or its correspondent firms
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up an
account through the Transfer Agent (PFPC Inc.) by completing an account
application which may be obtained by calling 1-800-647-1568. The application and
check must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box
8950, Wilmington, DE 19899. Investors do not have to send an application when
making additional investments in the Fund.
MINIMUM INVESTMENTS FOR CLASS A SHARES
To open an account ....................$ 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.
. transactions in Class A and Class Y shares made in certain investment
programs.
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Prospectus Page 11
<PAGE>
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PaineWebber S&P 500 Index Fund
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HOW TO SELL SHARES
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Investors can sell (redeem) shares at any time. Shares will be sold at the share
price for that class as next calculated after the order is received by
PaineWebber's New York City headquarters or the Transfer Agent. Share prices are
normally calculated at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time).
Investors who own more than one class of shares should specify which class they
are selling. If they do not, the 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
executives. PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' sell orders to PaineWebber's New
York City headquarters. Investors who do not have an account and have bought
their shares through 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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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 $10,000 through which the Fund will deduct $50 or more monthly,
quarterly, semiannually or annually 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), semiannual (June and December) or annual
(December) withdrawals from their Fund accounts. To participate in this Plan, an
investor's Class A shares must have a minimum value of $25,000; the minimum
value of withdrawals is $100.
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Prospectus Page 12
<PAGE>
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PaineWebber S&P 500 Index Fund
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 Individual Retirement Accounts ("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 an asset management subsidiary of PaineWebber Incorporated, which is
wholly owned by PW Group, a publicly owned financial services holding company.
On June 30, 1997, Mitchell Hutchins was adviser or sub-adviser of 30 investment
companies with 65 separate portfolios and aggregate assets of approximately
$33.3 billion.
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.
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Prospectus Page 13
<PAGE>
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PaineWebber S&P 500 Index Fund
The Fund has agreed to pay Mitchell Hutchins a management fee at the annual rate
of 0.20% of the Fund's average daily net assets. For the first year of the
Fund's operations, however, Mitchell Hutchins has agreed to waive its fee and
reimburse Fund expenses during the Fund's first year of operations, 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 average annual 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.
- --------------------------------------------------------------------------------
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.
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Prospectus Page 14
<PAGE>
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PaineWebber S&P 500 Index Fund
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DIVIDENDS & TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
The Fund will pay an annual dividend from its net investment income and net
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 gain) ("taxable income") 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. Under the Taxpayer
Relief Act of 1997 ("Tax Act"), different maximum tax rates apply to net capital
gain depending on the taxpayer's holding period and marginal rate of federal
income tax -- generally, 28% for gain on capital assets held for more than one
year but not more than 18 months and 20% (10% for taxpayers in the 15% marginal
tax bracket) on capital assets held for more than 18 months. The Tax Act,
however, does not address the application of these rules to distributions of net
capital gain by a regulated investment company, including whether those
distributions may be treated by its shareholders in accordance with the
regulated investment company's holding period for the assets it sold that
generated the gain; the application thereof must be determined by further
legislation or future regulations that are not available as this Prospectus is
being prepared. Accordingly, shareholders should consult their tax advisers as
to the effect of the Tax Act on distributions by the Fund to them of net capital
gain. Shareholders who are not subject to tax on their income generally will not
be required to pay tax on distributions.
YEAR-END TAX REPORTING
Following the end of each calendar year, 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.
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Prospectus Page 15
<PAGE>
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PaineWebber S&P 500 Index Fund
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 shareholder receives more or less than the
shareholder's adjusted basis for the shares. Capital gain on shares held for
more than one year will be long-term capital gain, in which event it will be
subject to federal income tax at the rates indicated above. In addition, if Fund
shares are bought within 30 days before or after selling other Fund shares
(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.
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 its 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 distribution 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 investors
purchase Fund shares.
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Prospectus Page 16
<PAGE>
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PaineWebber S&P 500 Index Fund
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 preference into this Prospectus, is
available to shareholders upon request.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as custodian and recordkeeping agent for the
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 17
<PAGE>
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PAINEWEBBER S&P 500 INDEX FUND
PROSPECTUS -- OCTOBER , 1997
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(COPYRIGHT)1997 PaineWebber Incorporated
<PAGE>
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 ("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"),
before fees and expenses.
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 October _____,
1997. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm. This Statement of Additional
Information is dated October _____, 1997.
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 the Prospectus or this Statement of Additional Information, there are no
policy limitations on the Fund's ability to use the investments or 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
<PAGE>
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 and realized gains 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
States 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 banks or recognized securities dealers 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.
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 over-the-counter ("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
2
<PAGE>
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.
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 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.
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 "Strategies Using Derivative
Instruments," segregated accounts may also be required in connection with
certain transactions involving options and futures contracts.
3
<PAGE>
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 securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities or to
municipal securities and provided that the Fund may invest 25% or more of
its total assets in securities of issuers in the same industry if necessary
to replicate the weighting of that particular industry in the S&P 500
Index.
(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.
(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.
4
<PAGE>
(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 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.
STRATEGIES USING DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a variety of derivative
instruments ("Derivative Instruments"), including certain options, futures
contracts (sometimes referred to as "futures") and options on futures contracts
to simulate full investment by the Fund in the S&P 500 Index while maintaining a
cash balance for Fund management purposes, such as to provide liquidity to meet
anticipated shareholder sales of Fund shares and for Fund operating expenses. As
part of its use of Derivative Instruments for the Fund's cash management
purposes, Mitchell Hutchins may attempt to reduce the risk of adverse price
movements ("hedge") in the securities in the S&P 500 Index while investing cash
received from investor purchases of Fund shares or while selling securities to
meet shareholder redemptions. Mitchell Hutchins may also use Derivative
Instruments to reduce transaction costs for the Fund. The Fund may enter into
5
<PAGE>
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 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
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.
6
<PAGE>
Derivative Instruments also can be used 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 this 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 STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative 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
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
7
<PAGE>
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.
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-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.
8
<PAGE>
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 its 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 its 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.
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.
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<PAGE>
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.
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 its 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 its net assets.
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<PAGE>
(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>
Margo N. Alexander*,;50 Trustee and President Mrs. Alexander is president, chief executive
officer and a director of Mitchell Hutchins
(since January 1995) and also an executive
vice president and a director of
PaineWebber. Mrs. Alexander is president and
a director or trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard Q. Armstrong; 61 Trustee Mr. Armstrong is chairman and principal of
78 West Brother Drive RQA Enterprises (management consulting firm)
Greenwich, CT 06830 (since April 1991 and principal occupation
since March 1995). Mr. Armstrong is also a
director of Hi Lo Automotive, Inc. He was
chairman of the board, chief executive
officer and co-owner of Adirondack Beverages
(producer and distributor of soft drinks and
sparkling/still waters) (October 1993-March
1995). Mr. Armstrong was a partner of the
New England Consulting Group (management
consulting firm) (December 1992-September
1993). He was managing director of LVMH U.S.
Corporation (U.S. subsidiary of the French
luxury goods conglomerate, Luis Vuitton Moet
Hennessey Corporation) (1987-1991) and
chairman of its wine and spirits subsidiary,
Schieffelin & Somerset Company (1987-1991).
Mr. Armstrong is a director or trustee of 27
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address*; Age the Trust Other Directorships
---------------------- --------- -------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.*; 70 Trustee and Chairman Mr. Bewkes is a director of Paine Webber
of the Board of Group Inc. ("PW Group") (holding company of
Trustees PaineWebber and Mitchell Hutchins). Prior to
December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman of the
board, president and chief executive officer
of American Bakeries Company. Mr. Bewkes is
a director of Interstate Bakeries Corporation
and NaPro BioTherapeutics, Inc. Mr. Bewkes
is a director of trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard R. Burt; 50 Trustee Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, Partners (international investments and
N.W. consulting firm) (since March 1994) and a
Washington, D.C. 20036 partner of McKinsey & Company (management
consulting firm) (since 1991). He is also a
director of American Publishing Company and
Archer-Daniels-Midland Co. (agricultural
commodities). He was the chief negotiator in
the Strategic Arms Reduction Talks with the
former Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of Germany
(1985-1989). Mr. Burt is a director or
trustee of 27 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Mary C. Farrell*; 47 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of PaineWebber.
Ms. Farrell joined PaineWebber in 1982. She
is a member of the Financial Women's
Association and Women's Economic Roundtable,
and is employed as a regular panelist on Wall
Street Week with Louis Rukeyser. She also
serves on the Board of Overseers of New York
University's Stern School of Business. Ms.
Farrell is a director or trustee of 27
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address*; Age the Trust Other Directorships
---------------------- --------- -------------------
<S> <C> <C>
Meyer Feldberg; 55 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of K-III Communications
Corporation, Federated Department Stores,
Inc. and Revlon, Inc. Dean Feldberg is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
George W. Gowen; 67 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to may
New York, New York 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a director
of Columbia Real Estate Investments, Inc.
Mr. Gowen is a director or trustee of 27
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Frederic V. Malek; 60 Trustee Mr. Malek is chairman of Thayer Capital
1445 Pennsylvania Avenue, N.W. Partners (merchant bank). From January 1992
Suite 350 to November 1992, he was campaign manager of
Washington, D.C. 20004 Bush-Quayle '92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest Airlines
Inc.) and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to 1989, he was
employed by the Marriott Corporation (hotels,
restaurants, airline catering and contract
feeding), where he most recently was an
executive vice president and president of
Marriott Hotels and Resorts. Mr. Malek is
also a director of American Management
Systems, Inc. (management consulting and
computer-related services), Automatic Data
Processing Inc., CB Commercial Group, Inc.
(real estate services), Choice Hotels
International (hotel and hotel franchising),
FPL Group, Inc. (electric services), Integra,
Inc. (bio-medical), Manor Care, Inc. (health
care), National Education Corporation and
Northwest Airlines Inc. Mr. Malek is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
13
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<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address*; Age the Trust Other Directorships
---------------------- --------- -------------------
<S> <C> <C>
Carl W. Schafer; 61 Trustee Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and
research). He also is a director of Roadway
Express, Inc. (trucking), The Guardian Group
of Mutual Funds, Evans Systems, Inc. (a motor
fuels, convenience store and diversified
company), Electronic Clearing House, Inc.
(financial transactions processing), Wainoco
Oil Corporation and Nutraceutix, Inc.
(biotechnology). Prior to January 1993, Mr.
Schafer was chairman of the Investment
Advisory Committee of the Howard Hughes
Medical Institute. Mr. Schafer is a director
or trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber serves
as investment adviser.
T. Kirkham Barneby; 50 Vice President Mr. Barneby is a managing director and chief
investment officer - quantitative investments
of Mitchell Hutchins. Prior to September
1994, he was a senior vice president at
Vantage Global Management. Prior to June
1993, he was a senior vice president at
Mitchell Hutchins. Mr. Barneby is a vice
president of five investment companies for
which Mitchell Hutchins or PaineWebber serves
as investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a manager
Assistant Treasurer of the mutual fund finance division of
Mitchell Hutchins. Ms. Moran is a vice
president and assistant treasurer of 29
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 45 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice president
and secretary of 28 investment companies and
vice president and assistant secretary for
which Mitchell Hutchins or PaineWebber serves
as investment adviser.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Position with Business Experience;
Name and Address*; Age the Trust Other Directorships
---------------------- --------- -------------------
<S> <C> <C>
Emil Polito; 36 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. From March 1991 to
September 1993 he was director of the Mutual
Funds Sales Support and Service Center for
Mitchell Hutchins and PaineWebber. Mr.
Polito is a vice president for 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins. Prior
to May 1994, she was a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is a
vice president of 27 investment companies and
vice president and secretary for one
investment company for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice president and
Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. From August
1992 to August 1994, he was a vice president
of BlackRock Financial Management L.P.. Prior
to August 1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is a vice
president and treasurer of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Barney A. Taglialatela; 36 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance division
of Mitchell Hutchins. Prior to February
1995, he was a manager of the mutual fund
finance division of Kidder Peabody Asset
Management Inc. Mr. Taglialatela is a vice
president and assistant treasurer of 28
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller is
a vice president and assistant secretary of
27 investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
Ian W. Williams; 40 Vice President and Mr. Williams is a vice president and a
Assistant Treasurer manager of the mutual fund finance division
of Mitchell Hutchins. Prior to June 1992, he
was an audit senior accountant with Price
Waterhouse LLP. Mr. Williams is a vice
president and assistant treasurer of 28
investment companies for which Mitchell
Hutchins or PaineWebber serves as investment
adviser.
</TABLE>
15
<PAGE>
------------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019. Mrs. Alexander, Mr.
Bewkes and Ms. Farrell are "interested persons" of the Trust as defined in the
1940 Act by virtue of their positions with PW Group, PaineWebber and/or Mitchell
Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust
$1,000 for each series and $150 for each board meeting and each meeting of a
board committee (other than committee meetings held on the same day as a board
meeting). The Trust has only one series and thus pays each such trustee $1,000
annually, plus any additional amounts due for board or committee meetings. Each
chairman of the audit and contract review committees of individual funds within
the PaineWebber fund complex receives additional compensation aggregating
$15,000 annually. All trustees are reimbursed for any expenses incurred in
attending meetings. 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 (1) from the Trust(2) Complex(3)
- ---------------------------- ----------------- ---------------
Richard A. Armstrong, Trustee $1,750 $59,873
Richard R. Burt, Trustee 1,750 51,173
Meyer Feldberg, Trustee 2,250 96,181
George W. Gowen, Trustee 1,750 92,431
Frederic V. Malek, Trustee 1,750 92,431
Carl W. Schafer, Trustee 1,750 62,307
(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. As of October 9, 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
16
<PAGE>
Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate of 0.20% of average daily net assets.
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 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; (18) costs of mailing,
stationery and communications equipment; (19) expenses incident to any dividend,
withdrawal or redemption options; (20) charges and expenses of any outside
pricing service used to value portfolio securities; (21) interest on borrowings
of the Fund; and (22) fees or expenses related to license agreements with
respect to securities indices.
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 June
30, 1997, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
NET ASSETS
INVESTMENT CATEGORY $ MIL
- ------------------- ---------
Domestic (excluding Money Market)........................... $5,865.6
Global...................................................... 3,208.3
Equity/Balanced............................................. 4,195.0
Fixed Income (excluding Money Market)....................... 4,877.9
Taxable Fixed Income.............................. 3,328.9
Tax-Free Fixed Income............................. 1.549.0
Money Market Funds.......................................... 24,227.8
17
<PAGE>
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.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Fund's Class A and Class Y shares 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 an exclusive dealer agreement
between Mitchell Hutchins and PaineWebber relating to the Class A and Class Y
shares ("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,
18
<PAGE>
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.
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
19
<PAGE>
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.
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 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,
20
<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.
21
<PAGE>
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether through
the Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an investor
to take advantage of "dollar cost averaging." By investing a fixed amount in
mutual fund shares at established intervals, an investor purchases more shares
when the price is lower and fewer shares when the price is higher, thereby
increasing his or her earning potential. Of course, dollar cost averaging does
not guarantee a profit or protect against a loss in a declining market, and an
investor should consider his or her financial ability to continue investing
through periods of 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;
. 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
22
<PAGE>
. 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:
n
P(1 + T) = 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.
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.
23
<PAGE>
("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.*
Year Common Long-Term Inflation/C Treasury Bills
1926 $10,000 $10,000 $10,000 $10,000
1927 $15,347 $11,739 $9,646 $10,649
1928 $22,039 $11,751 $9,553 $11,028
1929 $20,184 $12,153 $9,572 $11,552
1930 $15,158 $12,719 $8,994 $11,831
1931 $8,588 $12,044 $8,138 $11,957
1932 $7,885 $14,072 $7,300 $12,072
1933 $12,142 $14,062 $7,337 $12,108
___________________
* Source: Stocks, Bonds, Bills and Inflation 1996 Yearbook(TRADEMARK) Ibbotson
Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
24
<PAGE>
Year Common Long-Term Inflation/C Treasury Bills
1934 $11,967 $15,473 $7,486 $12,128
1935 $17,672 $16,243 $7,710 $12,148
1936 $23,667 $17,465 $7,803 $12,170
1937 $15,376 $17,505 $8,045 $12,208
1938 $20,161 $18,473 $7,822 $12,205
1939 $20,079 $19,570 $7,784 $12,208
1940 $18,115 $20,762 $7,859 $12,208
1941 $16,015 $20,955 $8,623 $12,215
1942 $19,273 $21,630 $9,424 $12,248
1943 $24,265 $22,080 $9,721 $12,291
1944 $29,057 $22,700 $9,926 $12,331
1945 $39,645 $25,136 $10,150 $12,372
1946 $36,446 $25,111 $11,993 $12,415
1947 $38,527 $24,453 $13,074 $12,478
1948 $40,646 $25,284 $13,428 $12,579
1949 $48,283 $26,915 $13,186 $12,717
1950 $63,594 $26,931 $13,950 $12,870
1951 $78,869 $25,873 $14,769 $13,061
1952 $93,357 $28,173 $14,899 $13,278
1953 $92,433 $27,126 $14,991 $13,520
1954 $141,071 $29,076 $14,916 $13,636
1955 $185,594 $28,701 $14,971 $13,850
1956 $197,768 $27,097 $15,399 $14,191
1957 $176,449 $29,118 $15,864 $14,636
1958 $252,957 $27,345 $16,144 $14,862
1959 $283,211 $26,727 $16,386 $15,300
1960 $284,542 $30,410 $16,628 $15,707
1961 $361,055 $30,705 $16,740 $16,042
1962 $329,535 $32,820 $16,944 $16,480
1963 $404,669 $33,217 $17,223 $16,994
1964 $471,359 $34,383 $17,428 $17,596
1965 $530,043 $34,627 $17,763 $18,287
1966 $476,721 $35,891 $18,358 $19,158
1967 $591,038 $32,597 $18,916 $19,964
1968 $656,407 $32,512 $19,809 $21,004
1969 $600,613 $30,863 $21,019 $22,386
1970 $624,697 $34,601 $22,173 $23,846
1971 $714,091 $39,179 $22,918 $24,893
1972 $849,626 $41,408 $23,700 $25,849
1973 $725,071 $40,948 $25,785 $27,640
1974 $533,144 $42,730 $28,931 $29,851
1975 $731,474 $46,661 $30,956 $31,582
1976 $905,565 $54,500 $32,442 $33,193
1977 $840,364 $54,118 $34,648 $34,886
1978 $895,828 $53,469 $37,767 $37,398
1979 ####### $52,827 $42,790 $41,287
1980 ####### $50,767 $48,096 $45,911
1981 ####### $51,732 $52,376 $52,660
1982 ####### $72,631 $54,419 $58,190
1983 ####### $73,139 $56,487 $63,310
1984 ####### $84,478 $58,748 $69,515
1985 ####### $110,664 $60,979 $74,867
1986 ####### $137,776 $61,649 $79,509
1987 ####### $134,056 $64,362 $83,882
1988 ####### $147,060 $67,194 $89,167
1989 ####### $173,678 $70,285 $96,657
1990 ####### $184,446 $74,572 $104,196
1991 ####### $220,044 $76,884 $110,031
1992 ####### $237,887 $79,114 $113,882
1993 ####### $281,159 $81,250 $117,185
1994 ####### $259,229 $83,443 $121,755
1995 ####### $313,511 $85,404 $126,856
25
<PAGE>
Year Common Long-Term Inflation/C Treasury Bills
1996 ####### $337,286 $88,451 $135,380
* Source: Stocks, Bonds, Bills and Inflation 1996 Yearbook(TRADEMARK) Ibbotson
Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
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
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 gain)
("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 (including gains from options and futures) derived
with respect to its business of investing in securities ("Income Requirement");
(2) through the end of its current taxable year on May 31, 1998, the Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, options or futures 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, and payable to
shareholders of record on a date, in December of any year will be deemed to have
been paid by the Fund and received by the shareholders on the last day of that
month 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.
26
<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 using Derivative Instruments, 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.
Gains from options and futures contracts derived by the Fund with respect to its
business of investing in securities will qualify as permissible income under the
Income Requirement. Income from the disposition of options and futures 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.
Certain options and futures in which the Fund may invest will be "section
1256 contracts." Section 1256 contracts held by the Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, must be "marked-to-market" (that is, treated as sold for
their fair market value) for federal income tax purposes, with the result that
unrealized gains or losses will be treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. It is not entirely clear, as of the date of
this Statement of Additional Information, whether the 60% portion of that
capital gain that is treated as long-term capital gain will qualify for the
reduced maximum tax rates on net capital gain (the excess of net long-term
capital gain over net short-term capital loss) enacted by the Taxpayer Relief
Act of 1997 -- 20% (10% for taxpayers in the 15% marginal tax bracket) on
capital assets held for more than 18 months -- instead of the maximum rate in
effect before that legislation, 28%, which now applies to gain on capital assets
held for more than one year but not more than 18 months. Section 1256 contracts
also may be marked-to-market for purposes of the Excise Tax.
If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option or futures contract, or short
sale) with respect to any stock, debt instrument (other than "straight debt"),
or partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
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,
27
<PAGE>
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.
Shareholders of the Fund are entitled to participate equally in the
dividends and other distributions from, and the proceeds of any liquidation of,
the Fund, 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.
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.
28
<PAGE>
FINANCIAL STATEMENTS
PAINEWEBBER INDEX TRUST
PAINEWEBBER S&P 500 INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 9, 1987
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash $100,000
Deferred organizational expenses 145,000
Prepaid expenses 90,150
-------
Total assets 335,150
-------
Liabilities:
Organizational expenses payable 145,000
Payable to adviser 90,150
--------
Total liabilities 235,150
Net Assets (beneficial interest, $0.001 par value, issued and outstanding) $100,000
========
CLASS A:
Net Assets $ 50,000
--------
Shares outstanding 4,000
--------
Net asset value, offering price and redemption value per share $12.50
========
CLASS Y:
Net Assets $50,000
--------
Shares outstanding 4,000
--------
Net asset value, offering price and redemption value per share $12.50
========
</TABLE>
ORGANIZATION
PaineWebber S&P 500 Index Fund ("Fund") is a diversified series of
PaineWebber Index Trust ("Trust"), an open-end management investment company
organized as a Delaware business trust on May 27, 1997. The Fund has had no
operations other than the sale to Mitchell Hutchins Asset Management ("Mitchell
Hutchins"), the investment adviser, a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), of 4,000 shares of beneficial interest of Class A
for the amount of $50,000, and 4,000 shares of beneficial interest of Class Y
for the amount of $50,000, on October 6, 1987. The Fund currently offers two
classes of shares. Each class is sold without any initial sales charges, and
without any contingent deferred sales charge. Each class represents assets of
the Fund, and the classes are identical except for differences in ongoing
service fees and certain transfer agency expenses. The trustees of the Trust
have authority to issue an unlimited number of shares of beneficial interest,
par value $0.001 per share.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $145,000, will be deferred and amortized by
the Fund on the straight line method over a period not to exceed 60 months from
the date the Fund commences investment operations.
MANAGEMENT AGREEMENT
Mitchell Hutchins acts as the investment adviser and administrator to the
Fund pursuant to a contract (the "Advisory Contract") with the Trust dated
29
<PAGE>
_____________, 1997. Under the Advisory Contract, the Fund pays Mitchell
Hutchins a fee, computed daily and paid monthly, at an annual rate of 0.20% of
average daily net assets.
Through the Fund's first fiscal year ending May 31, 1998, Mitchell Hutchins
has agreed to voluntarily 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 average annual net
assets for Class Y shares. Class Y shares are currently offered for sale only to
limited groups of investors.
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, 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.
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
PaineWebber S&P 500 Index Fund
We have audited the accompany statement of assets and liabilities of the
PaineWebber S&P 500 Index Fund as of October 9, 1997. This statement of assets
and liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether this statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of PaineWebber
S&P 500 Index Fund at October 9, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
New York, New York
October 9, 1997
31
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE 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............................1
Strategies Using Derivative Instruments.........................5
Trustees And Officers; Principal Holders Of Securities.........11
Investment Advisory And Distribution Arrangements..............16
Portfolio Transactions.........................................19
Redemption Information And Other Services......................20
Valuation Of Shares............................................23
Performance Information........................................23
Taxes..........................................................26
Other Information..............................................27
Financial Statements...........................................29
(COPYRIGHT)1997 PAINEWEBBER INCORPORATED
<PAGE>
PAINEWEBBER
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
October __, 1997
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: (filed herewith)
(b) Exhibits:
(1) Trust Instrument 1/
(2) By-Laws 1/
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(5) Form of Investment Advisory and Administration Contract(filed herewith)
(6) (a) Form of Distribution Contract (filed herewith)
(b) Form of Exclusive Dealer Agreement (filed herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Form of Custodian Agreement (filed herewith)
(9) Form of Transfer Agency Agreement (filed herewith)
(10) Opinion of Counsel (filed herewith)
(11) Other opinions, appraisals, rulings and consents:
Auditors' consent (filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (filed herewith)
(14) Prototype Retirement Plan - none
(15) Rule 12b-1 Plan of Distribution with respect to Class A Shares (filed
herewith)
(16) Schedule for Computation of Performance Quotations - none
(17) and (27) Financial Data Schedule (not applicable)
(18) Plan Pursuant to Rule 18f-3 (filed herewith)
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of October 9, 1997
- -------------- ---------------------
Shares of beneficial interest, par value $0.001 per share, in
PaineWebber S&P 500 Index Fund
Class A Shares 1
Class Y Shares 1
- ------------------------
1/ Incorporated by reference from Registrant's initial Registration Statement,
SEC File No. 333-27917, filed May 28, 1997.
2/ 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 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 the 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
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 the 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 the 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 the 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.
C-2
<PAGE>
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.
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 INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SELECT TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
b) Mitchell Hutchins is the Registrant's principal underwriter.
PaineWebber acts as exclusive dealer of the Registrant's shares. The directors
and officers of Mitchell Hutchins, their principal business addresses, and their
positions and offices with Mitchell Hutchins are identified in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219). The directors and officers of PaineWebber, their principal business
addresses, and their positions and offices with PaineWebber are identified in
its Form ADV, as filed with the Securities and Exchange Commission (registration
number 801-7163). The foregoing information is hereby incorporated herein by
reference. The information set forth below is furnished for those directors and
officers of Mitchell Hutchins or PaineWebber who also serve as trustees or
officers of the Registrant. Unless otherwise indicated, the principal business
address of each person named is 1285 Avenue of the Americas, New York, NY 10019.
C-3
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices With Positions and Offices With Underwriter or
Name Registrant Exclusive Dealer
---- --------------------------- -----------------------------------------
<S> <C> <C>
Margo Alexander President and Trustee Director, President and Chief Executive
Officer of Mitchell Hutchins and Director
and Executive Vice President of PaineWebber
T. Kirkham Barneby Vice President Managing Director, Chief Investment
Officer-Quantitative Investments of
Mitchell Hutchins
Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and member of Investment Policy
Committee of PaineWebber
Ann E. Moran Vice President and Assistant Vice President of Mitchell Hutchins and a
Treasurer Manager of the Mutual Fund Finance Division
of Mitchell Hutchins
Dianne E. O'Donnell Vice President and Secretary Senior Vice President and Deputy General
Counsel of Mitchell Hutchins
Emil Polito Vice President Senior Vice President and Director of
Operations and Control of Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director and General Counsel of
Mitchell Hutchins
Paul H. Schubert Vice President and Treasurer First Vice President and Director of the
Mutual Fund Finance Division of Mitchell
Hutchins
Barney A. Taglialatela Vice President and Assistant Vice President and a Manager of the Mutual
Treasurer Fund Finance Division of Mitchell Hutchins
Keith A. Weller Vice President and Assistant First Vice President and Associate General
Secretary Counsel of Mitchell Hutchins
Ian W. Williams Vice President and Assistant Vice President and a Manager of the Mutual
Secretary Fund Finance Division of Mitchell Hutchins
</TABLE>
c) None
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.
C-4
<PAGE>
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
Registrant hereby undertakes to file a Post-Effective Amendment to this
Registration Statement, containing financial statements that need not be
certified, within four to six months from the effective date of this
Registration Statement.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 8th day of October, 1997.
PAINEWEBBER INDEX TRUST
By: /s/ Dianne E. O'Donnell
-----------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 has been signed below by the following persons in
the capacities and on the dates indicated. The undersigned hereby severally
constitute and appoint Dianne E. O'Donnell, Gregory K. Todd, Keith A. Weller,
Arthur J. Brown, Elinor W. Gammon, and Robert A. Wittie, and each of them
singly, our true and lawful attorneys, with full power to sign for each of us,
and in each of our names and in the capacities indicated below, any and all
amendments to the Registration Statement of PaineWebber Index Trust, and all
instruments necessary or desirable in connection therewith, filed with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by said attorneys to any and all amendments to
said registration statement.
Signature Title Date
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee October 8, 1997
- -------------------------- (Chief Executive Officer)
Margo N. Alexander
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman October 8, 1997
- -------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr.
/s/ Richard Q. Armstrong Trustee October 8, 1997
- --------------------------
Richard Q. Armstrong
/s/ Richard R. Burt Trustee October 8, 1997
- --------------------------
Richard R. Burt
/s/ Mary C. Farrell Trustee October 8, 1997
- --------------------------
Mary C. Farrell
/s/ Meyer Feldberg Trustee October 8, 1997
- --------------------------
Meyer Feldberg
/s/ George W. Gowen Trustee October 8, 1997
- --------------------------
George W. Gowen
/s/ Frederick V. Malek Trustee October 8, 1997
- --------------------------
Frederic V. Malek
/s/ Carl W. Schafer Trustee October 8, 1997
- --------------------------
Carl W. Schafer
/s/ Paul H. Schubert Vice President and Treasurer October 8, 1997
- -------------------------- (Chief Financial and Accounting
Paul H. Schubert Officer)
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
August 21, 1997 and incorporated by reference from Pre-Effective Amendment
No. 1 to the registration statement of Mitchell Hutchins Portfolios, SEC
File 333-26087, filed August 26, 1997.
-2-
<PAGE>
PAINEWEBBER INDEX TRUST
EXHIBIT INDEX
Exhibit
Number
- -------
(1) Trust Instrument 1/
(2) By-Laws 1/
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(5) Form of Investment Advisory and Administration Contract (filed herewith)
(6) (a) Form of Distribution Contract (filed herewith)
(b) Form of Exclusive Dealer Agreement (filed herewith)
(7) Bonus, profit sharing or pension plans - none
(8) Form of Custodian Agreement (filed herewith)
(9) Form of Transfer Agency Agreement (filed herewith)
(10) Opinion of Counsel (filed herewith)
(11) Other opinions, appraisals, rulings and consents:
Auditors' consent (filed herewith)
(12) Financial Statements omitted from Part B - none
(13) Letter of investment intent (filed herewith)
(14) Prototype Retirement Plan - none
(15) Rule 12b-1 Plan of Distribution with respect to Class A Shares (filed
herewith)
(16) Schedule for Computation of Performance Quotations - none
(17) and (27) Financial Data Schedule (not applicable)
(18) Plan Pursuant to Rule 18f-3 (filed herewith)
- ------------------
1/ Incorporated by reference from Registrant's initial Registration Statement,
SEC File No. 333-27917, filed May 28, 1997.
2/ 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.
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of ____________, 1997 between PAINEWEBBER INDEX TRUST,
a Delaware business trust ("Trust"), and MITCHELL HUTCHINS ASSET MANAGEMENT INC.
("Mitchell Hutchins"), a Delaware corporation registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and as an
investment adviser under the Investment Advisers Act of 1940, as amended.
WHEREAS the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
intends to offer for public sale distinct series of shares of beneficial
interest ("Series"), each corresponding to a distinct portfolio; and
WHEREAS the Trust desires to retain Mitchell Hutchins as investment
adviser and administrator to furnish certain administrative, investment advisory
and portfolio management services to the Trust and each Series as now exists and
as hereafter may be established, and Mitchell Hutchins in willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as
investment adviser and administrator of the Trust and each Series for the period
and on the terms set forth in this Contract. Mitchell Hutchins accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES AS INVESTMENT ADVISER.
----------------------------
(a) Subject to the supervision of the Trust's Board of Trustees
("Board"), Mitchell Hutchins will provide a continuous investment program for
each Series, including investment research and management with respect to all
securities and investments and cash equivalents in each Series. Mitchell
Hutchins will determine from time to time what securities and other investments
will be purchased, retained or sold by each Series.
(b) Mitchell Hutchins agrees that in placing orders with brokers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of any Series, Mitchell Hutchins may, in its
discretion, use brokers who provide the Series with research, analysis, advice
and similar services to execute portfolio transactions on behalf of the Series,
and Mitchell Hutchins may pay to those brokers in return for brokerage and
research services a higher commission than may be charged by other brokers,
subject to Mitchell Hutchins' determining in good faith that such commission is
reasonable in terms either of the particular transaction or of the overall
responsibility of Mitchell Hutchins to such Series and its other clients and
that the total commissions paid by such Series will be reasonable in relation to
the benefits to the Series over the long term. In no instance will portfolio
securities be purchased from or sold to Mitchell Hutchins, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder. Whenever Mitchell Hutchins simultaneously
places orders to purchase or sell the same security on behalf of a Series and
<PAGE>
one or more other accounts advised by Mitchell Hutchins, such orders will be
allocated as to price and amount among all such accounts in a manner believed to
be equitable to each account. The Trust recognizes that in some cases this
procedure may adversely affect the results obtained for the Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series, and will
furnish the Board with such periodic and special reports as the Board reasonably
may request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Mitchell Hutchins hereby agrees that all records which it maintains for the
Trust are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) Mitchell Hutchins will oversee the computation of the net asset
value and the net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement")
or as more frequently requested by the Board.
(e) The Trust hereby authorizes Mitchell Hutchins and any entity or
person associated with Mitchell Hutchins which is a member of a national
securities exchange to effect any transaction on such exchange for the account
of any Series, which transaction is permitted by Section 11(a) of the 1934 Act,
and the Trust hereby consents to the retention of compensation by Mitchell
Hutchins or any person or entity associated with Mitchell Hutchins.
3. DUTIES AS ADMINISTRATOR. Mitchell Hutchins will administer the
affairs of the Trust and each Series subject to the supervision of the Board and
the following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of
the Trust and each Series, including oversight of transfer agency, custodial and
accounting services, except as hereinafter set forth; provided, however, that
noting herein contained shall be deemed to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Trust and
each Series.
(b) Mitchell Hutchins will provide the Trust and each Series with such
corporate, administrative and clerical personnel (including officers of the
Trust) and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the Trust and
each Series.
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement, proxy material, tax returns and required reports to each
Series' shareholders and the Securities and Exchange Commission and other
appropriate federal or state regulatory authorities.
(d) Mitchell Hutchins will provide the Trust and each Series with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery supplies and
similar items.
-2-
<PAGE>
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
4. FURTHER DUTIES. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Trust Instrument,
By-Laws and Registration Statement of the Trust and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
5. DELEGATION OF MITCHELL HUTCHINS' DUTIES AS INVESTMENT ADVISER AND
ADMINISTRATOR. With respect to any or all Series, Mitchell Hutchins may enter
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
a sub-adviser or sub-administrator in which Mitchell Hutchins delegates to such
sub-adviser or sub-administrator any or all its duties specified in Paragraphs 2
and 3 of this Contract, provided that each Sub-Advisory or Sub-Administration
Contract imposes on the sub-adviser or sub-administrator bound thereby all the
duties and conditions to which Mitchell Hutchins is subject by Paragraphs 2, 3
and 4 of this Contract, and further provided that each Sub-Advisory or
Sub-Administration Contract meets all requirements of the 1940 Act and rules
thereunder.
6. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a Trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature.
7. EXPENSES.
--------
(a) During the term of this Contract, each Series will bear all
expenses, not specifically assumed by Mitchell Hutchins, incurred in its
operations and the offering of its shares.
(b) Expenses borne by each Series will include but not be limited to
the following (or each Series' proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Series and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Mitchell Hutchins under this
Contract; (iii) expenses of organizing the Trust and the Series; (iv) filing
fees and expenses relating to the registrations and qualification of the Series'
shares and the Trust under federal and/or state securities laws and maintaining
such registration and qualifications; (v) fees and salaries payable to the
Trust's Trustees and officers who are not interested persons of the Trust or
Mitchell Hutchins; (vi) all expenses incurred in connection with the Trustees'
services, including travel expenses; (vii) taxes (including any income or
franchise taxes) and governmental fees; (viii) costs of any liability,
uncollectible items of deposit and other insurance and fidelity bonds; (ix) any
costs, expenses or losses arising out of a liability of or claim for damages or
-3-
<PAGE>
other relief asserted against the Trust or Series for violation of any law; (x)
legal, accounting and auditing expenses, including legal fees of special counsel
for those Trustees of the Trust who are not interested persons of the Trust;
(xi) charges of custodians, transfer agents and other agents (including any
lending agent); (xii) costs of preparing share certificates; (xiii) expenses of
setting in type and printing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders; (xiv) costs of mailing prospectuses and supplements
thereto, statements of additional information and supplements thereto, reports
and proxy materials to existing shareholders; (xv) any extraordinary expenses
(including fees and disbursements of counsel, costs of actions, suits or
proceedings to which the Trust is a party and the expenses the Trust may incur
as a result of its legal obligation to provide indemnification to its officers,
Trustees, agents and shareholders) incurred by the Trust or Series; (xvi) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; (xvii) the cost of mailing and tabulating
proxies and costs of meetings of shareholders, the Board and any committees
thereof; (xviii) the cost of investment company literature and other
publications provided by the Trust to its Trustees and officers; (xix) costs of
mailing, stationery and communications equipment; (xx) expenses incident to any
dividend, withdrawal or redemption options; (xxi) charges and expenses of any
outside pricing service used to value portfolio securities; (xxii) interest on
borrowings of the Fund; and (xxiii) fees or expenses related to license
agreements with respect to securities indices.
(c) Mitchell Hutchins will assume the cost of any compensation for
services provided to the Trust received by the officers of the Trust and by
those Trustees who are interested persons of the Trust.
(d) The payment or assumption by Mitchell Hutchins of any expenses of
the Trust or a Series that Mitchell Hutchins is not required by this Contract to
pay or assume shall not obligate Mitchell Hutchins to pay or assume the same or
any similar expense of the Trust or a Series on any subsequent occasion.
8. COMPENSATION.
------------
(a) For the services provided and the expenses assumed pursuant to this
Contract, with respect to the PaineWebber S&P 500 Index Fund series, the Trust
will pay to Mitchell Hutchins a fee, computed daily and paid monthly, at an
annual rate of % of such Series' average daily net assets.
---
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any Series hereafter established, the Trust will pay to
Mitchell Hutchins from the assets of such Series a fee in an amount to be agreed
upon in a written fee agreement ("Fee Agreement") executed by the Trust on
behalf of such Series and by Mitchell Hutchins. All such Fee Agreements shall
provide that they are subject to all terms and conditions of this Contract.
(c) The fee shall be computed daily and paid monthly to Mitchell
Hutchins on or before the first business day of the next succeeding calendar
month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective day to the end of the month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
-4-
<PAGE>
9. LIMITATION OF LIABILITY OF MITCHELL HUTCHINS. Mitchell Hutchins and
its delegates, including any Sub-Adviser or Sub-Administrator to any Series or
the Trust, shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Series, the Trust or any of its shareholders, in
connection with the matters to which this Contract relates, except to the extent
that such a loss results from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or become
an officer, Trustee, employee or agent of the Trust shall be deemed, when
rendering services to any Series or the Trust or acting with respect to any
business of such Series or the Trust, to be rendering such service to or acting
solely for the Series or the Trust and not as an officer, director, employee, or
agent or one under the control or direction of Mitchell Hutchins even though
paid by it.
10. DURATION AND TERMINATION.
------------------------
(a) This Contract shall become effective upon the date hereabove
written provided that, with respect to any Series, this Contract shall not take
effect unless it has first been approved (i) by a vote of a majority of those
Trustees of the Trust who are not parties to this Contract or interested persons
of any such party cast in person at a meeting called for the purpose of voting
on such approval, and (ii) by vote of a majority of that Series' outstanding
voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those Trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or, with respect to any given Series, by vote of a majority of
the outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Mitchell Hutchins or
by Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Trust. Termination of this Contract with respect to
any given Series shall in no way affect the continued validity of this Contract
or the performance thereunder with respect to any other Series. This Contract
will automatically terminate in the event of its assignment.
11. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
TRUST. The Trustees of the Trust and the shareholders of any Series shall not be
liable for any obligations of any Series or the Trust under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, if shall look only to the assets and property of the Trust in
settlement of such right or claim, and not to such Trustees or shareholders.
12. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
-5-
<PAGE>
discharge or termination is sought, and no amendment of this Contract as to any
given Series shall be effective until approved by vote of a majority of such
Series' outstanding voting securities.
13. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act.. To the extent
that the applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities", "affiliated person",
"interested person", "assignment", "broker", "investment adviser", "national
securities exchange", "net assets", "prospectus", "sale", "sell" and "security"
shall have the same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the Securities and Exchange Commission by any
rule, regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Contract is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By
-------------------------------------
Attest: PAINEWEBBER INDEX TRUST
By
-------------------------------------
PAINEWEBBER INDEX TRUST
DISTRIBUTION CONTRACT
CLASS A AND CLASS Y SHARES
CONTRACT made as of ____________, 1997, between PAINEWEBBER INDEX
TRUST, a Delaware business trust ("Fund"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
intends to offer for public sale one distinct series of shares of beneficial
interest ("Series"), which corresponds to a distinct portfolio and has been
designated as PaineWebber S&P 500 Index Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares") and an unlimited number of shares of
beneficial interest of the above-referenced Series as Class Y shares ("Class Y
Shares")(collectively referred to as "Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class A Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Shares of the above-referenced Series and of such other Series as
may hereafter be designated by the Board and have Class A Shares established;
and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Shares on the terms and for the period set forth in this Contract.
Mitchell Hutchins hereby accepts such appointment and agrees to act hereunder.
It is understood, however, that this appointment does not preclude sales of the
Shares directly through the Fund's transfer agent in the manner set forth in the
Registration Statement. As used in this Contract, the term "Registration
Statement" shall mean the currently effective registration statement of the
Fund, and any supplements thereto, under the Securities Act of 1933, as amended
("1933 Act"), and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
(a) Mitchell Hutchins agrees to sell Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
<PAGE>
(b) Upon the later of the date of this Contract or the initial
offering of the Shares to the public by a Series, Mitchell Hutchins will hold
itself available to receive purchase orders, satisfactory to Mitchell Hutchins,
for Shares of that Series and will accept such orders on behalf of the Fund as
of the time of receipt of such orders and promptly transmit such orders as are
accepted to the Fund's transfer agent. Purchase orders shall be deemed effective
at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into
agreements to sell Shares to such registered and qualified retail dealers,
including but not limited to PaineWebber Incorporated ("PaineWebber"), as it may
select. In making agreements with such dealers, Mitchell Hutchins shall act only
as principal and not as agent for the Fund.
(d) The offering price of the Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any
certain number of Shares.
(f) To facilitate redemption of Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Shares presented to it by shareholders and
dealers at the price determined in accordance with, and in the manner set forth
in, the Registration Statement.
(g) With respect to the Class A Shares, Mitchell Hutchins
shall provide ongoing shareholder services, which include responding to
shareholder inquiries, providing shareholders with information on their
investments in the Class A Shares and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Section
(b)(9) of Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities"). "Service
activities" with respect to the Shares do not include the transfer
agency-related and other services for which PaineWebber receives compensation
under the Service Contract between PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
Delegate Duties as Distributor. With respect to the Shares of any or all Series,
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Shares
or the provision of service activities. In a separate contract or as part of any
such exclusive dealer agreement, Mitchell Hutchins also may delegate to
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PaineWebber or another registered and qualified dealer ("sub-distributor") any
or all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
(a) As compensation for its service activities under this
contract with respect to the Class A Shares, Mitchell Hutchins shall receive
from the Fund a service fee at the rate and under the terms and conditions of
the Plan adopted by the Fund with respect to the Class A Shares of the Series,
as such Plan is amended from time to time, and subject to any further
limitations on such fee as the Board may impose.
(b) The Fund shall have no obligation to compensate or
reimburse Mitchell Hutchins for any services performed by it hereunder with
respect to the Class Y Shares.
(c) Mitchell Hutchins may reallow any or all of the service
fees which it is paid under this Contract with respect to the Class A shares to
such dealers as Mitchell Hutchins may from time to time determine.
6. Duties of the Fund.
(a) The Fund reserves the right at any time to withdraw
offering Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of
its affairs and shall make available to Mitchell Hutchins copies of all
information, financial statements, and other papers which Mitchell Hutchins may
reasonably request for use in connection with the distribution of the Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
3
<PAGE>
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Shares of the Series and in the
performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary
action, including payment of the related filing fee, as may be necessary to
register the Shares under the 1933 Act to the end that there will be available
for sale such number of Shares as Mitchell Hutchins may be expected to sell. The
Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Shares of each Series for
sale under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Shares in any jurisdiction from the terms set forth in its
Registration Statement, to qualify as a foreign corporation in any jurisdiction,
or to consent to service of process in any jurisdiction other than with respect
to claims arising out of the offering of the Shares. Mitchell Hutchins shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
registering the Shares with the Securities and Exchange Commission and state and
other regulatory bodies, and shall assume expenses related to communications
with shareholders of each Series, including (i) fees and disbursements of its
counsel and independent public accountant; (ii) the preparation, filing and
printing of registration statements and/or prospectuses or statements of
additional information required under the federal securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses, statements
of additional information and proxy materials to shareholders; and (iv) the
qualifications of the Shares for sale and of the Fund as a broker or dealer
under the securities laws of such jurisdictions as shall be selected by the Fund
and Mitchell Hutchins pursuant to Paragraph 6(e) hereof, and the costs and
expenses payable to each such jurisdiction for continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of the Shares under this Contract, including the additional cost
of printing copies of prospectuses, statements of additional information, and
annual and interim shareholder reports other than copies thereof required for
distribution to existing shareholders or for filing with any federal or state
securities authorities; (ii) any expenses of advertising incurred by Mitchell
Hutchins in connection with such offering; (iii) the expenses of registration or
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<PAGE>
qualification of Mitchell Hutchins as a broker or dealer under federal or state
laws and the expenses of continuing such registration or qualification; and (iv)
all compensation paid to Mitchell Hutchins' employees and others for selling the
Shares, and all expenses of Mitchell Hutchins, its employees and others who
engage in or support the sale of the Shares as may be incurred in connection
with their sales efforts.
9. Indemnification.
(a) The Fund agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements therein not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement; provided,
however, that this indemnity agreement shall not inure to the benefit of any
person who is also an officer or trustee of the Fund or who controls the Fund
within the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect Mitchell Hutchins against any liability to
the Fund or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Fund shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to indemnified defendants in the suit whose approval shall not be
unreasonably withheld. In the event that the Fund elects to assume the defense
of any suit and retain counsel, the indemnified defendants shall bear the fees
and expenses of any additional counsel retained by them. If the Fund does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of
5
<PAGE>
the commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issuance or sale of any of its
Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold
the Fund, its officers and trustees and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. Limitation of Liability of the Trustees and Shareholders of the
Fund. The trustees of the Fund and the shareholders of any Series shall not be
liable for any obligations of the Fund or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Fund or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders.
11. Services Provided to the Fund by Employees of Mitchell Hutchins.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. Duration and Termination.
(a) This Contract shall become effective upon the date
hereabove written, provided that, with respect to any Series, this Contract
shall not take effect unless such action with respect to a Class has first been
approved by vote of a majority of the Board and by vote of a majority of those
trustees of the Fund who are not interested persons of the Fund, and, with
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<PAGE>
respect to Class A Shares, also have no direct or indirect financial interest in
the operation of the Plan relating to the Series or in any agreements related
thereto (all such trustees collectively being referred to herein as the
"Independent Trustees") cast in person at a meeting called for the purpose of
voting on such action.
(b) Unless sooner terminated as provided herein, this Contract
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or, with respect to a particular Class of Shares
of given Series, by vote of a majority of the outstanding voting securities of
that Class.
(c) Notwithstanding the foregoing, with respect to any Series,
this Contract may be terminated at any time, without the payment of any penalty,
by vote of the Board, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities of the applicable Class
of Shares of such Series on sixty days' written notice to Mitchell Hutchins or
by Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Fund or such Series. This Contract will
automatically terminate in the event of its assignment.
(d) Termination of this Contract with respect to any given
Series shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13 Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
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16. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this
Contract to be executed by their officers designated as of the day and year
first above written.
PAINEWEBBER INDEX TRUST
Attest: _______________________ By:__________________________________
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: _______________________ By:__________________________________
EXCLUSIVE DEALER AGREEMENT
CLASS A AND CLASS Y SHARES OF PAINEWEBBER INDEX TRUST
AGREEMENT made as of ___________, 1997, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Index Trust ("Fund") is a Delaware business trust
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company; and
WHEREAS the Fund currently has one distinct series of shares of
beneficial interest ("Series"), which corresponds to a distinct portfolio and
has been designated as the PaineWebber S&P 500 Index Fund; and
WHEREAS the Fund's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares") and has established an unlimited number of
shares of beneficial interest of the above-referenced Series as Class Y shares
("Class Y Shares") (collectively referred to as "Shares");and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act ("Plan") for the Class A Shares of the above-referenced
Series and of such other Series as may hereafter be designated by the Board and
have Class A Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Shares of
each Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its
exclusive agent in connection with the offering and sale of the Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Shares on the terms
and for the period set forth in this Agreement. Mitchell Hutchins also appoints
PaineWebber as its agent for the performance of certain other services set forth
herein which Mitchell Hutchins provides to the Fund under the Distribution
Contract. PaineWebber hereby accepts such appointments and agrees to act
hereunder. It is understood, however, that these appointments do not preclude
sales of Shares directly through the Fund's transfer agent in the manner set
forth in the Registration Statement. As used in this Agreement, the term
"Registration Statement" shall mean the currently effective Registration
Statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. Services, Duties and Representations of PaineWebber.
(a) PaineWebber agrees to sell the Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the
initial offering of Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Shares and will accept such orders on behalf of
Mitchell Hutchins and the Fund as of the time of receipt of such orders and will
promptly transmit such orders as are accepted to the Fund's transfer agent.
Purchase orders shall be deemed effective at the time and in the manner set
forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain
number of Shares.
(f) To facilitate redemption of Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Shares presented to it by
shareholders, its correspondent firms and other dealers at the price determined
in accordance with, and in the manner set forth in, the Registration Statement.
(g) With respect to the Class A Shares, PaineWebber shall
provide ongoing shareholder services, which include responding to shareholder
inquiries, providing shareholders with information on their investments in the
Class A Shares and any other services now or hereafter deemed to be appropriate
subjects for the payments of "service fees" under Section (b)(9) of Rule 2830 of
the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD") (collectively, "service activities"). "Service activities" with respect
to the Shares do not include the transfer agency-related and other services for
which PaineWebber receives compensation under the Service Contract between
PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a
member in good standing of the NASD and agrees to abide by the Conduct Rules of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Shares.
(i) PaineWebber shall not incur any debts or obligations on
behalf of Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that
it incurs in selling the Shares and in complying with the terms and conditions
of this Agreement as more specifically set forth in paragraph 8.
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<PAGE>
(j) PaineWebber shall not permit any employee or agent to
offer or sell Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make
any representations concerning the Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Shares in jurisdictions in which they have not been approved
for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. Compensation.
(a) As compensation for its service activities under this
Agreement with respect to the Class A Shares, Mitchell Hutchins shall pay to
PaineWebber service fees with respect to Class A Shares maintained in
shareholder accounts serviced by PaineWebber employees, correspondent firms and
other dealers in such amounts as Mitchell Hutchins and PaineWebber may from time
to time agree upon.
(b) Mitchell Hutchins shall not be obligated to pay any
compensation to PaineWebber hereunder for any services performed by it hereunder
with respect to the Class Y Shares.
(c) Mitchell Hutchins' obligation to pay compensation to
PaineWebber with respect to the Class A Shares as agreed upon pursuant to this
paragraph 4 is not contingent upon receipt by Mitchell Hutchins of any
compensation from the Fund or Series. Mitchell Hutchins shall advise the Board
of any agreements or revised agreements as to compensation to be paid by
Mitchell Hutchins to PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.
(e) PaineWebber may reallow all or any part of the service
fees which it is paid under this Agreement to its correspondent firms or other
dealers, in such amounts as PaineWebber may from time to time determine.
5. Duties of Mitchell Hutchins.
(a) It is understood that the Fund reserves the right at any
time to withdraw all offerings of Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of
the Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of the Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
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<PAGE>
information, and annual and interim reports of any Series as PaineWebber may
request, and Mitchell Hutchins shall cooperate fully in the efforts of
PaineWebber to sell and arrange for the sale of the Shares and in the
performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal
laws and regulations applicable to a distributor of the Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Shares as Mitchell Hutchins in its
discretion determines appropriate. PaineWebber agrees to submit all sales and
advertising materials developed by it relating to the Shares to Mitchell
Hutchins for approval. PaineWebber agrees not to publish or distribute such
materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Shares. Mitchell Hutchins and its representatives shall have access to
such records during normal business hours for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of the Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
the Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of the Shares as may be
incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. Indemnification.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Shares provided by
Mitchell Hutchins to PaineWebber. However, this indemnity agreement shall not
apply to any claims, demands, liabilities, or expenses that arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished in
4
<PAGE>
writing by PaineWebber to Mitchell Hutchins or the Fund for use in the
Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and trustees,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. Duration and Termination.
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action with respect to a Class has first been approved by vote of a
majority of the Board and by vote of a majority of those trustees of the Fund
who are not interested persons of the Fund and, with respect to Class A Shares,
who have no direct or indirect financial interest in the operation of the Plan
or in any agreements related thereto (all such trustees collectively being
referred to herein as the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this
Agreement shall continue in effect for one year from the above written date.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive periods of twelve months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board or with respect to a particular
Class of Shares of any given Series, by vote of a majority of the outstanding
voting securities of that Class.
(c) Notwithstanding the foregoing, with respect to any Series
this Agreement may be terminated at any time, without the payment of any
penalty, by either party, upon the giving of 30 days' written notice. Such
notice shall be deemed to have been given on the date it is received in writing
by the other party or any officer thereof. This Agreement may also be terminated
at any time, without the payment of any penalty, by vote of the Board, by vote
of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the applicable Class of Shares of such Series
on 30 days' written notice to Mitchell Hutchins and PaineWebber.
5
<PAGE>
(d) Termination of this Agreement with respect to any given
Series shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may
terminate this Agreement without penalty, such termination to be effective upon
the giving of written notice to PaineWebber in the event that the Plan is
terminated or is amended to reduce the compensation payable to Mitchell Hutchins
thereunder or in the event that the Registration Statement is amended so as to
reduce the amount of compensation payable to Mitchell Hutchins under the
Distribution Contract, provided that Mitchell Hutchins gives notice of
termination pursuant to this provision within 90 days of such amendment or
termination of the Plan or amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Shares, but only
for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: _______________________ By: ________________________
PAINEWEBBER INCORPORATED
Attest: _______________________ By: ________________________
CUSTODIAN CONTRACT
Between
PAINEWEBBER INDEX TRUST
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It............. 1
2. Duties of the Custodian with Respect to Property of the Fund
Held by the Custodian in the United States........................ 2
2.1 Holding Securities......................................... 2
2.2 Delivery of Securities..................................... 2
2.3 Registration of Securities................................. 4
2.4 Bank Accounts.............................................. 4
2.5 Availability of Federal Funds.............................. 5
2.6 Collection of Income....................................... 5
2.7 Payment of Fund Monies..................................... 5
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased.................................................. 6
2.9 Appointment of Agents...................................... 7
2.10 Deposit of Fund Assets in U.S. Securities System........... 7
2.11 Fund Assets Held in the Custodian's Direct Paper System.... 8
2.12 Segregated Account......................................... 9
2.13 Ownership Certificates for Tax Purposes.................... 9
2.14 Proxies .............................................. 9
2.15 Communications Relating to Portfolio Securities............ 10
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States ................................... 10
3.1 Appointment of Foreign Sub-Custodians...................... 10
3.2 Assets to be Held.......................................... 10
3.3 Foreign Securities Systems................................. 10
3.4 Holding Securities......................................... 11
3.5 Agreements with Foreign Banking Institutions............... 11
3.6 Access of Independent Accountants of the Fund.............. 11
3.7 Reports by Custodian....................................... 11
3.8 Transactions in Foreign Custody Account.................... 12
3.9 Liability of Foreign Sub-custodians........................ 12
3.10 Liability of Custodian..................................... 12
3.11 Reimbursement for Advances................................. 13
3.12 Monitoring Responsibilities................................ 13
3.13 Branches of U.S. Banks..................................... 13
3.14 Tax Law .............................................. 13
<PAGE>
4. Payments for Sales or Repurchases or Redemptions of Shares of
the Fund ......................................................... 14
5. Proper Instructions .............................................. 14
6. Actions Permitted Without Express Authority....................... 15
7. Evidence of Authority............................................. 15
8. Duties of Custodian With Respect to the Books of Account
and Calculations of Net Asset Value and Net Income................ 15
9. Records........................................................... 16
10. Opinion of Fund's Independent Accountants......................... 16
11. Reports to Fund by Independent Public Accountants................. 16
12. Compensation of Custodian......................................... 16
13. Responsibility of Custodian....................................... 16
14. Effective Period, Termination and Amendment....................... 18
15. Successor Custodian .............................................. 18
16. Interpretive and Additional Provisions............................ 19
17. Additional Funds .............................................. 19
18. Massachusetts Law to Apply........................................ 20
19. Prior Contracts .............................................. 20
20. Reproduction of Documents......................................... 20
21. Shareholder Communications Election............................... 20
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between PaineWebber Index Trust, a business trust
organized and existing under the laws of Delaware, having its principal place of
business at 1285 Avenue of the Americas, New York, New York 10019 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
PaineWebber S & P 500 Index Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
-----------------------------------------------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article l; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
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<PAGE>
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
3
<PAGE>
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
4
<PAGE>
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
5
<PAGE>
of the Portfolio and the Custodian, or another bank or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof,
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
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2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
7
<PAGE>
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
8
<PAGE>
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, BUT ONLY, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
9
<PAGE>
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
-----------------------------------------------------------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
10
<PAGE>
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, PROVIDED
HOWEVER, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
11
<PAGE>
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
12
<PAGE>
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
13
<PAGE>
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
14
<PAGE>
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments;and
4) in general attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
-----------------------------------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
15
<PAGE>
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
16
<PAGE>
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
17
<PAGE>
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
18
<PAGE>
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect
16. Interpretive and Additional Provisions
- --- --------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to PaineWebber S & P 500 Index Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
19
<PAGE>
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Reproduction of Documents
-------------------------
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES[ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1997.
ATTEST PAINEWEBBER INDEX TRUST
___________________________ By_______________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
___________________________ By ______________________________
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of PaineWebber Index
Trust for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
_________________________
Fund's Authorized Officer
Date: ________________
<PAGE>
DRAFT
TRANSFER AGENCY SERVICES AGREEMENT
----------------------------------
THIS AGREEMENT is made as of ________________, 1997 by and between PFPC
INC., a Delaware corporation ("PFPC"), and PaineWebber ___ Fund, a [Maryland
corporation] [Massachusetts business trust](the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
----------------------------------------
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Directors or Trustees (ABoard@) to
give Oral Instructions and Written Instructions on behalf of the Fund and listed
<PAGE>
on the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC
from an Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(h) "Shares" mean the shares of common stock or beneficial interest
of any series or class of the Fund.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent to
the Fund in accordance with the terms set forth in this Agreement. PFPC accepts
such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide PFPC with the following:
2
<PAGE>
(a) Certified or authenticated copies of the resolutions of
the Fund's Board approving the appointment of PFPC to
provide services to the Fund and approving this Agreement;
(b) A copy of each executed broker-dealer agreement with
respect to each Fund; and
(c) Copies (certified or authenticated if requested by PFPC)
of any post-effective amendment to the Fund's registration
statement, advisory agreement, distribution agreement,
shareholder servicing agreement and all amendments or
supplements to the foregoing upon request.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any of
its series or investment portfolios (each, a APortfolio@).
5. INSTRUCTIONS.
------------
(a) Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or of any vote, resolution or proceeding of the Fund's
Board or of the Fund's shareholders, unless and until PFPC receives Written
3
<PAGE>
Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the next day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions comply with
the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
-----------------------
(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
4
<PAGE>
from the Fund, and the advice it receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be construed
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
5
<PAGE>
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund, which are in the
possession or under the control of PFPC, shall be the property of the Fund. The
Fund and Authorized Persons shall have access to such books and records in the
possession of PFPC at all times during PFPC's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records in the
possession of PFPC shall be provided by PFPC to the Fund or to an Authorized
Person, at the Fund's expense. Upon reasonable notice by the Fund, PFPC shall
make available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for reasonable
visits by the Fund, any agent or person designated by the Fund or any regulatory
agency having authority over the Fund.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders (past, present
6
<PAGE>
and future), its investment adviser and its principal underwriter, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund prior to its release. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for periodic backup of computer files and data with respect to the
Fund and emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. PFPC shall have no liability
with respect to the loss of data or service interruptions caused by equipment
failure, provided such loss or interruption is not caused by PFPC's own willful
7
<PAGE>
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations under this Agreement and provided further that PFPC has complied
with the provisions of this paragraph 10.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
agreed to from time to time in writing by the Fund and PFPC.
12. INDEMNIFICATION.
---------------
(a) The Fund agrees to indemnify and hold harmless PFPC and its
affiliates from all taxes, charges, expenses, assessments, penalties, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from (i) any
action or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Fund or (b) upon Oral
Instructions or Written Instructions or (ii) the acceptance, processing and/or
negotitation of checks or other methods utilized for the purchase of Shares.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement, provided that in
8
<PAGE>
the absence of a finding to the contrary the acceptance, processing and/or
negotiation of a fraudulent payment for the purchase of Shares shall be presumed
not to have been the result of PFPC's or its affiliates' own willful
misfeasance, bad faith, negligence or reckless disregard of such duties and
obligations.
(b) PFPC agrees to indemnify and hold harmless the Fund from all taxes,
charges, expenses, assessments, penalties, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including
(without limitation) reasonable attorneys' fees and disbursements arising
directly or indirectly out of PFPC's or its nominee's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
9
<PAGE>
other party's prior written consent.
(d) The members of the Board of the Fund and Shareholders of the Fund,
or any Portfolio thereof, shall not be liable for any obligations of the Fund,
or any such Portfolio, under this Agreement, and PFPC agrees that in asserting
any rights or claims under this Agreement, it shall look only to the assets and
property of the Fund or the particular Portfolio in settlement of such rights or
claims and not to such members of the Board or Shareholders. PFPC further agrees
that it will look only to the assets and property of a particular Portfolio of
the Fund, should the Fund have established separate series, in asserting any
rights or claims under this Agreement with respect to services rendered with
respect to that Portfolio and will not seek to obtain settlement of such rights
or claims from the assets of any other Portfolio of the Fund. Notwithstanding
the foregoing, in asserting any rights or claims under this Agreement, PFPC
shall not be prevented from looking to the assets and property of the Fund
sponsor or any other appropriate party(ies) in settlement of such rights or
claims.
13. INSURANCE. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
10
<PAGE>
no provision of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Fund, PFPC or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
14. SECURITY.
--------
(a) PFPC represents and warrants that, to the best of its knowledge,
the various procedures and systems which PFPC has implemented with regard to the
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access) of the
Fund's blank checks, certificates, records and other data and PFPC's equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate, and that it will make such changes therein from time to
time as in its judgment are required for the secure performance of its
obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have reasonable access to review these systems
and procedures.
(b) Y2K Compliance. PFPC further represents and warrants that any and
all electronic data processing systems and programs that it uses in connection
with the provision of services hereunder and over which PFPC has control prior
to 1999 will be year 2000 compliant.
15. RESPONSIBILITY OF PFPC.
----------------------
(a) PFPC shall be under no duty to take any action on behalf of the
Fund except as specifically set forth herein or as may be specifically agreed to
11
<PAGE>
by PFPC in writing. PFPC shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good faith and to use its
best efforts in performing services provided for under this Agreement. PFPC
shall be liable for any damages arising out of PFPC's failure to perform its
duties under this Agreement to the extent such damages arise out of PFPC's
willful misfeasance, bad faith, negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, PFPC shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund may incur or
suffer by or as a consequence of PFPC's or its affiliates' performance of the
12
<PAGE>
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
16. DESCRIPTION OF SERVICES.
(a) Services Provided on an Ongoing Basis, If Applicable.
----------------------------------------------------
(i) Calculate 12b-1 payments to financial intermediaries and
financial intermediary trail commissions;
(ii) Develop, monitor and maintain, in consultation with the
Fund, all systems necessary to implement and operate the
four-tier distribution system, including Class B
conversion feature, as described in the registration
statement and related documents of the Fund, as they may
be amended from time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Fund shares and deduct such amounts from
redemption proceeds;
(iv) Calculate front-end sales load amounts at time of
purchase of shares;
(v) Determine dates of Class B conversion and effect the
same;
(vi) Establish and maintain proper shareholder registrations;
(vii) Review new applications and correspond with shareholders
to complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in con- junction
with proxy solicitations;
(x) Prepare and mail to shareholders confirmation of
activity;
13
<PAGE>
(xi) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(xii) Send duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly with PFPC;
(xiii) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the clients as
agreed to by PFPC and the Fund from time to time;
(xiv) Provide detailed data for underwriter/broker
confirmations;
(xv) Prepare periodic mailing of year-end tax and statement
information;
(xvi) Notify on a daily basis the investment adviser,
accounting agent, and custodian of fund activity; and
(xvii) Perform, itself or through a delegate, all of the
services, whether or not included within the scope of
another paragraph of this Paragraph 16(a), specified on
Annex A hereto; and
(xviii) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b)Services Provided by PFPC Under Oral Instructions or Written
----------------------------------------------------------------
Instructions.
------------
(i) Accept and post daily Fund and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Cancel certificates.
14
<PAGE>
(c) Purchase of Shares. PFPC shall issue and credit an account of an
investor, in the manner described in the Fund's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account;
and
(iii) Confirmation of receipt or crediting of funds for such
order to the Fund's custodian.
(d) Redemption of Shares. PFPC shall redeem Shares only if that
function is properly authorized by the Fund's organizational documents or
resolutions of the Fund's Board. Shares shall be redeemed and payment therefor
shall be made in accordance with the Fund's or Portfolio's prospectus.
(i) Broker-Dealer Accounts.
-----------------------
When a broker-dealer notifies PFPC of a redemption
desired by a customer, and the Fund's Custodian (the
ACustodian@) provides PFPC with funds, PFPC shall
prepare and send the redemption check to the
broker-dealer and made payable to the broker-dealer on
behalf of its customer.
(ii) Fund-Only Accounts.
------------------
If Shares are received in proper form, at the Fund's
request Shares may be redeemed before the funds are
provided to PFPC from the Custodian. If the recordholder
15
<PAGE>
has not directed that redemption proceeds be wired, when
the Custodian provides PFPC with funds, the redemption
check shall be sent to and made payable to the
recordholder, unless:
(i) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed
by the recordholder; or
[(ii) transfer authorizations are signed by the recordholder
when Shares are held in book- entry form.
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the
Fund's Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the Fund
in Shares, or, upon shareholder election, pay such dividends and distributions
in cash, if provided for in the appropriate Fund's or Portfolio's prospectus.
Such issuance or payment, as well as payments upon redemption as described
above, shall be made after deduction and payment of the required amount of funds
to be withheld in accordance with any applicable tax laws or other laws, rules
or regulations. PFPC shall mail to the Fund's shareholders such tax forms and
other information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation. PFPC shall prepare, maintain and file with
the IRS and other appropriate taxing authorities reports relating to all
dividends above a stipulated amount paid by the Fund to its shareholders as
16
<PAGE>
required by tax or other law, rule or regulation.
(f) Shareholder Account Services.
----------------------------
(i) PFPC will arrange, in accordance with the appropriate
Fund's or Portfolio's pro- spectus, for issuance of
Shares obtained through:
- The transfer of funds from shareholders' accounts at
financial institutions, provided PFPC receives advance
Oral Instruction of such transfer;
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC will arrange, in accordance with the appropriate
Fund's or Portfolio's pro- spectus, for a shareholder's:
- Exchange of Shares for shares of another fund with which
the Fund has exchange privileges;
- Automatic redemption from an account where that
shareholder participates in a systematic withdrawal
plan; and/or
- Redemption of Shares from an account with a checkwriting
privilege.
(g) Communications to Shareholders. Upon timely Written Instructions,
PFPC shall mail all communications by the Fund to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund shares;
17
<PAGE>
(iii) Monthly or quarterly statements; (iv) Dividend and
distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy
cards cards for the meetings of the Fund's shareholders and supply personnel to
serve as inspectors of election.
(h) RECORDS. PFPC shall maintain those records required by the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdication with respect to the duties to be performed by PFPC
hereunder with respect to shareholder accounts or by transfer agents generally,
including records of the accounts for each shareholder showing the following
information:
(i) Name, address and United States Tax Identification or
Social Security number;
(ii) Number and class of Shares held and number and class of
Shares for which certificates, if any, have been issued,
including certificate numbers and denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid
and the date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current maintenance
of a shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer agent
to perform any calculations contemplated or required by
this Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice against
18
<PAGE>
any certificate reported to be lost or stolen and comply with all applicable
federal regulatory requirements for reporting such loss or alleged
misappropriation.
(j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any
Fund shareholder to inspect stock records, PFPC will notify the Fund, and the
Fund will issue instructions granting or denying each such request. Unless PFPC
has acted contrary to the Fund's instructions, the Fund agrees and does hereby,
release PFPC from any liability for refusal of permission for a particular
shareholder to inspect the Fund's shareholder records.
(k) Withdrawal of Shares and Cancellation of Certificates.
-----------------------------------------------------
Upon receipt of Written Instructions, PFPC shall cancel outstanding
certificates surrendered by the Fund to reduce the total amount of outstanding
shares by the number of shares surrendered by the Fund.
17. DURATION AND TERMINATION.
------------------------
(a) This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the AInitial Term@). Upon
the expiration of the Initital Term, this Agreement shall automatically renew
for successive terms of one (1) year (ARenewal Terms@) each provided that it may
be terminated by either party during a Renewal Term upon written notice given at
least ninety (90) days prior to termination. During either the Initial Term or
19
<PAGE>
the Renewal Terms, this Agreement may also be terminated on an earlier date by
either party for cause.
(b) With respect to the Fund, cause includes, but is not limited to,
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute Acause@ under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of the Securities Laws or other applicable laws related to
its business of performing transfer agency services;
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective
20
<PAGE>
thirty (30) days from the date of any such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including, a certified list of the
shareholders of the Fund or any Portfolio thereof with name, address, and if
provided, taxpayer identification or Social Security number, and a complete
record of the account of each shareholder. To the extent that PFPC incurs
expenses related to a transfer of responsibilities to a successor, other than
expenses involved in PFPC's providing the Fund's books and records described in
the preceding sentence to the successors, PFPC shall be entitled to be
reimbursed for such extraordinary expenses, including any out-of-pocket expenses
reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund or any Portfolio thereof upon the liquidation, merger, or
21
<PAGE>
other dissolution of the Fund or Portfolio or upon the Fund's ceasing to be a
registered investment company.
18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered or able to so
conduct such activities for the duration of this Agreement. PFPC agrees that it
will promptly notify the Fund in the event of any material change in its status
as a registered transfer agent. Should PFPC fail to be registered with the SEC
as a transfer agent at any time during this Agreement, and such failure to
register does not permit PFPC to lawfully conduct its activities, the Fund may,
on written notice to PFPC, terminate this Agreement upon five days written
notice to PFPC.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address
of the Fund or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming telegram,
22
<PAGE>
cable, telex or facsimile sending device during regular business hours, it shall
be deemed to have been given immediately; if sent at a time other than regular
business hours, such notice shall be deemed to have been given at the opening of
the next business day. If notice is sent by first-class mail, it shall be deemed
to have been given three days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day it is delivered. All
postage, cable, telegram, telex and facsimile sending device charges arising
from the sending of a notice hereunder shall be paid by the sender.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
21. ADDITIONAL SERIES. In the event that the Fund establishes one or
more investment series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and shareholder servicing agent under the terms set forth in this
Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing
to provide such services, and such investment series shall become a Portfolio
hereunder, subject to such additional terms, fees and conditions as are agreed
to by the parties.
22. DELEGATION; ASSIGNMENT. (a) PFPC may, at its own expense, assign
its rights and delegate its duties hereunder to any wholly-owned direct or
indirect subsidiary of PNC Bank, National Association or PNC Bank Corp.,
provided that (i) PFPC gives the Fund thirty (30) days' prior written notice;
23
<PAGE>
(ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all
relevant provisions of the Securities Laws; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Fund may request, and respond
to such questions as the Fund may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee). The assignment and delegation of any of PFPC's duties under this
subparagraph (a) shall not relieve PFPC of any of its responsibilities or
liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to
perform the services described on Annex A hereto. In addition, PFPC may assign
its rights and delegate its other duties hereunder to PaineWebber Incorporated
or Mitchell Hutchins Asset Management Inc. or an affiliated person of either,
provided that (i) PFPC gives the Fund thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all
relevant provisions of the 1940 Act; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Fund may request, and respond
to such questions as the Fund may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee). In assigning its rights and delegating its duties under this
paragraph, PFPC may impose such conditions or limitations as it determines
24
<PAGE>
appropriate including the condition that PFPC be retained as a sub-transfer
agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. MISCELLANEOUS.
-------------
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to services to be performed and fees payable under this Agreement.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made
in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
25
<PAGE>
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
--------------------------------
Title:
----------------------------
PAINEWEBBER ___ FUND
By:
--------------------------------
Title:
----------------------------
27
<PAGE>
AUTHORIZED PERSONS APPENDIX
Name (Type) Signature
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
28
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
October 16, 1997
PaineWebber Index Trust
1285 Avenue of the Americas
New York, New York 10019
Dear Sir/Madam:
PaineWebber Index Trust ("Trust") is a business trust organized under
the laws of the state of Delaware on May 27, 1997. You have requested our
opinion regarding certain matters in connection with the Trust's issuance of
Class A and Class Y shares of beneficial interest (the "Shares") in the initial
series designated as PaineWebber S&P 500 Index Fund.
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine, of the Trust Instrument and By-Laws of the
Trust, the minutes of meetings of its board of trustees and other documents
relating to its organization and operation, and we are generally familiar with
its business affairs. Based upon the foregoing, it is our opinion that the
unlimited number of Shares of PaineWebber S&P 500 Index Fund that are currently
being registered may be legally and validly issued in accordance with the
Trust's Trust Instrument and By-Laws and subject to compliance with the
Securities Act of 1933, the Investment Company Act of 1940 and applicable state
laws and when so issued, the Shares will be legally issued, fully paid and
non-assessable by the Trust.
We hereby consent to the filing of this opinion in connection with
Pre-Effective Amendment No. 1 to the Trust's Registration Statement on Form N-1A
<PAGE>
Mitchell Hutchins Portfolios
October 16, 1997
Page 2
(File No. 333-27917) to be filed with the Securities and Exchange Commission. We
also consent to the reference to our firm under the caption "Counsel" in the
Statement of Additional Information filed as part of the Registration Statement.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Elinor W. Gammon
-----------------------------------
Elinor W. Gammon
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Auditors" in the
Statement of Additional Information and to the use of our report on PaineWebber
S&P 500 Index Fund dated October 9, 1997, in this Registration Statement (Form
N-1A No. 333-27917) of PaineWebber Index Trust.
/s/ Ernst & Young LLP
-----------------------------------
ERNST & YOUNG LLP
New York, New York
October 13, 1997
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019-6028
212-713-4000
Mitchell Hutchins
October 14, 1997
PaineWebber Index Trust
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
We are writing in connection with the 4000 Class A shares and 4000
Class Y shares of beneficial interest of PaineWebber S&P 500 Index Fund, which
we have purchased from you at a price of $12.50 per share. This is to advise you
that such shares were purchased for investment only with no present intention of
selling such shares, and we do not now have any intention of selling such
shares.
Sincerely,
/s/ Dianne E. O'Donnell
--------------------------------
Dianne E. O'Donnell
Senior Vice President
PAINEWEBBER INDEX TRUST -- CLASS A SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS PaineWebber Index Trust ("Trust") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company and intends to offer for public sale one distinct
series of shares of beneficial interest ("Series"), which corresponds to a
distinct portfolio that has been designated as PaineWebber S&P 500 Index Fund;
and
WHEREAS the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class A shares
established; and
WHEREAS the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class A shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class A shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
A shares, a service fee at the rate of 0.05% on an annualized basis of the
average daily net assets of the Series' Class A shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Any Series may pay a service fee to Mitchell Hutchins at a
lesser rate than the fee specified in paragraph 1A of this Plan, as agreed upon
by the Board and Mitchell Hutchins and as approved in the manner specified in
paragraph 4 of this Plan.
2. As Distributor of the Class A shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Series' Class A shares
or the servicing and maintenance of shareholder accounts, including, but not
limited to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials.
<PAGE>
3. This Plan shall not take effect with respect to the Class A shares
of any Series unless it first has been approved by a vote of the then sole
shareholder of the Class A shares of the Series.
4. This Plan shall not take effect with respect to the Class A shares
of any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Series' Class
A shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
continue in full force and effect with respect to such Series for so long as
such continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class A shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"service activities," as defined in this paragraph 6, to the Board in support of
the service fee payable hereunder.
"Service activities" shall mean activities covered by the
definition of "service fee" contained in Section (b)(9) of Rule 2830 of the
Conduct Rules of the National Association of Securities Dealers, Inc., and shall
include the provision by Mitchell Hutchins or PaineWebber of personal,
continuing services to investors in the Class A shares of the Series. Overhead
and other expenses of Mitchell Hutchins and PaineWebber related to their
"service activities," including telephone and other communications expenses, may
be included in the information regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class A shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the Class A shares of that Series.
8. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof unless such amendment is
approved by a vote of a majority of the outstanding voting securities of each
Series, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in paragraph 5 hereof.
9. The amount of the service fees payable by any Series to Mitchell
Hutchins under paragraph 1A hereof and the Contract is not related directly to
expenses incurred by Mitchell Hutchins on behalf of such Series in serving as
Distributor of the Class A shares, and paragraph 2 hereof and the Contract do
-2-
<PAGE>
not obligate the Series to reimburse Mitchell Hutchins for such expenses. The
service fees set forth in paragraph 1A hereof will be paid by the Series to
Mitchell Hutchins until either the Plan or the Contract is terminated or not
renewed. If either the Plan or the Contract is terminated or not renewed with
respect to the Class A shares of any Series, any expenses relating to service
activities incurred by Mitchell Hutchins on behalf of the Series in excess of
payments of the service fees specified in paragraph 1A hereof and the Contract
which Mitchell Hutchins has received or accrued through the termination date are
the sole responsibility and liability of Mitchell Hutchins, and are not
obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons of the Trust.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
13. The Trustees of the Trust and the shareholders of each Series shall
not be liable for any obligations of the Trust or any Series under this Plan,
and Mitchell Hutchins or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Trust or such
Series in settlement of such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution on
the day and year set forth below in New York, New York.
Date:__________________, 1997
PAINEWEBBER INDEX TRUST
Attest:____________________________ By:________________________________
PAINEWEBBER INDEX TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
PaineWebber Index Trust hereby adopts this Multiple Class Plan pursuant
to Rule 18f-3 under the Investment Company Act of 1940, as amended ("1940 Act"),
on behalf of its current series, PaineWebber S&P 500 Index Fund, and any series
that may be established in the future (referred to hereinafter collectively as
the "Funds" and individually as a "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. CLASS A SHARES. Class A shares of each Fund may be sold to the
general public without imposition of an initial sales charge or
contingent deferred sales charge ("CDSC") and are not subject to
any distribution fees.
Class A shares of each Fund are subject to an annual service fee
of .05% of the average daily net assets of the Class A shares of
the Fund, paid in accordance with a plan adopted pursuant to Rule
12b-1 under the 1940 Act.
2. CLASS Y SHARES. Class Y shares are sold without imposition of an
initial sales charge or CDSC and are not subject to any service or
distribution fees.
Class Y shares of each Fund are available for purchase only by:
(i) employee benefit and retirement plans, other than individual
retirement accounts and self-employed retirement plans, of Paine
Webber Group Inc. and its affiliates; (ii) certain unit investment
trusts sponsored by PaineWebber Incorporated ("PaineWebber");
(iii) participants in certain investment programs that are
currently, or will in the future be, sponsored by PaineWebber or
its affiliates and that charge a separate fee for program
services, provided that shares are purchased through or in
connection with such programs; (iv) investors purchasing
$10,000,000 or more at one time in any combination of PaineWebber
proprietary funds in the Flexible Pricing System; (v) an employee
benefit plan qualified under section 401 (including a salary
reduction plan qualified under section 401(k)) or section 403(b)
of the Internal Revenue Code (each an "employee benefit plan"),
provided that such employee benefit plan has 5,000 or more
eligible employees; (vi) an employee benefit plan with assets of
$50,000,000 or more; and (vii) any investment company advised by
PaineWebber or its affiliates.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of shares of
each Fund ("Class Expenses"). Class Expenses are charged directly to the
net assets of the particular Class and, thus, are borne on a pro rata basis
by the outstanding shares of that Class.
In addition to the service fees described above, each Class may also pay a
different amount of the following other expenses:
<PAGE>
1. printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a
specific Class;
2. Blue Sky registration fees incurred by a specific Class of
shares;
3. SEC registration fees incurred by a specific Class of shares;
4. expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
5. Trustees' fees incurred as a result of issues relating to a
specific Class of shares;
6. litigation expenses or other legal expenses relating to a
specific Class of shares; and
7. transfer agent fees identified as being attributable to a
specific Class.
C. EXCHANGE PRIVILEGES:
-------------------
Shares of the Funds are not exchangeable.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Trustees of PaineWebber Index Trust, a
Fund may alter the nomenclature for the designations of one or more of its
Classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for the applicable Classes; provided, however, that
none of the terms set forth in any such prospectus shall be inconsistent
with the terms of the Classes contained in this Plan. The prospectus for
each Fund contains additional information about the Classes and each Fund's
multiple class structure.
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective as of the date hereof, provided that
this Plan shall not become effective with respect to any Fund unless such
action has first been approved by the vote of a majority of the Board of
Trustees and by vote of a majority of those Trustees who are not interested
persons of PaineWebber Index Trust.
May 29, 1997
