As filed with the Securities and Exchange Commission on July 29, 1999
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 [ ]
Post-Effective Amendment No. 3 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4 [ X ]
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: Effective Date of this
Post-Effective Amendment.
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ ] On pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[ X ] On September 30, 1999, pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Class A, C and Y Shares of Beneficial
Interest.
<PAGE>
PAINEWEBBER
S&P 500 INDEX FUND
-------------------------------
PROSPECTUS
SEPTEMBER 30, 1999
-------------------------------
This prospectus offers Class A, Class C and Class Y shares of PaineWebber S&P
500 Index Fund. Each class has different sales charges and ongoing expenses. You
can choose the class that is best for you based on how much you plan to invest
and how long you plan to hold your fund shares. Class Y shares are available
only to certain types of investors.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
PaineWebber S&P 500 Index Fund
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CONTENTS
THE FUND
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What every investor 3 S&P 500 Index Fund
should know about
the fund 6 More About Risks and Investment Strategies
YOUR INVESTMENT
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Information for 7 Managing Your Fund Account
managing your fund -- Flexible Pricing
account -- Buying Shares
-- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Additional important 12 Management
information about
the fund 13 Dividends and Taxes
14 Financial Highlights
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Where to learn more Back cover
about PaineWebber
mutual funds
----------------------------------------
The fund is not a complete or balanced
investment program.
----------------------------------------
2
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PaineWebber S&P 500 Index Fund
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PAINEWEBBER S&P 500 INDEX FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
------------------------------------------
FUND OBJECTIVE
To replicate the total return of the S&P 500 Index, before fees and expenses.
PRINCIPAL INVESTMENT STRATEGIES
The fund invests primarily in common stocks issued by companies in the Standard
& Poor's 500 Composite Stock Price Index. The fund ordinarily invests in at
least 450 stocks that are represented in the Index in proportion to their
weighting in the Index. The fund also invests, to a lesser extent, in related
derivatives, such as options and futures contracts, that simulate investment in
the Index.
The S&P 500 Index is composed of 500 common stocks that are selected by Standard
& Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). Most of these
500 stocks trade on the New York Stock Exchange. These stocks represent
approximately 75% of the market value of all U.S common stocks but do not
necessarily represent the largest companies. S&P selects the component stocks
included in the Index with the aim of achieving a distribution that is
representative of the various industry components of the U.S. market for common
stocks. S&P also considers aggregate market value and trading activity in the
selection process. Each stock in the Index is weighted by its total market value
relative to the total market value of all securities in the Index.
The fund's investment adviser, Mitchell Hutchins Asset Management Inc., uses a
"passive" investment approach in attending to replicate the investment
performance of the S&P 500 Index rather than actively buying and selling.
Mitchell Hutchins, however, may use options and futures and other derivatives in
strategies intended to simulate full investment in the S&P 500 Index stocks
while retaining a cash balance for fund management purposes. Mitchell Hutchins
also may use these instruments to reduce the risk of adverse price movements
while investing cash received when investors buy fund shares, to facilitate
trading and to reduce transaction costs.
The fund is not sponsored, endorsed, sold or promoted by S&P. S&P's only
relationship to the fund is the licensing of trademarks and trade names of S&P
and the S&P 500 Index, which is composed by S&P without regard to the fund. The
inclusion of a security in the S&P 500 Index in no way implies an opinion by S&P
as to the attractiveness of the security as an investment.
PRINCIPAL RISKS
An investment in the fund is not guaranteed; you may lose money by investing in
the fund.
Common stocks, which are the fund's main type of investment, generally fluctuate
in value more than other investments. The fund expects a close correlation
between its performance and that of the S&P 500 Index in both rising and falling
markets. The fund's performance, however, will generally will not be identical
to that of the Index because of the fees and expenses borne by the fund and
investor purchases and sales of fund shares, which can occur daily.
More information about these and other risks of an investment in the fund is
provided below in "More About Risks and Investment Strategies." In particular,
see the following headings:
o Equity Risk
o Index Investment Risk
o Derivatives Risk
o Foreign Securities Risk
INFORMATION ON THE FUND'S RECENT INVESTMENT STRATEGIES AND HOLDINGS CAN BE FOUND
IN ITS CURRENT ANNUAL/SEMI-ANNUAL REPORTS (SEE BACK COVER FOR INFORMATION ON
ORDERING SUCH REPORTS).
3
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PaineWebber S&P 500 Index Fund
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PERFORMANCE
-----------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table provide information about the fund's
performance and thus give some indication of the risks of an investment in the
fund.
The bar chart shows how the fund's performance has varied from year to year. The
chart shows Class Y shares because they have the longest performance history of
any class of fund shares. Unlike the other classes of shares, Class Y shares
have no sales charges.
The table that follows the chart shows the average annual returns over several
time periods for each class of the fund's shares. That table does reflect fund
sales charges. The table compares fund returns to returns on the S&P 500 Index,
a broad-based market index that is unmanaged and that, therefore, does not
include any sales charges or expenses.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
TOTAL RETURN ON CLASS A SHARES
[bar chart to be inserted]
Total return January 1, 1999 to June 30, 1999 -- [insert]
Best quarter during years shown: [insert]
Worst quarter during years shown: [insert]
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998
CLASS CLASS A CLASS C CLASS Y S&P 500
(INCEPTION DATE) (10/2/98) (10/7/98) (12/31/97) INDEX
ONE YEAR N/A N/A
LIFE OF CLASS **
- -----------------------
* Represents return for less than a full year.
** Average annual total returns for the S&P 500 Index for the life of each
class were as follows: [insert]
4
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PaineWebber S&P 500 Index Fund
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EXPENSES AND FEE TABLES
-----------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investments)
CLASS A CLASS C CLASS Y
Maximum Sales Charge (Load) Imposed on Purchases 2.5% None None
(as a % of offering price)......................
Maximum Contingent Deferred Sales Charge (Load)
(CDSC) (as a % of offering price)............... None 1% None
Exchange Fee....................................... None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS C CLASS Y
Management Fees.................................... 0.20% 0.20% 0.20%
Distribution and/or Service (12b-1) Fees........... 0.25% 1.00% None
Other Expenses..................................... % % %
---- ---- ----
Total Annual Fund Operating Expenses............... % % %
==== ==== ====
Expense Reimbursements*............................ % % %
---- ---- ----
Net Expenses* % % %
==== ==== ====
* The fund and Mitchell Hutchins have entered into an expense reimbursement
agreement. Mitchell Hutchins has agreed to reimburse the fund to the extent that
the fund's expenses through the end of the current fiscal year otherwise would
exceed the "Net Expenses" rates for each class shown above. The fund has agreed
to repay Mitchell Hutchins for those reimbursed expenses if it can do so over
the following three years without causing the fund's expenses in any of those
three years to exceed those "Net Expenses" rates.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same, except for the
one year period when the fund's expenses are lower due to its reimbursement
agreement with Mitchell Hutchins. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A................................................................
Class C (assuming sale of all shares at end of period).................
Class C (assuming no sale of shares)...................................
Class Y................................................................
</TABLE>
5
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PaineWebber S&P 500 Index Fund
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MORE ABOUT RISKS AND INVESTMENT STRATEGIES
------------------------------------------
PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further detail about some of the risks
described below, are discussed in the fund's Statement of Additional Information
("SAI"). Information on how you can obtain the SAI is on the back cover of this
prospectus.
EQUITY RISK. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. Common
stocks generally represent the riskiest investment in a company. The fund may
lose a substantial part, or even all, of its investment in a company's stock.
INDEX INVESTMENT RISK. The fund expects a close correlation between its
performance and that of the S&P 500 Index in both rising and falling markets.
While the fund attempts to replicate, before deduction of fees and operating
expenses, the investment results of theIndex, the fund's investment results
generally will not be identical to those of the Index. Deviations from the
performance of the Index may result from shareholder purchases and sales of
shares that can occur daily. In addition, the fund must pay fees and expenses
that are not borne by the Index.
DERIVATIVES RISK. The value of "derivatives" - so-called because their value
"derives" from the value of an underlying asset, reference rate or index may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for the fund to lose more than the amount it invested in the
derivative. Derivatives include options and futures contracts that may be used
to simulate full investment in the S&P 500 Index.
FOREIGN SECURITIES RISK. The S&P 500 Index includes some U.S.
dollar-denominated foreign securities. Foreign securities involve risks that
normally are not associated with securities of U.S. issuers. These include
risks relating to political, social and economic developments abroad and
differences between U.S. and foreign regulatory requirements and market
practices.
ADDITIONAL RISKS
YEAR 2000 RISK. The fund could be adversely affected by problems relating to the
inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the fund, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from service providers that they are taking similar steps.
Similarly, the companies in which the fund invests and trading systems used by
the fund could be adversely affected by this issue. The ability of a company or
trading system to respond successfully to the issue requires both technological
sophistication and diligence, and there can be no assurance that any steps taken
will be sufficient to avoid an adverse impact on the fund.
6
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PaineWebber S&P 500 Index Fund
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YOUR INVESTMENT
MANAGING YOUR FUND ACCOUNT
--------------------------
FLEXIBLE PRICING
- ----------------
The fund offers three classes of shares - Class A, Class C and Class Y. Each
class has different sales charges and ongoing expenses. You can choose the class
that is best for you, based on how much you plan to invest in the fund and how
long you plan to hold your fund investment. Class Y shares are only available to
certain types of investors.
The fund has adopted a plan under rule 12b-1 for its Class A and Class C shares
that allows it to pay service and (for Class C shares) distribution fees for the
sale of its shares and services provided to shareholders. Because the 12b-1
distribution fees for Class C shares are paid out of the fund's assets on an
ongoing basis, over time they will increase the cost of your investment and may
cost you more than if you paid a front-end sale charge.
CLASS A SHARES
Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares
are lower than for Class C shares.
The Class A sales charges for the fund are described in the following table.
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
- -------------------- -------------- ------------------- ----------------------------
<S> <C> <C> <C>
Less than $100,000............... 2.50% 2.56% 2.25%
$100,000 to $249,999............ 2.00 2.04 1.75
$250,000 to $499,999 ............ 1.50 1.52 1.25
$500,000 to $999,999 ............ 1.00 1.01 0.75
$1,000,000 and over (1) ......... None None 0.50(2)
</TABLE>
(1) A contingent deferred sales charge of 0.50% of the shares' offering price
or the net asset value at the time of sale by the shareholder, whichever
is less, is charged on sales of shares made within one year of the
purchase date. Class A shares representing reinvestment of dividends are
not subject to this 0.50% charge. Withdrawals in the first year after
purchase of up to 12% of the value of the fund account under the funds'
Systematic Withdrawal Plan are not subject to this charge.
(2) Mitchell Hutchins pays 0.50% to PaineWebber.
7
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PaineWebber S&P 500 Index Fund
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SALES CHARGE REDUCTIONS AND WAIVERS. You may qualify for a lower sales charge if
you already own Class A shares of a PaineWebber mutual fund. You can combine the
value of Class A shares that you own in other PaineWebber funds and the purchase
amount of the Class A shares of the PaineWebber fund that you are buying.
You may also qualify for a lower sales charge if you combine your purchases with
those of:
o your spouse, parents or children under age 21;
o your Individual Retirement Accounts (IRAs);
o certain employee benefit plans, including 401(k) plans;
o a company that you control;
o a trust that you created;
o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts
created by you or by a group of investors for your children; or
o accounts with the same adviser.
You may qualify for a complete waiver of the sales charge if you:
o Are an employee of PaineWebber or its affiliates or the spouse, parent
or child under age 21 of a PaineWebber employee;
o Buy these shares through a PaineWebber Financial Advisor who was formerly
employed as an investment executive with a competing brokerage firm that
was registered as a broker-dealer with the SEC, and
- you were the Financial Advisor's client at the competing brokerage
firm;
- within 90 days of buying shares in the fund, you sell shares of one
or more mutual funds that were principally underwritten by the
competing brokerage firm or its affiliates, and you either paid a
sales charge to buy those shares, pay a contingent deferred sales
charge when selling them or held those shares until the contingent
deferred sales charge was waived; and
- you purchase an amount that does not exceed the total amount of
money you received from the sale of the other mutual fund;
o Acquire these shares through the reinvestment of dividends of a
PaineWebber unit investment trust;
o Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more
eligible employees in the plan or at least $1 million in assets; or
o Are a participant in the PaineWebber Members Onlysm Program. For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested.
NOTE: See the fund's SAI for some other sales charge waivers. If you think you
qualify for any sales charge reductions or waivers, you will need to provide
documentation to PaineWebber or the fund. For more information, you should
contact your PaineWebber Financial Advisor or correspondent firm or call
1-800-647-1568. If you want information on the fund's Systematic Withdrawal
Plan, see the SAI or contact your PaineWebber Financial Advisor or correspondent
firm.
CLASS C SHARES
Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.
Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Over time these fees will increase the cost of your investment and may cost you
more than if you paid a front-end sales charge. Class C shares do not convert to
another class of shares. This means that you will pay the 12b-1 fees for as long
as you own your shares.
8
<PAGE>
Class C shares also have a contingent deferred sales charge. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying 1.00% by the lesser of the net asset value of the Class C
shares at the time of purchase or the net asset value at the time of sale. We
will not impose the deferred sales charge on Class C shares representing
reinvestment of dividends or on withdrawals in the first year after purchase, of
up to 12% of the value of your Class C shares under the Systematic Withdrawal
Plan.
NOTE: If you want information on the fund's Systematic Withdrawal Plan, see
the SAI or contact your PaineWebber Financial Advisor or correspondent firm.
8A
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PaineWebber S&P 500 Index Fund
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CLASS Y SHARES
Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if you:
o Buy shares through PaineWebber's PACE Multi-Advisor Program;
o Buy $10 million or more of PaineWebber fund shares at any one time;
o Are a qualified retirement plan with 5,000 or more eligible employees or
$50 million in assets; or
o Are an investment company advised by PaineWebber or an affiliate of
PaineWebber.
Class Y shares do not pay ongoing distribution or service fees or sales charges.
The ongoing expenses for Class Y shares are the lowest for all the classes.
BUYING SHARES
- -------------
If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the funds through the fund's transfer agent, PFPC Inc. You can
obtain an application by calling 1-800-647-1568. You must complete and sign the
application and mail it, along with a check, to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you wish to invest in other PaineWebber Funds, you can do so by:
o Contacting your Financial Advisor (if you have an account at PaineWebber
or at a PaineWebber correspondent firm);
o Mailing an application with a check; or
o Opening an account by exchanging shares from another PaineWebber fund.
You do not have to complete an application when you make additional investments
in the same fund.
The fund and Mitchell Hutchins reserve the right to reject a purchase order or
suspend the offering of shares.
MINIMUM INVESTMENTS
To open an account .....................................$1,000
To add to an account ...................................$ 100
The fund may waive or reduce these amounts for:
o Employees of PaineWebber or its affiliates; or
o Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the funds' automatic investment plans.
FREQUENT TRADING The interests of the fund's long-term shareholders and its
ability to manage its investments may be adversely affected when its shares are
repeatedly bought and sold in response to short-term market fluctuations -- also
known as "market timing." When large dollar amounts are involved, the fund may
have difficulty implementing long-term investment strategies, because it cannot
predict how much cash it will have to invest. Market timing also may force the
fund to sell portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's fund shares. These factors may hurt the fund's
performance and its shareholders. When Mitchell Hutchins believes frequent
trading would have a disruptive effect on the fund's ability to manage its
investments, Mitchell Hutchins and the fund may reject purchase orders and
exchanges into the fund by any person, group or account that Mitchell Hutchins
believes to be a market timer. The fund may notify the market timer that a
purchase order or an exchange has been rejected after the day the order is
placed.
9
<PAGE>
SELLING SHARES
- --------------
You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the fund
will assume that you want to sell shares in the following order: Class A, then
Class C and last, Class Y.
If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
If you have an account with PaineWebber or a PaineWebber correspondent firm, you
can sell shares by contacting your Financial Advisor.
9A
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PaineWebber S&P 500 Index Fund
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If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:
o Your name and address;
o The fund's name;
o The fund account number;
o The dollar amount or number of shares you want to sell; and
o A guarantee of each registered owner's signature. A signature guarantee
may be obtained from a financial institution, broker, dealer or clearing
agency that is a participant in one of the medallion programs recognized
by the Securities Transfer Agents Association. These are: Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and the New York Stock Exchange Medallion Signature Program
(MSP). The fund will not accept signature guarantees that are not a part
of these programs.
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you sell Class A shares and then repurchase Class A shares of the fund within
365 days of the sale, you can reinstate your account without paying a sales
charge.
It costs the fund money to maintain shareholder accounts. Therefore, the fund
reserves the right to repurchase all shares in any account that has a net asset
value of less than $500. If the fund elects to do this with your account, it
will notify you that you can increase the amount invested to $500 or more within
60 days. The fund will not repurchase shares in accounts that fall below $500
solely because of a decrease in the fund's net asset value.
EXCHANGING SHARES
- -----------------
You may exchange Class A or Class C shares of the fund for shares of the same
class of most other PaineWebber funds. You may not exchange Class Y shares.
You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. A fund will use the date
that you purchased the shares in the first fund to determine whether you must
pay a deferred sales charge when you sell the shares in the acquired fund.
Other PaineWebber funds may have different minimum investment amounts. You may
not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.
You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.
PAINEWEBBER CLIENTS. If you bought your shares through PaineWebber or a
correspondent firm, you may exchange your shares by placing an order with your
PaineWebber Financial Advisor.
OTHER INVESTORS. If you are not a PaineWebber client, you may exchange your
shares by writing to the fund's transfer agent. You must include:
o Your name and address;
o The name of the fund whose shares you are selling and the name of the fund
whose shares you want to buy;
o Your account number;
o How much you are exchanging (by dollar amount or by number of shares to be
sold); and
o A guarantee of your signature. (See "Buying Shares" for information on
obtaining a signature guarantee.)
10
<PAGE>
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
A fund may modify or terminate the exchange privilege at any time.
PRICING AND VALUATION
- ---------------------
The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. The fund calculates net asset value on days that the New
10A
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PaineWebber S&P 500 Index Fund
- --------------------------------------------------------------------------------
York Stock Exchange is open. The fund calculates net asset value separately for
each class as of the close of regular trading on the NYSE (generally, 4:00 p.m.,
Eastern time). The NYSE normally is not open, and the fund does not price its
shares, on national holidays and on Good Friday. If trading on the NYSE is
halted for the day before 4:00 p.m., Eastern time, the fund's net asset value
per share will be calculated as of the time trading was halted.
Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.
You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A shares. A deferred sales charge may be applied when
you sell Class C shares.
The fund calculates its net asset value based on the current market value for
its portfolio securities. The fund normally obtains market values for its
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board. The fund normally uses the amortized cost method to value bonds
that will mature in 60 days or less.
11
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PaineWebber S&P 500 Index Fund
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MANAGEMENT
----------
INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. is the fund's investment adviser and
administrator. Mitchell Hutchins is located at 1285 Avenue of the Americas, New
York, New York, 10019, and is a wholly owned asset management subsidiary of
PaineWebber Incorporated, which is wholly owned by Paine Webber Group Inc., a
publicly owned financial services holding company. On August 31, 1999, Mitchell
Hutchins was adviser or sub-adviser of __ investment companies with __ separate
portfolios and aggregate assets of approximately $__._ billion.
PORTFOLIO MANAGER
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.
ADVISORY FEES
The fund paid advisory fees to Mitchell Hutchins for the most recent fiscal year
at the annual rate of % of average daily net assets:
OTHER INFORMATION
The fund has received an exemptive order from the SEC that permits the board to
appoint and replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval. Shareholders must approve this policy before the
board may implement it. As of the date of this prospectus, the fund has not
asked shareholders to do so.
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PaineWebber S&P 500 Index Fund
- --------------------------------------------------------------------------------
DIVIDENDS AND TAXES
-------------------
DIVIDENDS
The fund normally declares and pays dividends and distributes any gains
annually.
Classes with higher expenses are expected to have lower dividends. For example,
Class C shares are expected to have the lowest dividends of any class of the
fund's shares, while Class Y shares are expected to have the highest.
You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its correspondent firms if you prefer to receive dividends in cash.
TAXES
The dividends that you receive from the fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) plan, dividends on your shares generally will not be subject to
tax.
When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange the fund's shares for shares of another
PaineWebber mutual fund, the transaction will be treated as a sale of the first
fund's shares, and any gain will be subject to federal income tax.
The fund expects that its dividends will include capital gain distributions. The
distribution of capital gains may be taxed at a lower rate than ordinary income,
depending on whether the fund held the assets that generated the gains for more
than 12 months. The fund will tell you how you should treat its dividends for
tax purposes.
13
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PaineWebber S&P 500 Index Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------
The following financial highlights tables are intended to help you understand
the fund's financial performance for the life of each class. Certain information
reflects financial results for a single fund share. In the tables, "total
investment return" represents the rate that an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all dividends).
This information in the financial highlights has been audited by Ernst & Young
LLP, independent auditors, whose reports, along with the fund's financial
statements, are included in the fund's Annual Report to Shareholders. The Annual
Report may be obtained without charge by calling 1-800-647-1568.
[Financial Highlights to be inserted]
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TICKER SYMBOL: S&P 500 Index Fund Class: A:
C:
Y: None
If you want more information about the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In the fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about the fund by contacting your PaineWebber
Financial Advisor. You may obtain free copies of annual and semi-annual reports
and the SAI by contacting the fund directly at 1-800-647-1568.
You may review and copy information about the fund, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies of reports and other information about
the fund:
o For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
o Free, from the SEC's Internet website at: http://www.sec.gov
PaineWebber Index Trust
- --PaineWebber S&P 500 Index Fund
Investment Company Act File No. 811-08229
(COPYRIGHT) 1999 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 is a diversified series of PaineWebber
Index Trust ("Trust"), a professionally managed open-end management investment
company.
The fund's investment adviser, administrator and distributor is Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"). As the fund's
distributor, Mitchell Hutchins has appointed PaineWebber to serve as the
exclusive dealer for the sale of fund
shares.
Portions of fund's Annual Report to Shareholders are incorporated by
reference into this Statement of Additional Information ("SAI"). The Annual
Report accompanies this SAI. You may obtain an additional copy of the fund's
Annual Report by calling toll-free 1-800-647-1568.
This SAI is not a prospectus and should be read only in conjunction with
the fund's current Prospectus dated September 30, 1999. A copy of the Prospectus
may be obtained by calling any PaineWebber Financial Advisor or correspondent
firm. This SAI is dated September 30, 1999.
TABLE OF CONTENTS
PAGE
----
The Fund and Its Investment Policies............................... 2
The Fund's Investments, Related Risks and Limitations.............. 2
Strategies Using Derivative Instruments............................ 7
Organization; Trustees, Officers and Principal Holders of
Securities...................................................... 13
Investment Advisory and Distribution Arrangements.................. 20
Portfolio Transactions............................................. 24
Reduced Sales Charges, Additional Exchange and Redemption
Information and Other Services................................. 26
Valuation of Shares............................................... 30
Performance Information........................................... 31
Taxes............................................................. 34
Other Information................................................. 35
Financial Statements.............................................. 37
<PAGE>
THE FUND AND ITS INVESTMENT POLICIES
The fund's investment objective is to replicate the total return of the
Standard & Poor's 500 Composite Stock Index ("S&P 500 Index"), before fees and
expenses. 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 Index. The fund invests at least 65% of its total assets in a
substantial majority of the common stocks issued by companies represented in the
S&P 500 Index.
The fund invests in substantially all 500 stocks in the S&P 500 Index in
proportion to their weighting in the Index and, ordinarily, invests in at least
450 stocks that are represented in the Index. If the fund experiences
exceptional levels of purchases or redemptions, the fund may be delayed in
rebalancing its portfolio to reflect the weightings of the common stocks
reflected in the Index or may hold less than 450 stocks of the Index. The fund
will be rebalanced as soon as practicable to reflect the common stock weightings
represented in the Index and may use derivative instruments to replicate the
weightings of the Index in the interim. From time to time, adjustments may be
made in the fund's investments because of changes in the composition of the
Index. The fund will 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.
The fund attempts to achieve a correlation, over time, between the
performance of its investments and that of the S&P 500 Index of at least 0.95,
before deduction of fees and expenses. A correlation of 1.00 would represent
perfect correlation between the fund's performance and that of the Index. The
performance of the fund versus that of the Index is compared at least weekly. If
an unexpected tracking error develops, the fund's portfolio will be rebalanced
to bring it into line with the Index. There can be no assurance that the fund
will achieve its expected results.
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. The fund
may invest up to 15% of its net assets in illiquid securities. It may purchase
securities on a when-issued basis and may purchase or sell securities for
delayed delivery. The fund may lend its portfolio securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of its
assets. The fund may borrow money for temporary or emergency purposes in an
amount up to 33 1/3 % of its total assets, including reverse repurchase
agreements. The fund also may invest in securities of other investment companies
[and may sell securities short "against the box."]
THE FUND'S INVESTMENTS, RELATED RISKS AND LIMITATIONS
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 SAI, there are no policy limitations on the fund's
ability to use the investments or techniques discussed in these documents.
EQUITY SECURITIES. Equity securities (referred to as "stocks" in the
Prospectus) include common stocks, most preferred stocks and securities that are
convertible into them, including common stock purchase warrants and rights,
equity interests in trusts, partnerships, joint ventures or similar enterprises
and depository receipts. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation.
Preferred stock has certain fixed income features, like a bond, but is
actually equity in a company, like common stock. Convertible securities may
include debentures, notes and preferred equity securities, that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. Depository receipts typically are issued by banks or trust companies
and evidence ownership of underlying 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
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<PAGE>
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 equity investment.
MONEY MARKET INSTRUMENTS. The fund may invest in money market instruments
for temporary purposes or for cash management purposes. These instruments are
short-term debt obligations and similar securities and include: (1) securities
issued or guaranteed as to interest and principal by the U.S. government or one
of its agencies or instrumentalities; (2) debt obligations of U.S. banks,
savings associations, insurance companies and mortgage bankers, (3) commercial
paper and other short-term obligations of corporations, partnerships, trusts and
similar entities; (4) repurchase agreements regarding any of the foregoing; and
(6) investment company securities. Money market instruments include longer-term
bonds that have variable interest rates or other special features that give them
the financial characteristics of short-term debt. In addition, the fund may hold
cash and may invest in participation interests in the money market securities
mentioned above without limitation.
INVESTING IN FOREIGN SECURITIES. To the extent the fund holds U.S.
dollar-denominated securities of foreign issuers, the securities may not be
registered with the Securities and Exchange Commission ("SEC"), and the issuers
thereof may not be subject to its reporting requirements. Accordingly, there may
be less publicly available information concerning foreign issuers of securities
held by the 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.
Investing in foreign securities involves more risks than investing in the
United States. The value of foreign securities is subject to social, economic
and political developments in the countries where the companies operate and to
changes in foreign currency values, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers are
subject. These risks may include expropriation, confiscatory taxation,
withholding taxes on interest and/or dividends, limitations on the use of or
transfer of fund assets and political or social instability or diplomatic
developments. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. In those European countries that have begun using
the Euro as a common currency unit, individual national economies may be
adversely affected by the inability of national governments to use monetary
policy to address their own economic or political concerns.
The fund may invest in foreign securities only if the securities are
traded in the U.S. directly or through American Depository Receipts ("ADRs").
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. They generally are in registered form,
are denominated in U.S. dollars and are designed for use in the U.S. securities
markets. 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 representing ownership of common stock will be treated as common stock.
ADRs are publicly traded on exchanges or OTC in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depository's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depository's transaction fees are
paid directly by the ADR holders. In addition, less information is available in
the United States about an unsponsored ADR than about a sponsored ADR.
Investment income on certain foreign securities in which the fund may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United 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 or other obligations from a bank or securities dealer
(or its affiliate) and simultaneously commits to resell them to the counterparty
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 obligations.
The fund maintains custody of the underlying obligations prior to their
3
<PAGE>
repurchase, either through its regular custodian or through a special
"tri-party" custodian or sub-custodian that maintains separate accounts for both
the fund and its counterparty. Thus, the obligation of the counterparty to pay
the repurchase price on the date agreed to or upon demand is, in effect, secured
by such obligations. Repurchase agreements carry certain risks not associated
with direct investments in securities, including a possible decline in the
market value of the underlying obligations. If their value becomes less than the
repurchase price, plus any agreed-upon additional amount, the counterparty 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
obligations and the price that was paid by the fund upon acquisition is accrued
as interest and included in its net investment income. Repurchase agreements
involving obligations other than U.S. government securities (such as commercial
paper and corporate bonds) may be subject to special risks and may not have the
benefit of certain protections in the event of the counterparty's insolvency. If
the seller or guarantor becomes insolvent, the fund may suffer delays, costs and
possible losses in connection with the disposition of collateral. The fund
intends to enter into repurchase agreements only with counterparties in
transactions believed by Mitchell Hutchins to present minimum credit risks.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by the fund subject to the fund's agreement to
repurchase the securities at an agreed-upon date or upon demand and at a price
reflecting a market rate of interest. Reverse repurchase agreements are subject
to the fund's limitation on borrowings and may be entered into only with banks
and securities dealers or their affiliates. While a reverse repurchase agreement
is outstanding, the fund will maintain, in a segregated account with its
custodian, cash or liquid securities, marked to market daily, in an amount at
least equal to its obligations under the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by the fund might be unable to deliver them when the fund seeks
to repurchase. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
trustee or receiver may receive an extension of time to determine whether to
enforce the fund's obligation to repurchase the securities, and the fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.
ILLIQUID SECURITIES. The term "illiquid securities" for purposes of the
Prospectus and SAI 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 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 over-the-counter options written by the fund will be considered
illiquid unless the over-the-counter options are sold to qualified dealers who
agree that the fund may repurchase any over-the-counter options they write at a
maximum price to be calculated by a formula set forth in the option agreements.
The cover for an over-the-counter 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. To the extent the
fund invests in illiquid securities, it may not be able to readily liquidate
such investments and may have to sell other investments if necessary to raise
cash to meet its obligations. The lack of a liquid secondary market for illiquid
securities may make it more difficult for the fund to assign a value to those
securities for purposes of valuing its portfolio and calculating its net asset
value.
Restricted securities are not registered under the Securities Act of 1933
and may be sold only in privately negotiated or other exempted transactions or
after a 1933 Act registration statement has become effective. 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.
However, not all restricted securities are illiquid. A large institutional
market has developed for many U.S. and foreign securities that are not
registered under the 1933 Act. Institutional investors generally will not seek
to sell these instruments to the general public, but instead will often depend
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<PAGE>
either on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Institutional markets for restricted securities also have developed as a
result of Rule 144A, which establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. 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 bids 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 its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables the fund to earn additional
income, but could result in a loss or delay in recovering these securities. The
borrower of the fund's portfolio securities must maintain 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. The fund may reinvest cash collateral in money market
instruments or other short-term liquid investments. 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 of its loans at any
time. The fund may pay reasonable fees in connection with a loan and may pay the
borrower or placing broker a negotiated portion of the interest earned on the
reinvestment of cash held as collateral. The fund will receive 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.
Pursuant to procedures adopted by the board governing the fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for the fund. The board also has authorized the payment of fees (including
fees calculated as a percentage of invested cash collateral) to PaineWebber for
these services. The board periodically reviews all portfolio securities loan
transactions for which PaineWebber has acted as lending agent. PaineWebber also
has been approved as a borrower under the fund's securities lending program.
WARRANTS. Warrants are securities permitting, but not obligating, their
holder to subscribe for other securities or commodities. Warrants do not carry
with them the right to dividends or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not represent any rights
in the assets of the issuer. As a result, warrants may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying securities,
and a warrant ceases to have value if it is not exercised prior to its
expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The fund may purchase a
security on a when-issued basis or may purchase or sell securities for delayed
delivery, I.E., for issuance or delivery to or by the fund later than the normal
settlement date for such securities at a stated price and yield. The fund
generally would not pay for such securities or start earning interest on them
until they are received. However, when the fund undertakes a when-issued or
5
<PAGE>
delayed delivery obligation, it immediately assumes the risks of ownership,
including the risks of price fluctuation. Failure of the issuer to deliver a
security purchased by the fund on a when-issued or delayed delivery basis may
result in the fund's incurring or missing an opportunity to make an alternative
investment. Depending on market conditions, the fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which the
fund's total assets, including the value of when-issued and delayed delivery
securities held by the fund, exceeds its net assets.
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 "The Fund's Investments,
Related Risks and Limitations--Segregated Accounts." The fund 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.
SEGREGATED ACCOUNTS. When the fund enters into certain transactions to
make future payments to third parties, including the purchase of securities on a
when-issued or delayed delivery basis, 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.
INVESTMENT LIMITATIONS OF 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 following limitations.
The fund will 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 will 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, as amended ("Investment Company Act")
and then not in excess of 33-1/3% of the fund's total assets (including the
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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.
(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.
(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 Investment Company Act or under the terms of an
exemptive order granted by the 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
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. The fund may use a variety
of financial instruments ("Derivative Instruments"), including certain options,
futures contracts (sometimes referred to as "futures") and options on futures
contracts. The fund may enter into transactions involving one or more types of
Derivative Instruments under which the full value of its portfolio is at risk.
7
<PAGE>
Under normal circumstances, however, the fund's use of these instruments will
place at risk a much smaller portion of its assets. The particular Derivative
Instruments that may be used by the fund are described below.
The fund might not use any Derivative Instruments or derivative
strategies, and there can be no assurance that using any strategy will succeed.
If the fund is incorrect in its judgment on market values, interest rates or
other economic factors in using a Derivative Instrument or strategy, the fund
may have lower net income and a net loss on the investment.
OPTIONS ON SECURITIES. A call option is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to buy
the security underlying the option at a specified price at any time during the
term of the option or at specified times or at the expiration of the option,
depending on the type of option involved. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract that gives its purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the option term or at specified times or at the expiration of the option,
depending on the type of option involved. The writer of the put option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to buy the underlying security at the exercise price.
OPTIONS ON SECURITIES INDICES. A securities index assigns relative values
to the securities included in the index and fluctuates with changes in the
market values of those securities. A securities index option operates in the
same way as a more traditional securities option, except that exercise of a
securities index option is effected with cash payment and does not involve
delivery of securities. Thus, upon exercise of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the securities
index.
SECURITIES INDEX FUTURES CONTRACTS. A securities index futures contract is
a bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a specified
dollar amount times the difference between the securities index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contract.
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 USING DERIVATIVE INSTRUMENTS. The fund
may use Derivative Instruments to simulate full investment in the S&P 500 Index
while retaining a cash balance for 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 cash
management purposes, the fund may attempt to reduce the risk of adverse price
movements ("hedge") in the securities of the S&P 500 Index while investing cash
received from investor purchases of fund shares or selling securities to meet
shareholder redemptions. The fund may also use Derivative Instruments to reduce
transaction costs and to facilitate trading.
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
partially or fully to 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
8
<PAGE>
limit its loss below the exercise price to the premium paid plus transaction
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying 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 transaction
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 stock
market sectors.
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 may be limited by tax considerations. See
"Taxes."
In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins may discover additional opportunities in
connection with Derivative Instruments and with hedging, income, return and gain
strategies. These new opportunities may become available as regulatory
authorities broaden the range of permitted transactions and as new Derivative
Instruments 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 SAI will be
supplemented to the extent that new products or techniques involve materially
different risks than those described below or in the Prospectus.
SPECIAL RISKS OF STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative Instruments 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 that are
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
market sin which the 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.
9
<PAGE>
(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 counterparty to enter into a
transaction closing out the position. Therefore, there is no assurance
that any hedging 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,
currencies or other options or futures contracts or (2) cash or 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 such 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, committing a large portion of the
fund's assets to cover positions or to 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 in which it invests and indices of
those securities. The purchase of call options may serve as a long hedge, and
the purchase of put options may serve as a short hedge. The fund may also use
options to attempt to enhance return or realize gains by increasing or reducing
its exposure to the securities in the S&P 500 Index without purchasing or
selling the underlying securities. Writing covered put or call options can
enable the fund to enhance income by reason of the premiums paid by the
purchasers of such options. 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
over-the-counter options written by the fund would be considered illiquid to the
extent described under "The Fund's Investments, Related Risks and
Limitations--Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Generally, over-the-counter options on bonds are
European-style options. This means that the option can only be exercised
immediately prior to its expiration. This is in contract to American-style
options that may be exercised at any time. There are also other types of options
that may be exercised on certain specified dates before expiration.
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
10
<PAGE>
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 over-the-counter
options. Currently, many options on equity securities (stocks) are
exchange-traded. Exchange markets for options on bonds exist but are relatively
new, and these instruments are primarily traded on the over-the-counter market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, over-the-counter options are contracts between the fund and its
counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the fund purchases or writes an
over-the-counter option, it relies on the counterparty to make or take delivery
of the underlying investment upon exercise of the option. Failure by the
counterparty 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'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
over-the-counter options only by negotiating directly with the counterparty, or
by a transaction in the secondary market if any such market exists. Although the
fund will enter into over-the-counter options only with counterparties 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
over-the-counter option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, the fund might be unable to close
out an over-the-counter 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 fund's use of options is governed
by the following guidelines, which can be changed by its board without
shareholder vote:
(1) The fund may purchase a put or call option, including any straddle or
spread, 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, securities indices and 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 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. In addition, the fund may purchase or sell
futures contracts or purchase options thereon to increase or reduce its exposure
to an asset class without purchasing or selling the underlying securities,
either as a hedge or to enhance return or realize gains.
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
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<PAGE>
transaction was effected, "initial margin" consisting of cash, obligations of
the United States or obligations fully guaranteed as to principal and interest
by the United States, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of each 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 fund's use of
futures and related options is governed by the following guidelines, which can
be changed by its 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.
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<PAGE>
(2) The aggregate premiums paid on all options (including options on
securities, securities indices and futures contracts) purchased by the fund that
are held at any time will not exceed 20% of its net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by the fund will not exceed 5% of its total assets.
ORGANIZATION; TRUSTEES, OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES
The Trust was formed on May 27, 1997 as a business trust under the laws of
Delaware. The Trust has one operating series and is governed by a board of
trustees which is authorized to establish additional series and to issue an
unlimited number of shares of beneficial interest of each existing or future
series, par value $0.001 per share.
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
<S> <C> <C>
Margo N. Alexander**; 52 Trustee and President Mrs. Alexander is chairman (since March 1999),
chief executive officer and a director of
Mitchell Hutchins (since January 1995), and an
executive vice president and a director of
PaineWebber (since March 1984). Mrs. Alexander
is president and a director or trustee of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates
serves as investment adviser.
Richard Q. Armstrong; 64 Trustee Mr. Armstrong is chairman and principal of
R.Q.A. Enterprises R.Q.A. Enterprises (management consulting firm)
One Old Church Road (since April 1991 and principal occupation
Unit #6 since March 1995). Mr. Armstrong was chairman
Greenwich, CT 06830 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). He was a
partner of The New England Consulting Group
(management consulting firm) (December
1992-September 1993). He was managing director
of LVMH U.S. Corporation (U.S. subsidiary of the
French luxury goods conglomerate, Louis Vuitton
Moet Hennessey Corporation) (1987-1991) and
chairman of its wine and spirits subsidiary,
Schieffelin & Somerset Company (1987-1991). Mr.
Armstrong is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates
serves as investment adviser.
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NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
E. Garrett Bewkes, Jr.**; 73 Trustee and Chairman of Mr. Bewkes is a director of Paine Webber Group
the Board of Trustees Inc. ("PW Group") (holding company of
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.
Mr. Bewkes is a director or trustee of 35
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Richard R. Burt; 52 Trustee Mr. Burt is chairman of IEP Advisors, Inc.
1275 Pennsylvania Ave., N.W. (international investments and consulting firm)
Washington, DC 20004 (since March 1994) and a partner of McKinsey &
Company (management consulting firm) (since
1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural
commodities), Hollinger International Co.
(publishing), Homestake Mining Corp.,
Powerhouse Technologies Inc. and Weirton Steel
Corp. 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 31 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Mary C. Farrell**; 49 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982. She is a
member of the Financial Women's Association and
Women's Economic Roundtable and appears as a
regular panelist on Wall $treet Week with Louis
Rukeyser. She also serves on the Board of
Overseers of New York University's Stern School
of Business. Ms. Farrell is a director or
trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
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NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
Meyer Feldberg; 57 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of Business,
101 Uris Hall Columbia University. Prior to 1989, he was
New York, NY 10027 president of the Illinois Institute of
Technology. Dean Feldberg is also a director of
Primedia, Inc., Federated Department Stores,
Inc. and Revlon, Inc. Dean Feldberg is a
director or trustee of 34 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
George W. Gowen; 70 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, NY 10017 1994, he was a partner in the law firm of
Fryer, Ross & Gowen. Mr. Gowen is a director or
trustee of 34 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Frederic V. Malek; 62 Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Ave., N.W. Partners (merchant bank). From January 1992 to
Suite 350 November 1992, he was campaign manager of
Washington, DC 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), Manor Care, Inc. (health care) and
Northwest Airlines Inc. Mr. Malek is a director
or trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
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<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
Carl W. Schafer; 63 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Street, #1100 Foundation (charitable foundation supporting
Princeton, NJ 08542 mainly oceanographic exploration and research).
He is a director of Base Ten Systems, Inc.
(software), Roadway Express, Inc. (trucking),
The Guardian Group of Mutual Funds, the
Harding, Loevner Funds, Evans Systems, Inc.
(motor fuels, convenience store and diversified
company), Electronic Clearing House, Inc.
(financial transactions processing), Frontier
Oil Corporation and Nutraceutix, Inc.
(biotechnology company). Prior to January 1993,
he was chairman of the Investment Advisory
Committee of the Howard Hughes Medical
Institute. Mr. Schafer is a director or trustee
of 31 investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Brian M. Storms;** 45 Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since March
1999). Prior to March 1999, he was president of
Prudential Investments (1996-1999). Prior to
joining Prudential, he was a managing director
at Fidelity Investments. Mr. Storms is a
director or trustee of 31 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
T. Kirkham Barneby; 53 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. Mr. Barneby is a vice president of
seven investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates
serves as investment adviser.
John J. Lee; 31 Vice President and Mr. Lee is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Prior to September 1997, he was an
audit manager in the financial services
practice of Ernst & Young LLP. Mr. Lee is a
vice president and assistant treasurer of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as an investment adviser.
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NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
Kevin J. Mahoney; 34 Vice President and Mr. Mahoney is a first vice president and
Assistant Treasurer senior manager of the mutual fund finance
department of Mitchell Hutchins. From August
1996 through March 1999, he was the manager of
the mutual fund internal control group of
Salomon Smith Barney. Prior to August 1996, he
was an associate and assistant treasurer for
BlackRock Financial Management L.P. Mr. Mahoney
is a vice president and assistant treasurer of
32 investment companies for which Mitchell
Hutchins, PaineWebber or one of their affiliates
serves as investment adviser.
Ann E. Moran; 42 Vice President and Ms. Moran is a vice president and a manager of
Assistant Treasurer the mutual fund finance department of Mitchell
Hutchins. Ms. Moran is a vice president and
assistant treasurer of 32 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Dianne E. O'Donnell; 47 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 31 investment companies and a vice president
and assistant secretary of one investment
company for which Mitchell Hutchins, PaineWebber
or one of their affiliates serves as investment
adviser.
Emil Polito; 38 Vice President Mr. Polito is a senior vice president and
director of operations and control for Mitchell
Hutchins. Mr. Polito is a vice president of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Victoria E. Schonfeld; 48 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins (since May
1994) and a senior vice president of
PaineWebber (since July 1995). Ms. Schonfeld is
a vice president of 31 investment companies and
a vice president and secretary of one
investment company for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
Paul H. Schubert; 36 Vice President and Mr. Schubert is a senior vice president and
Treasurer director of the mutual fund finance department
of Mitchell Hutchins. Mr. Schubert is a vice
president and treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates serves
as investment adviser.
17
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
---------------------- ------------------- ----------------------------------------
Barney A. Taglialatela; 38 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance department
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 32 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Keith A. Weller; 38 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 31 investment companies
for which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
</TABLE>
- -----------------------
* 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, Ms. Farrell and Mr. Storms are "interested
persons" of the fund as defined in the Investment Company Act by virtue of
their positions with Mitchell Hutchins, PaineWebber, and/or PW Group.
The Trust pays trustees who are not "interested persons" of the Trust
$1,000 for each series and $150 per series for each board meeting and each
separate meeting of a board committee. The Trust has only one operating 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 from the relevant funds.
All trustees are reimbursed for any expenses incurred in attending meetings.
Trustees and officers own no outstanding shares of the Fund. Because PaineWebber
and Mitchell Hutchins perform substantially all the services necessary for the
operation of the Trust and the Fund, the Trust requires no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber presently
receives any compensation from the Trust for acting as a trustee or officer.
18
<PAGE>
The table below includes certain information related to the compensation
of the current trustees who held office with the Trust during the fiscal year
ended May 31, 1999 and the compensation of those trustees from all PaineWebber
funds during the 1998 calendar year.
COMPENSATION TABLE+
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
--------- ------------------
COMPENSATION FROM THE TRUST AND
------------ ------------------
NAME OF PERSON, POSITION FROM THE TRUST* THE FUND COMPLEX**
------------------------ --------------- ------------------
<S> <C> <C>
Richard Q. Armstrong,
Trustee $101,372
Richard R. Burt,
Trustee $101,372
Meyer Feldberg,
Trustee $116,222
George W. Gowen,
Trustee $108,272
Frederic V. Malek,
Trustee $101,372
Carl W. Schafer,
Trustee $101,372
</TABLE>
- --------------------
Only independent trustees are compensated by the Trust and identified above;
trustees who are "interested persons," as defined by the Investment Company
Act, do not receive compensation from the funds.
* Represents fees paid to each trustee indicated for the fiscal year ended May
31, 1999.
** Represents total compensation paid during the calendar year ended December
31, 1998, to each trustee by 31 investment companies (33 in the case of
Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one
of their affiliates served as investment adviser. No fund within the
PaineWebber fund complex has a bonus, pension, profit sharing or retirement
plan.
PRINCIPAL HOLDERS OF SECURITIES. As of September __, 1999, the records of
the Trust indicate that the following shareholders owned 5% or more of a class
of shares of the fund:
[table to be inserted]
19
<PAGE>
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 October 14, 1997. Under the Advisory Contract,
the fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate of 0.20% of average daily net assets.
During the fiscal year ended May 31, 1999 and the period December 31, 1997
(commencement of operations) to May 31, 1998, Mitchell Hutchins earned (or
accrued) advisory fees in the amounts of $______ and $8,340 (all of which was
waived).
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 Investment Company 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 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.
SECURITIES LENDING. During the year ended May 31, 1999, the fund paid
(or accrued) $________________ in fees to PaineWebber for its services as
securities lending agent.
20
<PAGE>
NET ASSETS. The following table shows the approximate net assets as of
August 31, 1999, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
NET ASSETS
----------
INVESTMENT CATEGORY $ MIL
------------------- -----
Domestic (excluding Money Market)............
Global.......................................
Equity/Balanced..............................
Fixed Income (excluding Money Market)........
Taxable Fixed Income......................
Tax-Free Fixed Income.....................
Money Market Funds...........................
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber funds and other Mitchell
Hutchins advisory accounts by all Mitchell Hutchins' directors, officers and
employees, establishes procedures for personal investing and restricts certain
transactions. For example, employee accounts generally must be maintained at
PaineWebber, personal trades in most securities require pre-clearance and
short-term trading and participation in initial public offerings generally are
prohibited. In addition, the code of ethics puts restrictions on the timing of
personal investing in relation to trades by PaineWebber funds and other Mitchell
Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of the fund under separate distribution contracts with the
Trust ("Distribution Contracts") that require 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 separate exclusive dealer
agreements between Mitchell Hutchins and PaineWebber relating to each class of
shares ("Exclusive Dealer Agreements"), PaineWebber and its correspondent firms
sell the fund's shares.
Under separate plans of distribution pertaining to the Class A shares and
Class C shares adopted by the Trust in the manner prescribed under Rule 12b-1
under the Investment Company Act ("Class A Plan" and "Class C Plan,"
collectively, "Plans"), the fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily net
assets of Class A and Class C shares of the fund. Under the Class C Plan, the
fund pays Mitchell Hutchins a distribution fee, accrued daily and payable
monthly at the annual rate of 0.75% of the average daily net assets of the Class
C shares. 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.
Mitchell Hutchins uses the service fees under the Plans for Class A and C
shares primarily to pay PaineWebber for shareholder servicing, currently at the
annual rate of 0.25% of the aggregate investment amounts maintained in the fund
by PaineWebber clients. PaineWebber then compensates its Financial Advisors for
shareholder servicing that they perform and offsets its own expenses in
servicing and maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class C Plan to:
o Offset the commissions it pays to PaineWebber for selling each
fund's Class C shares.
o Offset the fund's marketing costs attributable to such class, such
as preparation, printing and distribution of sales literature,
advertising and prospectuses to prospective investors and related
overhead expenses, such as employee salaries and bonuses.
21
<PAGE>
PaineWebber compensates Financial Advisors when Class C shares are bought
by investors, as well as on an ongoing basis. Mitchell Hutchins receives no
special compensation from any of the funds or investors at the time C shares are
bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid
when Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related Distribution Contracts for Class A and Class C
shares specify that the fund must pay service and distribution fees to Mitchell
Hutchins for its activities, not as reimbursement for specific expenses
incurred. Therefore, even if Mitchell Hutchins' expenses exceed the service or
distribution fees it receives, the 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 and distribution fees received or accrued through the termination date
of a Plan will be Mitchell Hutchins' sole responsibility and not that of the
fund. Annually, the board reviews the Plan and Mitchell Hutchins' corresponding
expenses for each class separately from the Plan and expenses of the other
class.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the trustees will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (2) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendment thereto is approved,
by the board, including those trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by the fund under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the outstanding shares of the relevant class 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 another class of the fund's shares.
For the fiscal year ended May 31, 1999, the fund paid (or accrued) to
Mitchell Hutchins service fees of $______________ under the Class A Plan and
service and distribution fees of $_____________________ under the Class C Plan.
22
<PAGE>
Mitchell Hutchins estimates that it and its parent corporation,
PaineWebber, incurred the following shareholder service-related and
distribution-related expenses with respect to the fund during the fiscal year
ended May 31, 1999:
S&P 500 INDEX FUND
CLASS A
Marketing and advertising...............................
Amortization of commissions.............................
Printing of prospectuses and statements of
additional information..................................
Branch network costs allocated and interest
expense.................................................
Service fees paid to PaineWebber Financial
Advisors................................................
CLASS C
Marketing and advertising...............................
Amortization of commissions.............................
Printing of prospectuses and statements of
additional information..................................
Branch network costs allocated and interest
expense.................................................
Service fees paid to PaineWebber Financial
Advisors................................................
In approving the fund's overall Flexible PricingSM system of distribution,
the board considered several factors, including that implementation of Flexible
Pricing would (1) enable investors to choose the purchasing option best suited
to their individual situation, thereby encouraging current shareholders to make
additional investments in the fund and attracting new investors and assets to
the fund to the benefit of the fund and its shareholders, (2) facilitate
distribution of the fund's shares and (3) maintain the competitive position of
the fund in relation to other funds that have implemented or are seeking to
implement similar distribution arrangements.
In approving the Class A Plan, the board considered all the features of
the distribution system, including (1) the conditions under which initial sales
charges would be imposed and the amount of such charges, (2) Mitchell Hutchins'
belief that the initial sales charge combined with a service fee would be
attractive to PaineWebber Financial Advisors and correspondent firms, resulting
in greater growth of the fund than might otherwise be the case, (3) the
advantages to the shareholders of economies of scale resulting from growth in
the fund's assets and potential continued growth, (4) the services provided to
the fund and its shareholders by Mitchell Hutchins, (5) the services provided by
PaineWebber pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins
and (6) Mitchell Hutchins' shareholder service-related expenses and costs.
In approving the Class C Plan, 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 for shares held more than one year and paying for
distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability
of PaineWebber Financial Advisors and correspondent firms to receive sales
compensation for their sales of Class C shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class C shares and generally do not face contingent
deferred sales charges, would prove attractive to the Financial Advisors and
correspondent firms, resulting in greater growth to the fund than might
otherwise be the case, (4) the advantage 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,
23
<PAGE>
(6) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service-
and distribution-related expenses and costs. The board members also recognized
that Mitchell Hutchins' willingness to compensate PaineWebber and its Financial
Advisors without the concomitant receipt by Mitchell Hutchins of initial sales
charges or contingent deferred sales charges upon redemption, was conditioned
upon its expectation of being compensated under the Class C Plan.
With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service and, as applicable, initial sales charge and distribution
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.
Under the Distribution Contract between the fund and Mitchell Hutchins for
the Class A shares for the periods set forth below, Mitchell Hutchins earned the
following approximate amounts of sales charges and retained the following
approximate amounts, net of concessions to PaineWebber as exclusive dealer.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL PERIOD ENDED
MAY 31, 1999 MAY 31, 1998*
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earned..................................
Retained................................
------------------
* the period December 31, 1997 (commencement of operations) to May 31, 1998.
</TABLE>
Mitchell Hutchins earned and retained the following contingent deferred
sales charges paid upon certain redemptions of fund shares for the fiscal year
ended May 31, 1999:
Class A................................
Class C................................
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 over-the-counter 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. For the
fiscal year ended May 31, 1999 and the period December 31, 1997 (commencement of
operations) to May 31, 1998, the fund paid $________ and $___________ in
brokerage commissions, respectively.
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 Investment Company Act to ensure that all brokerage
24
<PAGE>
commissions paid to PaineWebber are reasonable and fair. Specific provisions in
the Advisory Contract authorize PaineWebber to effect portfolio transactions for
the fund on a national securities exchange of which it is a member 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. For the fiscal year ended May 31, 1999 and the period December 31,
1997 (commencement of operations) to May 31, 1998, the fund [paid no] brokerage
commissions to PaineWebber or any other affiliate of Mitchell Hutchins.
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 its 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 Mitchell Hutchins
with research, analysis, advice and similar 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. [During the fiscal year ended May 31, 1999, the
fund directed no brokerage transactions to brokers chosen because they provided
research services. ]
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, it
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. Mitchell Hutchins may engage in agency
transactions in over-the-counter equity securities in return for research and
execution services. These transactions are entered into only in compliance with
procedures ensuring that the transaction (including commissions) is at least as
favorable as it would have been if effected directly with a market-maker that
did not provide research or execution services. These procedures include
Mitchell Hutchins receiving multiple quotes from dealers before executing the
transactions on an agency basis.
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 it 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 its ability to complete its 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
Investment Company 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.
25
<PAGE>
PORTFOLIO TURNOVER. The fund's annual portfolio turnover rate may vary
greatly from year to year, but 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. For the fiscal year ended May 31,
1999 and the period December 31, 1997 (commencement of operations) to May 31,
1998, the fund's portfolio turnover rate was ____ % and 1%, respectively.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
WAIVERS OF SALES CHARGES/CONTINGENT DEFERRED SALES CHARGES -- CLASS A
SHARES. The following additional sales charge waivers are available for Class A
shares if you:
o Purchase shares through a variable annuity offered only to qualified
plans. For investments made pursuant to this waiver, Mitchell
Hutchins may make payments out of its own resources to PaineWebber
and to the variable annuity's sponsor, adviser or distributor in a
total amount not to exceed l% of the amount invested;
o Acquire shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee
for program services, provided that the program sponsor has entered
into a written agreement with PaineWebber permitting the sale of
shares at net asset value to that program. For investments made
pursuant to this waiver, Mitchell Hutchins may make a payment to
PaineWebber out of its own resources in an amount not to exceed 1%
of the amount invested. For subsequent investments or exchanges made
to implement a rebalancing feature of such an investment program,
the minimum subsequent investment requirement is also waived;
o Acquire shares in connection with a reorganization pursuant to which
the fund acquires substantially all of the assets and liabilities of
another fund in exchange solely for shares of the acquiring fund; or
o Acquire shares in connection with the disposition of proceeds from
the sale of shares of Managed High Yield Plus Fund Inc. that were
acquired during the fund's initial public offering of shares and
that meet certain other conditions described in its prospectus
In addition, reduced sales charges on Class A shares are available through
the combined purchase plan or through rights of accumulation described below.
Class A share purchases of $1 million or more are not subject to an initial
sales charge; however, if a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale by the shareholder, whichever
is less, is imposed.
COMBINED PURCHASE PRIVILEGE-CLASS A SHARES. Investors and eligible groups
of related fund investors may combine purchases of Class A shares of the fund
with concurrent purchases of Class A shares of any other PaineWebber mutual fund
and thus take advantage of the reduced sales charges indicated in the table of
sales charges for Class A shares in the Prospectus. The sales charge payable on
the purchase of Class A shares of the fund and Class A shares of such other
funds will be at the rates applicable to the total amount of the combined
concurrent purchases.
An "eligible group of related fund investors" can consist of any
combination of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account
("IRA");
26
<PAGE>
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25% or
more of the outstanding voting securities of a corporation will be deemed to
control the corporation, and a partnership will be deemed to be controlled by
each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or the
individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that other employer); or
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The registered
investment adviser must communicate at least quarterly through a newsletter or
investment update establishing a relationship with all of the accounts.
RIGHTS OF ACCUMULATION-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related fund investors (as defined above) are permitted to purchase Class A
shares of the fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount equal
to the then-current net asset value of the purchaser's combined holdings of
Class A fund shares and Class A shares of any other PaineWebber mutual fund. The
purchaser must provide sufficient information to permit confirmation of his or
her holdings, and the acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed
Class A shares of the fund may reinstate their account without a sales charge by
notifying the transfer agent of such desire and forwarding a check for the
amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised, although a loss arising out of a
redemption might not be deductible under certain circumstances. See "Taxes"
below.
PURCHASES OF CLASS Y SHARES THROUGH THE PACE MULTI ADVISOR PROGRAM. An
investor who participates in the PACE Multi Advisor Program is eligible to
purchase Class Y shares. The PACE Multi Advisor Program is an advisory program
sponsored by PaineWebber that provides comprehensive investment services,
including investor profiling, a personalized asset allocation strategy using an
appropriate combination of funds, and a quarterly investment performance review.
Participation in the PACE Multi Advisor Program is subject to payment of an
advisory fee at the effective maximum annual rate of 1.5% of assets. Employees
of PaineWebber and its affiliates are entitled to a waiver of this fee. Please
contact your PaineWebber Financial Advisor or PaineWebber's correspondent firms
for more information concerning mutual funds that are available through the PACE
Multi Advisor Program.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the fund may be exchanged for shares of the
corresponding class of most other PaineWebber mutual funds. Class Y shares are
not eligible for exchange. Shareholders will receive at least 60 days' notice of
any termination or material modification of the exchange offer, except no notice
need be given if, under extraordinary circumstances, either redemptions are
suspended under the circumstances described below or the fund temporarily delays
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or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the fund's investment objective, policies and
restrictions.
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. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. 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 is closed or trading on
the New York Stock Exchange 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.
SERVICE ORGANIZATIONS. The fund may authorize service organizations, and
their agents, to accept on its behalf purchase and redemption orders that are in
"good form." The fund will be deemed to have received these purchase and
redemption orders when a service organization or its agent accepts them. Like
all customer orders, these orders will be priced based on the fund's net asset
value next computed after receipt of the order by the service organizations or
their agents. Service organizations may include retirement plan service
providers who aggregate purchase and redemption instructions received from
numerous retirement plans or plan participants.
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,
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. The systematic withdrawal plan allows
investors to set up monthly, quarterly (March, June, September and December),
semi-annual (June and December) or annual (December) withdrawals from their
PaineWebber Mutual Fund accounts. Minimum balances and withdrawals vary
according to the class of shares:
o Class A and Class C shares. Minimum value of fund shares is $5,000;
minimum withdrawals of $100.
Withdrawals under the systematic withdrawal plan will not be subject to a
contingent deferred sales charge if the investor withdraws no 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 this 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 and Class C
shareholders. Purchases of additional shares of the fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities. On or about the 20th of each month for monthly, quarterly,
semiannual or 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 five Business Days (defined under "Valuation of
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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.. 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 PFPC. Shareholders may request the forms needed to
establish a systematic withdrawal plan from their PaineWebber Financial
Advisors, correspondent firms or PFPC at 1-800-647-1568.
INDIVIDUAL RETIREMENT ACCOUNTS. Self-directed IRAs are available through
PaineWebber in which purchases of PaineWebber mutual funds and other investments
may be made. Investors considering establishing an IRA should review applicable
tax laws and should consult their tax advisers.
TRANSFER OF ACCOUNTS. If investors holding shares of the fund in a
PaineWebber brokerage account transfer their brokerage accounts to another firm,
the fund shares will be moved to an account with PFPC. 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.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLANSM
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(REGISTERE) (RMA)(REGISTERED)
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 continually to invest in
one or more of the PW Funds at regular intervals, with payment for shares
purchased automatically deducted from the client's RMA account. The client may
elect to invest at monthly or quarterly intervals and may elect either to invest
a fixed dollar amount (minimum $100 per period) or to purchase a fixed number of
shares. A client can elect to have Plan purchases executed on the first or
fifteenth day of the month. Settlement occurs three Business Days (defined under
"Valuation of Shares") after the trade date, and the purchase price of the
shares is withdrawn from the investor's RMA account on the settlement date from
the following sources and in the following order: uninvested cash balances,
balances in RMA money market funds, or margin borrowing power, if applicable to
the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan, or an RMA accountholder's participation in the
Plan, may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
Funds or other mutual funds, whether through the Plan or otherwise, helps
investors establish and maintain a disciplined approach to accumulating assets
over time, deemphasizing 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
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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:
o monthly Premier account statements that itemize all account
activity, including investment transactions, checking activity and
Gold MasterCard(REGISTERED) transactions during the period, and
provide unrealized and realized gain and loss estimates for most
securities held in the account;
o comprehensive year-end summary statements that provide information
on account activity for use in tax planning and tax return
preparation;
o automatic "sweep" of uninvested cash into the RMA accountholder's
choice of one of the six RMA money market funds-- RMA Money Market
Portfolio, RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA
California Municipal Money Fund, RMA New Jersey Municipal Money Fund
and RMA New York Municipal Money Fund. AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH A
MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
MONEY MARKET FUND.
o check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
o Gold MasterCard, with or without a line of credit, which provides
RMA accountholders with direct access to their accounts and can be
used with automatic teller machines worldwide. Purchases on the Gold
MasterCard are debited to the RMA account once monthly, permitting
accountholders to remain invested for a longer period of time;
o unlimited electronic funds transfers and bill payment service for an
additional fee;
o 24-hour access to account information through toll-free numbers, and
more detailed personal assistance during business hours from the RMA
Service Center;
o expanded account protection to the net equity securities balance in
the event of the liquidation of PaineWebber. This protection does
not apply to shares of the PW Funds that are held directly at PFPC
and not through PaineWebber; and
o automatic direct deposit of checks into your RMA account and
automatic withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
VALUATION OF SHARES
The fund determines its net asset value per share separately for each
class of shares normally as of the close of regular trading (usually 4:00 p.m.,
Eastern time) on the New York Stock Exchange on each Business Day, which is
defined as each Monday through Friday when the New York Stock Exchange is open.
Prices will be calculated earlier when the NYSE closes early because trading has
been halted for the day. Currently the New York Stock Exchange is closed on the
observance of the following holidays: New Year's Day, Martin Luther King, Jr.
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Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Securities that are listed on exchanges normally 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
over-the-counter market and listed on the Nasdaq Stock Market ("Nasdaq")
normally are valued at the last available sale price on Nasdaq prior to
valuation; other over-the-counter securities are valued at the last bid price
available prior to valuation. Where market quotations are readily available,
portfolio securities are valued based upon market quotations, provided those
quotations adequately reflect, in the judgment of Mitchell Hutchins, the fair
value of the security. Where those market quotations are not readily available,
securities are valued based upon appraisals received from a pricing service
using a computerized matrix system or based upon appraisals derived from
information concerning the security or similar securities received from
recognized dealers in those securities. All other securities and other assets
are valued at fair value as determined in good faith by or under the direction
of the board. The amortized cost method of valuation generally is used to value
debt obligations with 60 days or less remaining until maturity, unless the board
determines that this does not represent fair value.
PERFORMANCE INFORMATION
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. In calculating the ending redeemable value, for Class A shares, the
maximum 2.5% sales charge is deducted from the initial $1,000 payment and, for
Class C shares, the applicable contingent deferred sales charge imposed on a
redemption of Class C shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.
The fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in fund shares
and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the initial value. Neither
initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return; the inclusion of those charges would reduce
the return.
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The following table shows performance information for the fund's Class Y
shares outstanding for the life of each class.
CLASS A CLASS C CLASS
------- ------- -----
Year ended May 31, 1999*
Standardized Return..................... N/A N/A
Non-Standardized Return................. N/A N/A
Inception* to May 31, 1999:
Standardized Return.....................
Non-Standardized Return.................
- ------------------
* The inception date for each class of shares is as follows:
Class A....................... 10/02/98
Class C....................... 10/07/98
Class Y....................... 12/31/97
OTHER INFORMATION. In Performance Advertisements, the fund may compare its
Standardized Return with data published by Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Wiesenberger Investment
Companies Service ("Wiesenberger"), Investment Company Data, Inc. ("ICD") or
Morningstar Mutual funds ("Morningstar"), with the performance of recognized
stock and other indices, including (but not limited to) the S&P 500 Index, the
Dow Jones Industrial Average, the International Finance Corporation Global Total
Return Index, the Nasdaq Composite Index, the Russell 2000 Index, the Wilshire
5000 Index, the Lehman Bond Index, the Lehman Brothers 20+ Year Treasury Bond
Index, the Lehman Brothers Government/Corporate Bond Index, other similar Lehman
Brothers indices or components thereof, 30-year and 10-year U.S. Treasury bonds,
the Morgan Stanley Capital International Perspective Indices, the Morgan Stanley
Capital International Energy Sources Index, the Standard & Poor's Oil Composite
Index, the Morgan Stanley Capital International World Index, the Salomon
Brothers Non-U.S. Dollar Index, the Salomon Brothers Non-U.S. World Government
Bond Index, the Salomon Brothers World Government Index, other similar Salomon
Brothers indices or components thereof and changes in the Consumer Price Index
as published by the U.S. Department of Commerce. The fund also may refer in such
materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of the fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not limited to) THE WALL STREET JOURNAL,
MONEY MAGAZINE, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE
NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST AND THE KIPLINGER
LETTERS. Comparisons in Performance Advertisements may be in graphic form.
The fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the fund investment are reinvested
in additional fund shares, any future income or capital appreciation of the fund
would increase the value, not only of the original fund investment, but also of
the additional fund shares received through reinvestment. As a result, the value
of the fund investment would increase more quickly than if dividends or other
distributions had been paid in cash. The fund may also generally discuss or
illustrate the increasingly popular benefits of investing through an index fund,
such as immediate diversification; convenience; relatively lower portfolio
turnover and expected transaction costs; and the likelihood that lower portfolio
turnover will result in otherwise higher after-tax returns.
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
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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.*
[CHART]
[TO BE INSERTED]
* Source: Stocks, Bonds, Bills and Inflation 1998 YearbookTM 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.
Over time, although subject to greater risks and higher volatility, stocks
have outperformed all other investments by a wide margin, offering a solid hedge
against inflation. From 1925 to 1998, stocks beat all other traditional asset
classes. A $10,000 investment in the S&P 500 grew to $_________, significantly
more than any other investment.
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TAXES
BACKUP WITHHOLDING. The fund is required to withhold 31% of all taxable
dividends, capital gain distributions and redemption proceeds payable to
individuals and certain other non-corporate shareholders who do not provide the
fund or PaineWebber with a correct taxpayer identification number. Withholding
at that rate also is required from dividends and capital gain distributions
payable to those shareholders who otherwise are subject to backup withholding.
SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale (redemption) of
shares may result in a taxable gain or loss, depending on whether the
shareholder receives more or less than his or her adjusted basis for the shares
(which normally includes any initial sales charge paid on Class A shares). An
exchange of the fund's shares for shares of another PaineWebber mutual fund
generally will have similar tax consequences. In addition, if the fund's shares
are bought within 30 days before or after selling other shares of the fund
(regardless of class) at a loss, all or a portion of that loss will not be
deductible and will increase the basis of the newly purchased shares.
SPECIAL RULE FOR CLASS A SHAREHOLDERS. A special tax rule applies when a
shareholder sells or exchanges Class A shares within 90 days of purchase and
subsequently acquires Class A shares of the same or another PaineWebber mutual
fund without paying a sales charge due to the 365-day reinstatement privilege or
the exchange privilege. In these cases, any gain on the sale or exchange of the
original Class A shares would be increased, or any loss would be decreased, by
the amount of the sales charge paid when those shares were bought, and that
amount would increase the basis of the PaineWebber mutual fund shares
subsequently acquired.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To continue to qualify
for treatment as a regulated investment company ("RIC") under the Internal
Revenue Code, the fund must distribute to its shareholders for each taxable year
at least 90% of the sum of its investment company taxable income (consisting
generally of net investment income and net short-term capital gain) 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 or futures) derived with respect to its business of investing in
securities ("Income Requirement"); (2) 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 that are 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 (3) 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.
If the fund failed to qualify for treatment as a RIC for any taxable year, (a)
it would be taxed as an ordinary corporation on its taxable income for that year
(even if that income was distributed to its shareholders) and (b) the
shareholders would treat all those distributions, including distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) as dividends (that is, ordinary income) to the extent of the
fund's earnings and profits. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying for RIC treatment.
OTHER INFORMATION. Dividends and other distributions declared by the fund
in October, November or December of any year and payable to shareholders of
record on a date in any of those months will be deemed to have been paid by the
fund and received by the shareholders on December 31 of that year if the
distributions are paid by the fund during the following January. Accordingly,
those distributions will be taxed to shareholders for the year in which that
December 31 falls.
A portion of the dividends from the fund's investment company taxable
income (whether paid in cash or additional shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by the fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
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If fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or capital gain distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
The 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 involving Derivative Instruments, such as
writing (selling) and purchasing options and futures contracts, involves complex
rules that will determine for income tax purposes the amount, 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.
The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the fund and its shareholders. No
attempt is made to present a complete explanation of the federal tax treatment
of the fund's activities, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisers for more detailed information and for information
regarding any state, local or foreign taxes applicable to the fund and to
dividends and distributions therefrom.
OTHER INFORMATION
DELAWARE BUSINESS TRUST. The Trust is an entity of the type commonly known
as a Delaware business trust. Although Delaware law statutorily limits the
potential liabilities of a Delaware business trust's shareholders to the same
extent as it limits the potential liabilities of a Delaware corporation,
shareholders of the fund could, under certain conflicts of laws jurisprudence in
various states, be held personally liable for the obligations of the Trust or
the fund. However, the Trust's trust instrument disclaims shareholder liability
for acts or obligations of the Trust or its series (the fund) and requires that
notice of such disclaimer be given in each written obligation made or issued by
the trustees or by any officers or officer by or on behalf of the Trust, a
series, the trustees or any of them in connection with the Trust. The trust
instrument provides for indemnification from the fund's property for all losses
and expenses of any series shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
the fund itself would be unable to meet its obligations, a possibility which
Mitchell Hutchins believes is remote and not material. Upon payment of any
liability incurred by a shareholder solely by reason of being or having been a
shareholder of the fund, the shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The trustees intend to
conduct the operations of the fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the fund.
CLASSES OF SHARES. A share of a class of the fund represents an identical
interest in its investment portfolio and has the same rights, privileges and
preferences. However, each class may differ with respect to sales charges, if
any, distribution and/or service fees, if any, other expenses allocable
exclusively to each class, voting rights on matters exclusively affecting that
class, and its exchange privilege, if any. The different sales charges and other
expenses 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 and liquidation proceeds on Class A, C and Y shares will differ.
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, as a result, the holders of more than 50% of all the
shares of the fund (so long as it is the sole series of the Trust) may elect all
of the trustees of the Trust. The shares of the fund will be voted together,
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except that only the shareholders of a particular class of the fund may vote on
matters affecting only that class, such as the terms of a Rule 12b-1 Plan as it
relates to the class.
The fund does not hold annual meetings. Shareholders of record of no less
than two-thirds of the outstanding shares of the Trust may remove a trustee
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 the trustee at the written request of holders of 10% of the outstanding
shares of the Trust.
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. For example, the fund's Class C shares bear higher transfer
agency fees per shareholder account than those borne by Class A or Class Y
shares. The higher fee is imposed due to the higher costs incurred by the
transfer agent in tracking shares subject to a contingent deferred sales charge
because, upon redemption, the duration of the shareholder's investment must be
determined to determine the applicable charge. Although the transfer agency fee
will differ on a per account basis as stated above, the specific extent to which
the transfer agency fees will differ between the classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each class and the relative
amounts of net assets in each class.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for the fund.
PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the fund's transfer and
dividend disbursing agent. It is located at 400 Bellevue Parkway, Wilmington, DE
19809.
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX. "Standard &
Poor's(REGISTERED)," "S&P(REGISTERED)," "S&P 500(REGISTERED)," 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 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 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 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 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.
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.
36
<PAGE>
FINANCIAL STATEMENTS
The fund's Annual Report to Shareholders for the period ended May 31, 1999
is a separate document supplied with this SAI, and the financial statements,
accompanying notes and report of independent auditors appearing therein are
incorporated herein by this reference.
37
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR REFERRED TO IN THE
PROSPECTUS AND THIS STATEMENT OF
ADDITIONAL INFORMATION. THE FUND AND ITS
DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. THE PROSPECTUS AND THIS
STATEMENT OF ADDITIONAL INFORMATION ARE
NOT AN OFFER TO SELL SHARES OF THE FUND
IN ANY JURISDICTION WHERE THE FUND OR
ITS DISTRIBUTOR MAY NOT LAWFULLY SELL
THOSE SHARES.
------------
PAINEWEBBER
S&P 500 INDEX FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 1999
PAINEWEBBER
(COPYRIGHT)1999 PaineWebber Incorporated
38
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(1) Amended and Restated Trust Instrument (to be filed)
(2) Amended and Restated By-Laws (to be filed)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(4) Investment Advisory and Administration Contract 2/
(5) (a) Distribution Contract (Class A Shares ) (to be filed)
(b) Distribution Contract (Class C Shares ) (to be filed)
(c) Distribution Contract (Class Y Shares) (to be filed)
(d) Exclusive Dealer Agreement (Class A Shares) (to be filed)
(e) Exclusive Dealer Agreement (Class C Shares) (to be filed)
(f) Exclusive Dealer Agreement (Class Y Shares) (to be filed)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement 2/
(8) Transfer Agency Agreement 2/
(9) Opinion and consent of counsel (to be filed)
(10) Other opinions, appraisals, rulings and consents: Auditor's consent (to be
filed)
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent 3/
(13) Rule 12b-1 Plans (a) Rule 12b-1 Plan of Distribution with respect to Class
A Shares (to be filed) (b) Rule 12b-1 Plan of Distribution with respect to
Class C Shares (to be filed)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan Pursuant to Rule 18f-3 2/
- -------------------------
1/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles VI and IX of Registrant's By-Laws.
2/ Incorporated by reference from Post-Effective Amendment No. 2 to the
registration statement, SEC File No. 333-27917, filed September 30, 1998.
3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-27917, filed October 17, 1997.
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
PaineWebber Incorporated ("PaineWebber"), a Delaware corporation,
owned 69.7% of the outstanding securities of PaineWebber S&P 500 Index Fund as
of August 31, 1997. PaineWebber is a wholly owned subsidiary of Paine Webber
Group Inc., a publicly owned financial services holding company. Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins"), the investment adviser,
administrator and distributor of the Trust, is a wholly owned subsidiary of
PaineWebber. Paine Webber Group Inc. and Mitchell Hutchins also are Delaware
corporations.
Item 25. Indemnification
Section 2 of Article IX of the Trust Instrument, "Indemnification,"
provides that the appropriate series of the Registrant will indemnify the
trustees and officers of the Registrant to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee or officer; provided that no such person shall be
indemnified where there has been an adjudication or other determination, as
described in Article IX, that such person is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office or
did not act in good faith in the reasonable belief that his action was in the
best interest of the Registrant. Section 2 of Article IX also provides that the
Registrant may maintain insurance policies covering such rights of
indemnification.
Additionally, "Limitation of Liability" in Section 1 of Article IX of
the Trust Instrument provides that the trustees or officers of the Registrant
shall not be personally liable to any person extending credit to, contracting
with or having a claim against the Registrant or a particular series; and that,
provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Registrant, the
trustees and officers shall not be liable for neglect or wrongdoing by them or
any officer, agent, employee, investment adviser or independent contractor of
the Registrant.
Section 9 of the Investment Advisory and Administration Contract with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides that
Mitchell Hutchins shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any series of the Registrant in connection with
the matters to which the Contract relates, except for a loss resulting from the
willful misfeasance, bad faith, or gross negligence of Mitchell Hutchins in the
performance of its duties or from its reckless disregard of its obligations and
duties under the Contract. Section 10 of the Contract provides that the Trustees
shall not be liable for any obligations of the Trust or any series under the
Contract and that Mitchell Hutchins shall look only to the assets and property
of the Registrant in settlement of such right or claim and not to the assets and
property of the Trustees.
Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and Trustees free and harmless of any claims arising out of any alleged
untrue statement or any alleged omission of material fact contained in
information furnished by Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with the Contract. Section 10 of each Distribution
Contract contains provisions similar to Section 10 of the Investment Advisory
and Administration Contract, with respect to Mitchell Hutchins and PaineWebber,
as appropriate.
Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of each Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
C-2
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to trustees, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 26. 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 27. 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 MUNICIPAL INCOME FUND INC.
MANAGED HIGH YIELD FUND INC.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS INSTITUTIONAL SERIES
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES 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
C-3
<PAGE>
and officers of Mitchell Hutchins, their principal business addresses, and their
positions and offices with Mitchell Hutchins are identified in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219). The directors and officers of PaineWebber, their principal business
addresses, and their positions and offices with PaineWebber are identified in
its Form ADV, as filed with the Securities and Exchange Commission (registration
number 801-7163). The foregoing information is hereby incorporated herein by
reference. The information set forth below is furnished for those directors and
officers of Mitchell Hutchins or PaineWebber who also serve as trustees or
officers of the Registrant. Unless otherwise indicated, the principal business
address of each person named is 1285 Avenue of the Americas, New York, NY 10019.
Positions and Offices Positions and Offices With
Name With Registrant Underwriter or Exclusive Dealer
- ---- --------------------- -------------------------------
Margo Alexander Trustee and President Chairman, Chief Executive
Officer and a Director of
Mitchell Hutchins and
Executive Vice President and
Director of PaineWebber
Mary C. Farrell Trustee Managing Director, Senior
Investment Strategist and
member of the Investment
Policy Committee of
PaineWebber
Brian M. Storms Trustee President and Chief Operating
Officer of Mitchell Hutchins
T. Kirkham Barneby Vice President Managing Director and Chief
Investment Officer -
Quantitative Investments of
Mitchell Hutchins
John J. Lee Vice President and Vice President and a Manager
Assistant Treasurer of the Mutual Fund Finance
Department of Mitchell Hutchins
Kevin J. Mahoney Vice President and First Vice President and a
Assistant Treasurer Senior Manager of the Mutual
Fund Finance Department of
Mitchell Hutchins
Ann E. Moran Vice President and Vice President and a Manager
Assistant Treasurer of the Mutual Fund Finance
Department of Mitchell Hutchins
Dianne E. O'Donnell Vice President and Senior Vice President and
Secretary Deputy General Counsel of
Mitchell Hutchins
Emil Polito Vice President Senior Vice President and
Director of Operations and
Control for Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director and General
Counsel of Mitchell Hutchins
and a Senior Vice President
of PaineWebber
Paul H. Schubert Vice President and Senior Vice President and
Treasurer Director of the Mutual Fund
Finance Department of
Mitchell Hutchins
Barney A. Taglialatela Vice President and Vice President and a Manager
Assistant Treasurer of the Mutual Fund Finance
Department of Mitchell Hutchins
Keith A. Weller Vice President and First Vice President and
Assistant Secretary Associate General Counsel of
Mitchell Hutchins
c) None
C-4
<PAGE>
Item 28. Location of Accounts and Records
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser, Mitchell Hutchins, 1285
Avenue of the Americas, New York, New York 10019. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession of
Registrant's transfer agent and custodian.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
None.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant duly caused this Post-Effective
Amendment 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 29th day of July, 1999.
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
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee July 29, 1999
- ------------------------------ (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman July 29, 1999
- ------------------------------ of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee July 29, 1999
- ------------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee July 29, 1999
- ------------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee July 29, 1999
- ------------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee July 29, 1999
- ------------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee July 29, 1999
- ------------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee July 29, 1999
- ------------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee July 29, 1999
- ------------------------------
Carl W. Schafer *
/s/ Brian M. Storms Trustee July 29, 1999
- ------------------------------
Brian M. Storms **
/s/ Paul H. Schubert Vice President and July 29, 1999
- ------------------------------ Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<PAGE>
SIGNATURES (CONTINUED)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
October 8, 1997 and incorporated by reference from Pre-Effective Amendment
No. 1 to the registration statement of PaineWebber Index Trust, SEC File
333-27917, filed October 17, 1997.
** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 14, 1999 and incorporated by reference from Post-Effective Amendment
No. 61 to the registration statement of PaineWebber Managed Investments
Trust, SEC File 2-91362, filed June 1, 1999.
<PAGE>
PAINEWEBBER INDEX TRUST
EXHIBIT INDEX
Exhibit
Number
(1) Amended and Restated Trust Instrument (to be filed)
(2) Amended and Restated By-Laws (to be filed)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(4) Investment Advisory and Administration Contract 2/
(5) (a) Distribution Contract (Class A Shares) (to be filed)
(b) Distribution Contract (Class C Shares) (to be filed)
(c) Distribution Contract (Class Y Shares) (to be filed)
(d) Exclusive Dealer Agreement (Class A Shares) (to be filed)
(e) Exclusive Dealer Agreement (Class C Shares) (to be filed)
(f) Exclusive Dealer Agreement (Class Y Shares) (to be filed)
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement 2/
(8) Transfer Agency Agreement 2/
(9) Opinion and consent of counsel (to be filed)
(10) Other opinions, appraisals, rulings and consents: Auditor's consent (to be
filed)
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent 3/
(13) Rule 12b-1 Plans
(a) Rule 12b-1 Plan of Distribution with respect to Class A Shares (to be
filed)
(b) Rule 12b-1 Plan of Distribution with respect to Class C Shares (to be
filed)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan Pursuant to Rule 18f-3 2/
<PAGE>
- -------------------------
1/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles VI and IX of Registrant's By-Laws.
2/ Incorporated by reference from Post-Effective Amendment No. 2 to the
registration statement, SEC File No. 333-27917, filed September 30, 1998.
3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-27917, filed October 17, 1997.
