As filed with the Securities and Exchange Commission on December 23, 1999
1933 Act Registration No. 333-
1940 Act Registration No. 811-
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. __ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __ [ ]
MITCHELL HUTCHINS SECURITIES TRUST
(Exact name of registrant as specified in charter)
51 West 52nd Street
New York, New York 10019-6114
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Title of Securities Being Registered: Class A, B, C and Y Shares of Beneficial
Interest of PaineWebber DSI Core Equity Fund.
<PAGE>
Subject to Completion
Preliminary Prospectus dated December 23, 1999
PaineWebber
DSI Core Equity Fund
-------------------------------
PROSPECTUS
, 2000
-------------------------------
This prospectus offers four classes of shares in a PaineWebber stock fund --
Classes A, B, C and 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 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.
[For the left hand margin: The information in this preliminary prospectus is not
complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.]
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PaineWebber DSI Core Equity Fund
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CONTENTS
THE FUND
What every investor 3 DSI Core Equity Fund
should know about
the fund 6 More About Risks and Investment Strategies
YOUR INVESTMENT
- -----------------------------------------------------------------------------
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 13 Management
information about
the fund 15 Dividends and Taxes
- -----------------------------------------------------------------------------
Where to learn more Back cover
about PaineWebber
mutual funds
--------------------------------
The fund is not a complete or balanced investment program.
--------------------------------
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PaineWebber DSI Core Equity Fund
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PaineWebber DSI Core Equity Fund
Investment Objective, Strategies and Risks
------------------------------------------
FUND OBJECTIVE
To seek higher total return over the long term than the S&P 500 Index, before
fees and expenses.
PRINCIPAL INVESTMENT STRATEGIES
The fund seeks to achieve its investment objective by outperforming the Standard
& Poor's Composite Index of 500 Stocks ("S&P 500 Index") by 150 basis points
(1.50%) per annum, before fees and expenses. The fund invests primarily in a
selection of common stocks that are included in the S&P 500 Index and weights
its holdings of individual stocks based on its sub-adviser's proprietary stock
ranking model. The fund expects normally to invest in approximately 250 to 400
stocks. Compared to the stock weightings in the S&P 500 Index, the fund
overweights stocks that the model ranks positively and underweights stocks that
the model ranks negatively. Generally, the fund gives stocks with a neutral
ranking the same weight as in the S&P 500 Index.
The fund seeks to control the risk of its portfolio by maintaining an overall
close correlation between its performance and the performance of the S&P 500
Index over time, with a relatively low tracking error. To maintain this close
correlation, the fund gives each stock in its portfolio a weighting that is
close to the S&P 500 Index weighting and, if necessary, readjusts the weighting
when it rebalances the portfolio. The fund also considers relative industry
sector weighting and market capitalization.
The fund may invest in U.S. dollar-denominated foreign securities that are
included in S&P 500 Index. The fund may (but is not required to) use options,
futures contracts and other derivatives. The fund may use these instruments in
strategies intended to simulate investment in the S&P 500 Index stocks while
retaining a cash balance for fund management purposes. The fund also may use
these instruments to reduce the risk of adverse price movements while investing
cash received when investors buy shares, to facilitate trading and to reduce
transaction costs.
Mitchell Hutchins Asset Management Inc., the fund's investment adviser, has
selected DSI International Management, Inc. ("DSI") to serve as the fund's
sub-adviser. In selecting securities for the fund, DSI seeks to add value to the
fund's portfolio through stock selection while managing the fund's risk profile.
DSI believes that
o undervalued securities with improving fundamentals should outperform a
given benchmark;
o during different market environments different factors can become more or
less significant; and
o unintended deviations from the benchmark should be minimized.
In deciding which stocks to buy and sell for the fund, DSI uses its proprietary
enhanced equity index strategy, which consists of a stock ranking model, an
adaptive factor model and a portfolio construction model. DSI has developed a
quantitative dynamic, bottom up, multi-factor model to rank the stocks in the
S&P 500 Index, using relatively independent factors (including earnings
expectations, earnings growth, valuation, yield, return on equity and margins).
DSI believes that these factors have varying influences during different phases
of the stock market cycle and reevaluates the relative importance and weighting
of each factor monthly. DSI then applies the adaptive factor model to the stocks
in the S&P 500 Index, so that relative rankings of the stocks in the S&P 500
Index may change from month to month.
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. Because the fund invests in accordance
with DSI's proprietary enhanced equity index strategy, the fund expects a close
correlation between its performance and that of the S&P 500 Index in both rising
and falling markets. This strategy, however, may not be successful in selecting
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PaineWebber DSI Core Equity Fund
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a portfolio for the fund that outperforms the total return of the S&P 500 Index
and the fund may not achieve its investment objective. The fund's performance
also may deviate from that of the S&P 500 Index due to the daily cash flows to
which the fund is subject and which will result in ongoing purchases and sales
of stocks and transactional expenses, including brokerage fees. In addition, the
fund must pay fees and expenses that are not borne by the S&P 500 Index.
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 Enhanced Equity Index Strategy Risk
o Derivatives Risk
o Foreign Securities Risk
The fund is newly organized. As a result, it has no operating history or
performance information to include in a bar chart or table reflecting average
annual returns.
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PaineWebber DSI Core Equity 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 investment)
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price) 4.5% None 1% None
................................................
Maximum Contingent Deferred Sales Charge (Load)
(CDSC) None 5% 1% None
(as a % of offering price)
.................................................
Exchange Fee None None None None
.................................................
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Management Fees 0.40% 0.40% 0.40% 0.40%
.................................................
Distribution and/or Service (12b-1) Fees 0.25 1.00 1.00 None
.................................................
Other Expenses* 0.33 0.33 0.33 0.33
.................................................
Total Annual Fund Operating Expenses 0.98% 1.73% 1.73% 0.73%
.................................................
</TABLE>
* "Other Expenses" are based on estimated amounts for the current fiscal year.
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.
The 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. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS
------ -------
Class A....................................... $545 $738
Class B (assuming sale of all shares at
period end of............................... 676 834
Class B (assuming no sale of shares).......... 176 534
Class C (assuming sale of all shares at
period end of................................ 374 629
Class C (assuming no sale of shares).......... 274 629
Class Y....................................... 75 223
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PaineWebber DSI Core Equity 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.
ENHANCED EQUITY INDEX STRATEGY RISK. By using DSI's proprietary enhanced equity
index strategy, the fund seeks to outperform the total return of the S&P 500
Index, after fees and expenses, and to maintain a close correlation between its
performance and that of the S&P 500 Index in both rising and falling markets.
The DSI enhanced equity index strategy, however, may not be successful in
selecting a portfolio for the fund that outperforms the total return of the S&P
500 Index and the fund may not achieve its investment objective. In addition,
the strategies used to maintain the fund's correlation with the S&P 500 Index
may not be successful, which could also cause the fund to underperform relative
to the S&P 500 Index. The fund's performance also may deviate from that of the
S&P 500 Index due to the daily cash flows to which the fund is subject and which
will result in the ongoing purchases and sales of stocks and transactional
expenses, including brokerage fees. In addition, the fund must pay fees and
expenses that are not borne by the S&P 500 Index.
FOREIGN SECURITIES RISK. 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.
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. Options and futures contracts are examples of derivatives. If the
fund uses derivatives to adjust or "hedge" the overall risk of its portfolio, it
is possible that the hedge will not succeed. This may happen for various
reasons, including unexpected changes in the value of the derivatives that are
not matched by opposite changes in the value of the rest of the fund's
portfolio.
ADDITIONAL INVESTMENT STRATEGIES
USE OF PROCEEDS OF INITIAL OFFERING. The fund may not be fully invested in
stocks until approximately 30 days after it begins investment operations. During
that period, the fund may invest a larger than normal portion of its assets in
short-term debt obligations, money market instruments and options and futures
contracts as well as purchasing stocks represented in the S&P 500 Index.
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PaineWebber DSI Core Equity Fund
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YOUR INVESTMENT
MANAGING YOUR FUND ACCOUNT
--------------------------
Initial Subscription Period
- ---------------------------
During an initial subscription period currently scheduled to end on or about
__________, 2000, the fund will offer its Class B and Y shares at a subscription
price equal to its initial net asset value per share of $10 and will offer its
Class A and C shares at that price plus any applicable sales charge. You must
pay the purchase price as indicated below. The fund expects to begin investment
operations shortly after the subscription period ends. After __________, 2000,
the net asset value of fund shares will vary, and the price of fund shares will
be determined as described below.
After the initial sales period ends, the fund may stop offering its shares for
purchase (including exchange purposes) for a period of up to 60 days. You will
not be able to buy shares of the fund during this period, but you will be able
to sell your shares.
During the offering period, PaineWebber and selected dealers may obtain
non-binding indications of interest before they actually confirm any orders.
They will accept subscriptions through the last day of the offering period and
may benefit from the temporary use of payments made before the closing date.
During the offering period, the fund may withdraw, cancel or modify the offering
of shares without notice. The fund may also refuse any order in whole or in
part.
Flexible Pricing
- ----------------
The fund offers four classes of shares - Class A, Class B, 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 and how long
you plan to hold your fund shares. 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, Class B and Class
C shares that allows it to pay service and (for Class B and Class C shares)
distribution fees for the sale of its shares and services provided to
shareholders. Because the 12b-1 distribution fees for Class B and 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 sales 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 B and Class C shares.
The Class A sales charges for the fund are described in the following table.
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<TABLE>
Class A Sales Charges
<CAPTION>
Sales Charge as a Percentage of: Discount to Selected
Amount of Investment Offering Price Net Amount Dealers as Percentage of
Invested Offering Price
-------- --------------
<S> <C> <C>
Less than $50,000...... 4.50% 4.71% 4.25%
$50,000 to $99,999..... 4.00 4.17 3.75
$100,000 to $249,999.. 3.50 3.63 3.25
$250,000 to $499,999 .. 2.50 2.56 2.25
$500,000 to $999,999 .. 1.75 1.78 1.50
$1,000,000 and over (1) None None 1.00(2)
</TABLE>
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not
subject to this 1% charge. Withdrawals in the first year after purchase of
up to 12% of the value of the fund account under the Fund's Systematic
Withdrawal Plan are not subject to this charge.
(2) Mitchell Hutchins pays 1% to PaineWebber.
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 for Class A shares 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 a 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;
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; or
o Acquire these shares through a PaineWebber InsightOnesm Program brokerage
account.
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 may need to provide
documentation to PaineWebber or the fund. For more information, you should
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PaineWebber DSI Core Equity Fund
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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 B SHARES
Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay the deferred sales charge when you sell your fund shares, depending on
how long you own the shares.
Class B 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.
If you hold your Class B shares for six years, they will automatically convert
to Class A shares, which have lower ongoing expenses.
If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the lesser
of the net asset value of the Class B shares at the time of purchase or the net
asset value at the time of sale by the percentage shown below:
Percentage by which
If you sell the shares' net asset
shares within: value is multiplied:
-------------- --------------------
1st year since 5%
purchase
2nd year since 4
purchase
3rd year since 3
purchase
4th year since 2
purchase
5th year since 2
purchase
6th year since 1
purchase
7th year since None
purchase
We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.
To minimize your deferred sales charge, we will assume that you are selling:
o First, Class B shares representing reinvested dividends, and
o Second, Class B shares that you have owned the longest.
SALES CHARGE WAIVERS. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:
o You participate in the Systematic Withdrawal Plan;
o You are older than 59-1/2 and are selling shares to take a distribution
from certain types of retirement plans;
o You receive a tax-free return of an excess IRA contribution;
o You receive a tax-qualified retirement plan distribution following
retirement;
o The shares are sold within one year of your death and you owned the shares
either (1) as the sole shareholder or (2) with your spouse as a joint
tenant with the right of survivorship; or
o You are eligible to invest in certain offshore investment pools offered by
PaineWebber, your shares are sold before March 31, 2000 and the proceeds
are used to purchase interests in one or more of these pools.
NOTE: If you think you qualify for any of these sales charge waivers, you may
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 Systematic Withdrawal Plan,
see the SAI or contact your PaineWebber Financial Advisor or correspondent firm.
CLASS C SHARES
Class C shares have a front-end sales charge of 1% that is included in the
offering price of the Class C shares. This sales charge is not invested in the
fund. Class C shares also have a contingent deferred sales charge of 1%. You may
have to pay the deferred sales charge if you sell your shares within one year of
the date you purchased them.
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.
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.
You may qualify for a waiver of the front-end sales charge for Class C shares if
you:
o Buy these shares in a PaineWebber brokerage account through the investment of
proceeds of the sale of shares in an unaffiliated (non-PaineWebber) mutual
fund and
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PaineWebber DSI Core Equity Fund
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- you buy shares of the fund within 90 days after your sale of the
shares of the unaffiliated mutual fund;
- the shares of the unaffiliated fund were not held in a PaineWebber
brokerage account; and
- you purchase an amount that does not exceed the total amount of money
you received from the sale of the unaffiliated fund.
o Are a 401(k) or 403(b) qualified employee benefit plan with fewer than 100
employees or less than $1 million in assets.
IF YOU ARE ELIGIBLE FOR A COMPLETE WAIVER OF THE SALES CHARGE ON BOTH CLASS A
SHARES AND CLASS C SHARES, YOU SHOULD PURCHASE THE CLASS A SHARES. CLASS A
SHARES HAVE LOWER ONGOING EXPENSES AND ARE GENERALLY NOT SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE WHEN YOU SELL 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.
You may be eligible to sell your shares without paying a contingent deferred
sales charge if you:
o Are a 401(k) or 403(b) qualified employee benefit plan with fewer than 100
employees or less than $1 million in assets; or
o Are eligible to invest in certain offshore investment pools offered by
PaineWebber, your shares are sold before March 31, 2000 and the proceeds are
used to purchase interests in one or more of these pools.
NOTE: If you think you qualify for any of these sales charge waivers, you may
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 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 PACEsm 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.
The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible
to purchase Class Y shares.
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 fund 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.
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PaineWebber DSI Core Equity Fund
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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 fund's 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 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.
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, then Class B 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.
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 same 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.
11
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PaineWebber DSI Core Equity Fund
-------------------------------------------------------------
EXCHANGING SHARES
You may exchange Class A, Class B 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. The 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
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.)
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
The 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
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 most 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 or Class C shares. A deferred sales charge may be
applied when you sell Class B or 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.
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PaineWebber DSI Core Equity Fund
-------------------------------------------------------------
MANAGEMENT
----------
INVESTMENT ADVISER
Mitchell Hutchins is the fund's investment adviser and administrator. Mitchell
Hutchins is located at 51 West 52nd Street, New York, New York, 10019-6114, and
is a wholly owned asset management subsidiary of PaineWebber Incorporated. On
January 31, 2000, Mitchell Hutchins was adviser or sub-adviser of 33 investment
companies with separate portfolios and aggregate assets of approximately $
billion.
DSI International Management, Inc., also a wholly owned asset management
subsidiary of PaineWebber Incorporated, is the fund's sub-adviser. DSI is
located at 301 Merritt 7, Norwalk, Connecticut 06851. As of January 31, 2000,
DSI had over $ billion in assets under management. Although DSI has been in the
investment advisory business since 1988, the fund is first registered investment
company that it has advised.
PaineWebber Incorporated is wholly owned by Paine Webber Group Inc., a publicly
owned financial services holding company.
PORTFOLIO MANAGER
DSI uses a team approach in its quantitative management of the fund's portfolio.
ADVISORY FEES
The fund pays Mitchell Hutchins for its advisory services at the annual contract
rate of 0.40% of its average daily net assets.
OTHER INFORMATION
The fund has received an exemptive order from the SEC that permits its board to
appoint and replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval.
13
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PaineWebber DSI Core Equity Fund
-------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT DSI
Although the fund is new and has no performance information to include in this
prospectus, DSI will adhere to its proprietary enhanced index strategy in
selecting the fund's investments. The composite performance results for all
private accounts with discretionary authority managed by DSI using this strategy
since October 1, 1996 are provided in the bar chart and table below. These
returns assume that all dividends have been reinvested. Because the private
accounts and the fund invest primarily in stocks included in the S&P 500 Index,
returns for the S&P 500 Index also are shown. The S&P 500 Index is an unmanaged
index of equity securities that is a measure of the U.S. stock market
performance While the returns for the S&P 500 Index reflect the reinvestment of
dividends, they do not reflect any sales charges or expenses, nor do they
reflect transaction costs.
THIS PERFORMANCE INFORMATION DOES NOT REPRESENT HISTORICAL PERFORMANCE OF THE
FUND, SHOULD NOT BE CONSIDERED A SUBSTITUTE FOR THE FUND'S PERFORMANCE AND
SHOULD NOT BE INTERPRETED AS PREDICTING THE FUND'S FUTURE PERFORMANCE. In
addition, private accounts are not subject to certain investment and tax law
limitations that are imposed on registered investment companies. These
limitations are applicable to the fund and could cause its performance to be
lower than that of similarly managed private accounts.
Plot Points for Bar Chart Showing Composite Annual Total Returns of Private
Accounts Managed with DSI Enhanced Index Strategy and Annual Total Returns of
S&P 500 Index
DSI Composite Annual Total Annual Total
Year Returns of Similar Returns of
(as of 12/31) Accounts* S&P 500 Index
------------- --------- -------------
1997 34.68% 33.35%
1998 29.22% 28.57%
1999
* The bar chart shows the effect on the Composite Annual Returns of Similar
Accounts of the estimated annual expenses a Class A shareholder is expected to
pay each year. The returns for the other classes of shares offered by the fund
would differ because those classes do not have the same expenses. The bar chart
does not reflect the effect of sales charges. If it did, the total returns shown
would be lower.
Table Showing Composite Average Annual Total Returns of Private Accounts Managed
with DSI Enhanced Index Strategy (adjusted to show the estimated expenses of
each class of shares) and Average Annual Total Returns of S&P 500 Index*
DSI Composite Return
as of 6/30/99 Class A Class B Class C Class Y S&P 500 Index
------------- ------- ------- ------- ------- -------------
One 16.18% 15.77% 18.54% 21.97% 22.80%
Year....................
Life (since 10/1/96)... 28.84% 29.36% 29.55% 31.29% 30.69%
* The composite average annual total returns in the table reflects both fund
sales charges for Class A, B and C shares and the estimated annual expenses the
shareholders of Class A, B, C and Y shares are expected to pay each year.
14
<PAGE>
PaineWebber DSI Core Equity Fund
-------------------------------------------------------------
DIVIDENDS AND TAXES
DIVIDENDS
The fund normally declares and pays dividends annually.
Classes with higher expenses are expected to have lower dividends. For example,
Class B and 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 any 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 be comprised primarily of capital gain
distributions. The distribution of capital gains will be taxed at a lower rate
than ordinary income if 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.
15
<PAGE>
PaineWebber DSI Core Equity Fund
-------------------------------------------------------------
If you want more information about the fund, the following document is available
free upon request:
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 the SAI by contacting the fund
directly at 1-800-647-1568.
You may review and copy information about the fund, including the SAI, at the
Public Reference Room of the Securities and Exchange Commission. You may obtain
information about the operations of the SEC's Public Reference Room by calling
the SEC at 1-202-942-8090. You can get text-only copies of reports and other
information about the fund:
o For a fee, by electronic request at [email protected] or by writing the
SEC's Public Reference Room, Washington, D.C. 20549-0102; or
o Free, from the EDGAR Database on the SEC's Internet website at:
http://www.sec.gov
Mitchell Hutchins Securities Trust
- PaineWebber DSI Core Equity Fund
Investment Company Act File No. 811-
(C) 2000 PaineWebber Incorporated. All rights reserved. Member SIPC.
<PAGE>
THE INFORMATION IN THE PRELIMINARY PROSPECTUS AND THIS PRELIMINARY STATEMENT OF
ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION BECOMES EFFECTIVE. THE PRELIMINARY PROSPECTUS AND THIS
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFER TO SELL THESE
SECURITIES AND ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
PAINEWEBBER DSI CORE EQUITY FUND
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
PRELIMINARY
STATEMENT OF ADDITIONAL INFORMATION
Subject to Completion
PaineWebber DSI Core Equity Fund is a diversified series of Mitchell
Hutchins Securities Trust ("Trust"), a professionally managed, open-end
management investment company organized as a Delaware business trust.
The investment adviser, administrator and distributor for the fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the fund, Mitchell Hutchins has appointed PaineWebber to serve
as the exclusive dealer for the sale of fund shares. DSI International
Management, Inc. ("DSI" or "sub-adviser") serves as sub-adviser for the fund.
This SAI is not a prospectus and should be read only in conjunction with
the fund's current Prospectus, dated _________________, 2000. A copy of the
Prospectus may be obtained by calling any PaineWebber Financial Advisor or
correspondent firm or by calling toll-free 1-800-647-1568. This SAI is dated
__________________, 2000.
TABLE OF CONTENTS
PAGE
----
The Fund and Its Investment Policies............................... 2
The Fund's Investments, Related Risks and Limitations.............. 2
Strategies Using Derivative Instruments............................ 8
Organization; Trustees, Officers and Principal Holders of Securities 14
Investment Advisory, Administration and Distribution Arrangements.. 15
Portfolio Transactions............................................. 19
Reduced Sales Charges, Additional Exchange and Redemption
Information and Other Services.................................. 20
Conversion of Class B Shares....................................... 26
Valuation of Shares................................................ 26
Performance Information............................................ 27
Taxes.............................................................. 29
Other Information.................................................. 31
<PAGE>
THE FUND AND ITS INVESTMENT POLICIES
The fund's investment objective may not be changed without shareholder
approval. Except where noted, the other investment policies of the fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that the fund will achieve its investment objective.
The fund's investment objective is to seek higher total return over the
long term than the S&P 500 Index, before fees and expenses. There can be no
assurance that the fund will achieve its objective. The fund seeks to achieve
its objective by outperforming the Standard & Poor's 500 Composite Index of 500
Stocks by 150 basis points (1.50%) per annum, before fees and expenses. The fund
invests primarily in a selection of common stocks that are in the S&P 500 Index
and weights its holdings of individual stocks based on its sub-adviser's
proprietary stock ranking model. The fund expects to invest in approximately 250
to 400 stocks. Relative to the stock weightings in the S&P 500 Index, the fund
overweights stocks that the model ranks positively and underweights stocks that
the model ranks negatively. Generally, the fund gives stocks with a neutral
ranking the same weight as in the Index.
The fund seeks to control the risk of its portfolio by maintaining an
overall close correlation between its performance and the performance of the S&P
500 Index over time, with a relatively low tracking error. To maintain this
close correlation, the fund gives each stock in its portfolio a weighting that
is close to the S&P 500 Index weighting and, if necessary, readjusts the
weighting when it rebalances the portfolio. The fund also considers relative
industry sector weighting and market capitalization.
DSI monitors the fund's performance relative to the S&P 500 Index at least
weekly. At least monthly, DSI reviews the fund's stock holdings and adjusts the
fund's portfolio by increasing the weightings of the stocks that are more highly
ranked by its model and reducing the weightings of the lower ranked stocks. If
appropriate, DSI also buys or sells stocks for the fund to reflect the revised
rankings.
Under normal circumstances, the fund invests at least 65% of its total
assets in common stocks and other equity securities and usually invests a higher
percentage of its total assets in these securities. For liquidity and cash
management purposes, the fund may invest up to 35% of its total assets in
short-term investment grade bonds and money market instruments, although it
expects these investments usually to represent a much smaller portion of its
total assets. The fund may invest in U.S. dollar-denominated foreign securities
that are included in S&P 500 Index and traded on U.S. exchanges or in the U.S.
over-the-counter market.
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 and
above concerning the fund's investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or this SAI, the fund has established
no policy limitations on its ability to use the investments or techniques
discussed in these documents.
EQUITY SECURITIES. Equity securities 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
actually it is equity that is senior to a company's common stock. Convertible
bonds are fixed and variable rate debt obligations, which may include
2
<PAGE>
debentures, notes and similar 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.
Preferred stock also may be converted into or exchanged for common stock.
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
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.
INVESTING IN FOREIGN SECURITIES. The fund may invest in U.S. dollar
denominated equity securities of foreign issuers that are traded on recognized
U.S. exchanges or in the U.S. over-the-counter market. Securities of foreign
issuers 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.
The fund may invest in foreign securities by purchasing American
Depositary 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 over-the-counter 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 depositary's transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligations and the depositary'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.
ILLIQUID SECURITIES. The fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" 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 Trust'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. The fund may not be able to readily
liquidate illiquid securities 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,
as amended ("Securities Act"), and may be sold only in privately negotiated or
other exempted transactions or after a Securities 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
3
<PAGE>
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 Securities Act. Institutional investors generally will not
seek to sell these instruments to the general public, but instead will often
depend either on an efficient institutional market in which such unregistered
securities can be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or legal restrictions
on resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Institutional markets for restricted securities also have developed as a
result of Rule 144A under the Securities Act, which establishes a "safe harbor"
from the registration requirements of that 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.
MONEY MARKET INSTRUMENTS. Money market instruments in which the fund may
invest include U.S. Treasury bills and other obligations issued or guaranteed as
to interest and principal by the U.S. government, its agencies and
instrumentalities; obligations of U.S. banks (including certificates of deposit
and bankers' acceptances); interest-bearing savings deposits in U.S. commercial
banks and savings associations; commercial paper and other short-term corporate
obligations; and variable and floating-rate securities and repurchase
agreements. In addition, the fund may hold cash and may invest in participation
interests in the money market securities mentioned above to the extent that it
is permitted to invest in money market instruments.
U.S. GOVERNMENT SECURITIES. Government securities in which the fund may
invest include direct obligations of the U.S. Treasury and obligations issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities
(collectively, "U.S. government securities"). Direct obligations of the U.S.
Treasury include a variety of securities that differ in their interest rates,
maturities and dates of issuance. Among the U.S. government securities that may
be held by the fund are instruments that are supported by the full faith and
credit of the United States and securities that are supported primarily or
solely by the creditworthiness of the government-related issuer.
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
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.
4
<PAGE>
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. 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 its agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Such agreements are considered to be borrowings and may
be entered into only for temporary purposes. 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. See
"The Fund's Investments, Related Risks and Limitations - Segregated Accounts."
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. If 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 that 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.
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 any cash collateral in money market
investments 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 fund to pay 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 acted as lending agent.
PaineWebber also has been approved as a borrower under the fund's securities
lending program.
SHORT SALES "AGAINST THE BOX." The fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To make delivery to the purchaser in a short sale, the executing broker
borrows the securities being sold short on behalf of the fund, and the fund is
obligated to replace the securities borrowed at a date in the future. When the
fund sells short, it establishes a margin account with the broker effecting the
short sale and deposits collateral with the broker. In addition, the fund
maintains with its custodian, in a segregated account, the securities that could
be used to cover the short sale. The fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales against the box.
5
<PAGE>
The fund might make a short sale "against the box" to hedge against market
risks when Mitchell Hutchins believes that the price of a security may decline,
thereby causing a decline in the value of a security owned by the fund or a
security convertible into or exchangeable for a security owned by the fund. In
such case, any loss in the fund's long position after the short sale should be
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
gains or losses in the long position are reduced will depend upon the amount of
the securities sold short relative to the amount of securities the fund owns,
either directly or indirectly, and in the case where the fund owns convertible
securities, changes in the investment value or conversion premiums of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The fund may purchase
securities 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
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 commits 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.
COUNTERPARTIES. The fund may be exposed to the risk of financial failure
or insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the fund's board, monitors and evaluates the
creditworthiness of the parties with which the fund does business.
SEGREGATED ACCOUNTS. When the fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis and reverse
repurchase agreements, 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.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The fund may invest in
securities of other investment companies, subject to Investment Company Act of
1940, as amended ("Investment Company Act") limitations, which at present
restrict investments in registered investment companies to no more than 10% of
the fund's total assets. The shares of other investment companies are subject to
the management fees and other expenses of those companies, and the purchase of
shares of some investment companies requires the payment of sales loads and
sometimes substantial premiums above the value of such companies' portfolio
securities. At the same time, the fund would continue to pay its own management
fees and expenses with respect to all its investments, including the securities
of other investment companies.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL 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
shares of the fund present at a shareholders' meeting if more than 50% of the
outstanding 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
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transaction, later changes 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 limitation: 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 securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or to municipal securities.
(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act and then not in excess of 33 1/3% of the fund's total
assets (including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance or
borrowing, except that the fund may borrow up to an additional 5% of its total
assets (not including the amount borrowed) for temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
(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. If a percentage restriction is adhered to at the time of an investment
or transaction, later changes 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.
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The fund will not:
(1) invest more than 15% of its net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which it has valued
the securities and includes, among other things, repurchase agreements maturing
in more than seven days.
(2) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
(3) purchase securities on margin, except for short-term credit necessary for
clearance of portfolio transactions and except that the fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(4) engage in short sales of securities or maintain a short position, except
that the fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(5) purchase securities of other investment companies, except to the extent
permitted by the Investment Company Act 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.
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 sub-adviser 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 EQUITY AND DEBT 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
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dollar amount times the difference between the securities index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE FUTURES CONTRACTS. Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on securities, 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 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 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
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.
The fund may purchase and write (sell) straddles on securities or indices
of securities. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where the
exercise price of the put is equal to the exercise price of the call. The fund
might enter into a long straddle when Mitchell Hutchins believes it likely that
the prices of the securities will be more volatile during the term of the option
than the option pricing implies. A short straddle is a combination of a call and
a put written on the same security where the exercise price of the put is equal
to the exercise price of the call. The fund might enter into a short straddle
when Mitchell Hutchins believes it unlikely that the prices of the securities
will be as volatile during the term of the option as the option pricing implies.
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Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the fund
owns or intends to acquire. Derivative Instruments on stock indices, in
contrast, generally are used to hedge against price movements in broad equity
market sectors in which the fund has invested or expects to invest. Derivative
Instruments on debt securities may be used to hedge either individual securities
or broad fixed income market sectors.
Income strategies using Derivative Instruments may include the writing of
covered options to obtain the related option premiums. Return or gain strategies
may include using Derivative Instruments to increase or decrease the fund's
exposure to different asset classes without buying or selling the underlying
instruments. The fund also may use derivatives to simulate full investment by
the fund while maintaining a cash balance for fund management purposes (such as
to provide liquidity to meet anticipated shareholder sales of fund shares and
for fund operating expenses).
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 use these
opportunities for the fund to the extent that they are consistent with the
fund's investment objective and permitted by its investment limitations and
applicable regulatory authorities. The fund's Prospectus or this 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) Successful use of most Derivative Instruments depends upon the ability of
Mitchell Hutchins to predict movements of the overall securities and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. While Mitchell Hutchins is experienced in the
use of Derivative Instruments, there can be no assurance that any particular
strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments 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 affecting the markets in which Derivative
Instruments are traded, rather than the value of the investments being hedged.
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.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the 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.
(4) 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
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(i.e., Derivative Instruments other than purchased options). If the fund were
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 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 equity and debt securities and stock indices. 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 an
asset class 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 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 debt securities are
European-style options. This means that the option can only be exercised
immediately prior to its expiration. This is in contrast 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
sale transaction. Closing transactions permit the fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
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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 debt securities 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-traded
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.
The fund may purchase and write put and call options on indices in much
the same manner as the more traditional options discussed above, except the
index options may serve as a hedge against overall fluctuations in a securities
market (or market sector) rather than anticipated increases or decreases in the
value of a particular security.
FUTURES. The fund may purchase and sell stock index futures contracts and
interest rate future contracts. The fund may also purchase put and call options,
and write covered put and call options, on futures in which it is allowed to
invest. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve as
a limited short hedge, and writing covered put options on futures contracts can
serve as a limited long hedge, using a strategy similar to that used for writing
covered options on securities or indices. 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.
Futures strategies also can be used to manage the average duration of the
fund's convertible securities portfolio. If Mitchell Hutchins wishes to shorten
the average duration of the fund's convertible securities portfolio, the fund
may sell a futures contract or a call option thereon, or purchase a put option
on that futures contract. If Mitchell Hutchins wishes to lengthen the average
duration of the fund's convertible securities portfolio, the fund may buy a
futures contract or a call option thereon, or sell a put option thereon.
The fund may also write put options on futures contracts while at the same
time purchasing call options on the same futures contracts in order
synthetically to create a long futures contract position. Such options would
have the same strike prices and expiration dates. The fund will engage in this
strategy only when it is more advantageous to the fund than is purchasing the
futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, obligations of
the United States or obligations fully guaranteed as to principal and interest
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by the United States, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the fund's obligations to or from a futures
broker. When the fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the fund purchases
or sells a futures contract or writes a call option thereon, it is subject to
daily variation margin calls that could be substantial in the event of adverse
price movements. If the fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, the fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
LIMITATION 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 the board without shareholder vote:
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.
13
<PAGE>
ORGANIZATION; TRUSTEES, OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES The
Trust was formed on December 23, 1999, as a business trust under the laws of
Delaware. The Trust has one series and is authorized to issue an unlimited
number of shares of beneficial interest, par value of $0.001 per share, of
existing or future series.
The Trust is governed by a board of trustees which oversees its operations
and which is authorized to establish additional series. 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 THE TRUTS BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
<S> <C> <C>
Victoria E. Schonfeld*; 49 Trustee, President Ms. Schonfeld is a managing
and Chairman of director and general counsel of
the Board of Mitchell Hutchins since May 1994
Trustees and a senior vice president of
PaineWebber Incorporated 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.
Dianne E. O'Donnell*; 47 Trustee, Vice Ms. O'Donnell is a senior vice
President and president and deputy general
Secretary 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.
Paul H. Schubert*; 37 Vice President and Mr. Schubert is a senior vice
Treasurer president and 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.
</TABLE>
- -------------
* The business address of this person is 1285 Avenue of the Americas, New York,
New York 10019.
+ Mrs. Schonfeld and Ms. O'Donnell are "interested persons" of the Trust as
defined in the Investment Company Act by virtue of their positions with
Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust
$1,000 annually for each series and $150 per series for each board meeting and
each separate meeting of a board committee. The Trust presently has one series
and thus pays each such trustee $1,000 annually, plus any additional annual
amounts due for board or committee meetings. All trustees are reimbursed for any
expenses incurred in attending meetings. Because Mitchell Hutchins and
PaineWebber perform substantially all of 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.
Trustees and officers own in the aggregate less than 1% of the outstanding
shares of each class of shares of the fund.
14
<PAGE>
The table below includes certain information relating to the compensation
of the current trustees who currently hold office with the Trust and the
compensation of those trustees from all PaineWebber funds during the 1999
calendar year.
COMPENSATION TABLE+
Estimate Annual
Aggregate Total Compensation
Compensation From the Trust and
Name of Person, Position from the Trust* the Fund Complex**
------------------------ ---------------- ------------------
- --------------------
+ Only independent trustees are compensated by the PaineWebber funds and
identified above; trustees who are "interested persons," as defined by the
Investment Company Act, do not receive compensation from the PaineWebber
funds.
* Represents estimated aggregate annual compensation to be paid by the Trust
to each trustee indicated.
** Represents total compensation paid during the calendar year ended December
31, 1999, to each trustee by investment companies 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 AND MANAGEMENT OWNERSHIP OF SECURITIES
As of February , 2000, Mitchell Hutchins owned 100% of all outstanding
fund shares and thus may be deemed a controlling shareholder of the fund until
additional investors purchase shares. None of the trustees and officers of the
Trust beneficially owned any of the outstanding fund shares.
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the fund pursuant to an advisory contract
("Advisory Contract") with the Trust. Under the Advisory Contract, the fund pays
Mitchell Hutchins a fee, computed daily and paid monthly, at the annual rate of
0.40% of average daily net assets.
The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers but does not require Mitchell Hutchins to do so. Under a
sub-advisory contract ("Sub-Advisory Contract") DSI International Management,
Inc. serves as sub-adviser for the fund. Under the Sub-Advisory Contract,
Mitchell Hutchins (not the fund) pays DSI a fee in the annual amount of 0.20% of
the fund's average daily net assets.
Under the terms of the Advisory Contract, the fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. General expenses of the Trust not readily identifiable as belonging to
a specific series of the Trust are allocated among series by or under the
direction of the Trust's board in such manner as the board deems fair and
equitable. Expenses borne by the fund include the following: (1) the cost
(including brokerage commissions, if any) 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 who are not interested persons of the Trust or Mitchell
15
<PAGE>
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 and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials for existing
shareholders and costs of mailing such materials to existing shareholders; (14)
any extraordinary expenses (including fees and disbursements of counsel)
incurred by the fund; (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (16)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the board and any committees thereof; (17) the cost of investment company
literature and other publications provided to trustees and officers; and (18)
costs of mailing, stationery and communications equipment.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Mitchell Hutchins in the performance of its duties or from reckless disregard of
its duties and obligations thereunder. The Advisory Contract terminates
automatically upon its 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.
Under the Sub-Advisory Contract, DSI will not be liable for any error or
judgment or mistake of law or for any loss suffered by the Trust, the fund , its
shareholders or Mitchell Hutchins in connection with the Sub-Advisory Contract,
except any liability to any of them to which DSI would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under the Sub-Advisory Contract. The Sub-Advisory Contract terminates
automatically upon its assignment or the termination of the Advisory Contract
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'
notice to DSI, or by DSI on 120 days' notice to Mitchell Hutchins. The
Sub-Advisory Contract also may be terminated by Mitchell Hutchins (1) upon
material breach by DSI of its representations and warranties, which breach shall
not have been cured within a 20 day period after notice of the breach, (2) if
DSI becomes unable to discharge its duties and obligations under the
Sub-Advisory Contract; or (3) upon 120 days' notice to DSI.
PaineWebber provides transfer agency related services to the fund pursuant
to a delegation of authority from PFPC Inc. and is compensated for those
services by PFPC Inc.
not the fund.
NET ASSETS. The following table shows the approximate net assets as of
January 31, 2000, 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................................................
16
<PAGE>
PERSONAL 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. Personnel of the sub-adviser may also invest in
securities for their own accounts pursuant to a comparable code of ethics.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of the fund's shares under a distribution contract with the Trust
("Distribution Contract") that requires Mitchell Hutchins to use its best
efforts, consistent with its other businesses, to sell shares of the fund.
Shares of the fund are offered continuously. Under an exclusive dealer agreement
between Mitchell Hutchins and PaineWebber relating to each class of shares of
the fund ("Exclusive Dealer Agreement"), PaineWebber and its correspondent firms
sell the fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B
and Class C shares of the fund adopted by the Trust in the manner prescribed
under Rule 12b-1 under the Investment Company Act (each, respectively, a "Class
A Plan," "Class B Plan" and "Class C Plan," and 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 each class of shares.
Under the Class B Plan and 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 B shares and Class C shares,
respectively. There is no distribution plan with respect to the fund's Class Y
shares.
Mitchell Hutchins uses the service fees under the Plans for Class A, B 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 B and Class C
Plans to:
o Offset the commissions it pays to PaineWebber for selling the fund's
Class B and Class C shares, respectively.
o Offset the fund's marketing costs attributable to such classes, such
as preparation, printing and distribution of sales literature,
advertising and prospectuses to prospective investors and related
overhead expenses, such as employee salaries and bonuses.
PaineWebber compensates Financial Advisors when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from any of the funds or investors at the time
Class B or 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, Class B 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 any Plan will be Mitchell Hutchins' sole responsibility and not that of the
17
<PAGE>
fund. Annually, the board of the fund reviews the Plans and Mitchell Hutchins'
corresponding expenses for each class separately from the Plans and expenses of
the other classes.
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 applicable board, including those trustees who are not "interested
persons" of the fund 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 of the fund and (4)
while the Plan remains in effect, the selection and nomination of trustees who
are not "interested persons" of the fund shall be committed to the discretion of
the trustees who are not "interested persons" of the fund.
In reporting amounts expended under the Plans to the trustees, 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 three classes of shares. The fees paid by one class of the fund's
shares will not be used to subsidize the sale of any other class of fund shares.
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 B Plan, the board considered all the features of
the distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2) the
advantage to investors in having no initial sales charges deducted from fund
purchase payments and instead having the entire amount of their purchase
payments immediately invested in fund shares, (3) Mitchell Hutchins' belief that
the ability of PaineWebber Financial Advisors and correspondent firms to receive
sales commissions when Class B shares are sold and continuing service fees
thereafter while their customers invest their entire purchase payments
immediately in Class B shares would prove attractive to the Financial Advisors
and correspondent firms, resulting in greater growth of the fund than might
otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the fund's assets and potential continued growth,
(5) the services provided to the fund and its shareholders by Mitchell Hutchins,
(6) the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service-
and distribution-related expenses and costs. The trustees also recognized that
Mitchell Hutchins' willingness to compensate PaineWebber and its Financial
Advisors, without the concomitant receipt by Mitchell Hutchins of initial sales
charges, was conditioned upon its expectation of being compensated under the
Class B Plan.
In approving the Class C Plan, 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 service and ongoing
distribution fees would be attractive to PaineWebber Financial Advisors and
18
<PAGE>
correspondent firms, resulting in greater growth of the fund than might
otherwise be the case, (3) the advantage to investors in being free from
contingent deferred sales charges upon redemption for shares held more than one
year, (4) the advantages to the shareholders of economies of scale resulting
from growth in the fund's assets and potential continued growth, (5) the
services provided to the fund and its shareholders by Mitchell Hutchins, (6) the
services provided by PaineWebber pursuant to its Exclusive Dealer Agreement with
Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service- and
distribution-related expenses and costs. The trustees also recognized that
Mitchell Hutchins' willingness to compensate PaineWebber and its Financial
Advisors for distribution services on an ongoing basis, following the year in
which it receives the initial sales charge and would receive a contingent
deferred sales charges upon redemption, was conditioned upon its expectation of
being compensated under the Class C Plan.
With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The board also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and advisory fees that are
calculated based upon a percentage of the average net assets of the fund, which
fees would increase if the Plan were successful and the fund attained and
maintained significant asset levels.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board, the sub-adviser is
responsible for the execution of the fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions, the
sub-adviser 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 the sub-adviser 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 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.
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 Mitchell Hutchins or its affiliates, including PaineWebber.
The board has adopted procedures in conformity with Rule 17e-1 under the
Investment Company Act to ensure that all brokerage commissions paid to
PaineWebber are reasonable and fair. Specific provisions in the Advisory
Contracts authorize Mitchell Hutchins and any of its affiliates that is a member
of a national securities exchange to effect portfolio transactions for the fund
on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
fund's procedures in selecting FCMs to execute its transactions in futures
contracts, including procedures permitting the use of Mitchell Hutchins and its
affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
In selecting brokers, the sub-adviser will consider the full range and
quality of a broker's services. Consistent with the interests of the funds and
subject to the review of each board, the sub-adviser may cause the fund to
purchase and sell portfolio securities through brokers who provide the
sub-adviser with brokerage or research services. The fund may pay those brokers
a higher commission than may be charged by other brokers, provided that the
sub-adviser determines in good faith that the commission is reasonable in terms
either of that particular transaction or of the overall responsibility of the
sub-adviser to the fund and its other clients.
19
<PAGE>
Research services obtained from brokers may include written reports,
pricing and appraisal services, analysis of issues raised in proxy statements,
educational seminars, subscriptions, portfolio attribution and monitoring
services, and computer hardware, software and access charges which are directly
related to investment research. Research services may be received in the form of
written reports, online services, telephone contacts and personal meetings with
securities analysts, economists, corporate and industry spokespersons and
government representatives.
For purchases or sales with broker-dealer firms that act as principal, the
sub-adviser seeks best execution. Although the sub-adviser 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. The sub-adviser may engage in agency
transactions in over-the-counter equity and debt securities in return for
research and execution services. These transactions are entered into only
pursuant to procedures that are designed to ensure 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.
Research services and information received from brokers or dealers are
supplemental to the sub-adviser's own research efforts and, when utilized, are
subject to internal analysis before being incorporated into their investment
processes. Information and research services furnished by brokers or dealers
through which or with which the funds effect securities transactions may be used
by the sub-adviser in advising other funds or accounts and, conversely, research
services furnished to the sub-adviser by brokers or dealers in connection with
other funds or accounts that either of them advises may be used in advising the
fund.
Investment decisions for the fund and for other investment accounts
managed by the sub-adviser 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 accounts. In
those cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between the fund and the other
account(s) as to amount according to a formula deemed equitable to the fund and
the other 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 simultaneous transactions and the ability to participate in volume
transactions will benefit 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 each 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.
PORTFOLIO TURNOVER. Although the sub-adviser does not expect the fund's
portfolio turnover rate to reach 100% during its initial year of operations,
portfolio turnover will not be a limiting factor in the fund's operations and
the fund's annual portfolio turnover rate may vary from year to year. The fund
may have higher portfolio turnover in certain years if the sub-adviser believes
that market conditions warrant. 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.
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:
20
<PAGE>
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 that 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. This contingent deferred sales charge is waived if you are
eligible to invest in certain offshore investment pools offered by PaineWebber,
your shares are sold before March 31, 2000 and the proceeds are used to purchase
interests in one or more of these pools (see below).
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
tables 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");
(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 the 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;
21
<PAGE>
(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 funds 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 The 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 AND CLASS C SHARES. Shareholders who
have redeemed Class A or Class C 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.
WAIVERS OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. The
maximum 5% contingent deferred sales charge applies to sales of shares during
the first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years. Among other circumstances, the contingent
deferred sales charge on Class B shares is waived where a total or partial
redemption is made within one year following the death of the shareholder. The
contingent deferred sales charge waiver is available where the decedent is
either the sole shareholder or owns the shares with his or her spouse as a joint
tenant with right of survivorship. This waiver applies only to redemption of
shares held at the time of death.
NON-RESIDENT ALIENS WAIVER OF CONTINGENT DEFERRED SALES CHARGE. Until
March 31, 2000, investors who are non-resident aliens will be able to sell their
fund shares without incurring a contingent deferred sales charge, if they use
the sales proceeds to immediately purchase shares of certain offshore investment
pools available through PaineWebber. The fund will waive the contingent deferred
sales charge that would otherwise apply to a sale of Class A, Class B or Class C
shares of the fund. Fund shareholders who want to take advantage of this waiver
should review the offering documents of the offshore investment pools for
further information, including investment minimums, and fees and expenses.
Shares of the offshore investment pools are available only in those
jurisdictions where the sale is authorized and are not available to any U.S.
person, including, but not limited to, any citizen or resident of the United
States, and U.S. partnership or U.S. trust, and are not available to residents
of certain other countries. For more information on how to take advantage of the
deferred sales charge waiver, investors should contact their PaineWebber
Financial Advisors.
PURCHASES OF CLASS Y SHARES THROUGH THE PACESM 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.
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PURCHASES OF CLASS A SHARES THROUGH THE PAINEWEBBER INSIGHTONESM PROGRAM.
Investors who purchase shares through the PaineWebber InsightOneSM Program are
eligible to purchase Class A shares without a sales load. The PaineWebber
InsightOneSM Program offers a nondiscretionary brokerage account to PaineWebber
clients for an asset-based fee at an annual rate of up to 1.50% of the assets in
the account. Account holders may purchase or sell certain investment products
without paying commissions on other markups/markdowns.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the funds 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
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 has
elected, however, to be governed by Rule 18f-1 under the Investment Company Act,
under which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for one
shareholder. This election is irrevocable unless the SEC permits its withdrawal.
The fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ("NYSE") is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the fund to dispose of securities owned by it or fairly to
determine the value of its assets or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of the fund's portfolio at the time.
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" in accordance with the policies of those service organizations. 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. PaineWebber offers an automatic investment plan
with a minimum initial investment of $1,000 through which the fund will deduct
$50 or more on a monthly, quarterly, semi-annual or annual basis from the
investor's bank account to invest directly in the fund. 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 both low and
high 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:
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o Class A and Class C shares. Minimum value of fund shares is $5,000;
minimum withdrawals of $100.
o Class B shares. Minimum value of fund shares is $10,000; minimum
monthly, quarterly, and semi-annual and annual withdrawals of $100,
$200, $300 and $400, respectively.
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 (for
Class B shares, annually; for Class A and Class C shares, 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 the minimum values specified
above. Purchases of additional shares of the fund concurrent with withdrawals
are ordinarily disadvantageous to shareholders because of tax liabilities and,
for Class A and Class C shares, initial sales charges. On or about the 20th of a
month for monthly, quarterly, semi-annual and annual plans, PaineWebber will
arrange for redemption by the funds 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 Shares") after the redemption date. Withdrawal
payments should not be considered dividends, but redemption proceeds. 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 PLAN (SERVICE MARK);
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(REGISTERED) (RMA)(REGISTERED)
Shares of PaineWebber mutual funds (each a "PW Fund" and, collectively,
the "PW Funds") are available for purchase through the RMA Resource Accumulation
Plan ("Plan") by customers of PaineWebber and its correspondent firms who
maintain Resource Management Accounts ("RMA accountholders"). The Plan allows an
RMA accountholder to continually invest in one or more of the PW Funds at
regular intervals, with payment for shares purchased automatically deducted from
the client's RMA account. The client may elect to invest at monthly or quarterly
intervals and may elect either to invest a fixed dollar amount (minimum $100 per
period) or to purchase a fixed number of shares. A client can elect to have Plan
purchases executed on the first or fifteenth day of the month. Settlement occurs
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
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To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan, or an RMA accountholder's participation in the
Plan, may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
Funds or other mutual funds, whether through the Plan or otherwise, helps
investors establish and maintain a disciplined approach to accumulating assets
over time, de-emphasizing the importance of timing the market's highs and lows.
Periodic investing also permits an investor to take advantage of "dollar cost
averaging." By investing a fixed amount in mutual fund shares at established
intervals, an investor purchases more shares when the price is lower and fewer
shares when the price is higher, thereby increasing his or her earning
potential. Of course, dollar cost averaging does not guarantee a profit or
protect against a loss in a declining market, and an investor should consider
his or her financial ability to continue investing through periods of both low
and high share prices. However, over time, dollar cost averaging generally
results in a lower average original investment cost than if an investor invested
a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the Plan,
an investor must have opened an RMA account with PaineWebber or one of its
correspondent firms. The RMA account is PaineWebber's comprehensive asset
management account and offers investors a number of features, including the
following:
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 24-hour access to account information through toll-free numbers, and
more detailed personal assistance during business hours from the RMA
Service Center;
o unlimited electronic funds transfers and bill payment service for an
additional fee
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o expanded account protection for the net equity securities balance in
the event of the liquidation of PaineWebber. This protection does
not apply to shares of funds that are held 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.
CONVERSION OF CLASS B SHARES
Class B shares of the fund will automatically convert to Class A shares of
the fund, based on the relative net asset values per share of each class, as of
the close of business on the first Business Day (as defined under "Valuation of
Shares") of the month in which the sixth anniversary of the initial issuance of
Class B shares occurs. For the purpose of calculating the holding period
required for conversion of Class B shares, the date of initial issuance means
(i) the date on which such Class B shares were issued or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date on which the
original Class B shares were issued. For purposes of conversion to Class A
shares, Class B shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares will be held in a separate
sub-account. Each time any Class B shares in the shareholder's regular account
(other than those in the sub-account) convert to Class A shares, a pro rata
portion of the Class B shares in the sub-account will also convert to Class A
shares. The portion will be determined by the ratio that the shareholder's Class
B shares converting to Class A shares bears to the shareholder's total Class B
shares not acquired through dividends and other distributions.
The conversion feature is subject to the continuing availability of an
opinion of counsel to the effect that the dividends and other distributions paid
on Class A and Class B shares will not result in "preferential dividends" under
the Internal Revenue Code and that the conversion of shares does not constitute
a taxable event. If the conversion feature ceased to be available, the Class B
shares would not be converted and would continue to be subject to the higher
ongoing expenses of the Class B shares beyond six years from the date of
purchase. Mitchell Hutchins has no reason to believe that this condition will
not continue to be met.
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 NYSE on each Business Day, which is defined as each Monday
through Friday when the NYSE is open. Prices will be calculated earlier when the
NYSE closes early because trading has been halted for the day. Currently the
NYSE is closed on the observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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 the sub-adviser, 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. It should be recognized that judgment often plays a greater role
in valuing thinly traded securities, including many lower rated bonds, than is
the case with respect to securities for which a broader range of dealer
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quotations and last-sale information is available. 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") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in the fund's Performance Advertisements are
calculated according to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares
of a specified class
T = average annual total return of shares of that 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 4.5% sales charge is deducted from the initial $1,000 payment, for Class
B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted and, for Class C
shares, the maximum 1% sales charge is deducted from the initial $1,000 payment
and the applicable contingent deferred sales charge is imposed on a redemption
of Class C shares held for a one year period or less. 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.
Both Standardized Return and Non-Standardized Return for Class B shares
for periods of over six years reflect conversion of the Class B shares to Class
A shares at the end of the sixth year.
OTHER INFORMATION. In Performance Advertisements, the fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Wiesenberger
Investment Companies Service ("Wiesenberger"), Investment Company Data, Inc.
("ICD") or Morningstar Mutual funds ("Morningstar"), or with the performance of
recognized stock, bond and other indices, including the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), the Standard & Poor's 600 Small-Cap
Index, the Standard & Poor's 400 Mid-Cap Index, the Dow Jones Industrial Average
("DJIA"), the Nasdaq Composite Index, the Russell 2000 Index, the Russell 1000
Index (including Value and Growth sub-indexes), the Wilshire 5000 Index, the
Lehman Bond Index, 30-year and 10-year U.S. Treasury bonds, the Morgan Stanley
Capital International World Index 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 THE WALL STREET JOURNAL, MONEY Magazine,
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FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES,
THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons
in Performance Advertisements may be in graphic form.
The fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the fund investment are reinvested
in additional fund shares, any future income or capital appreciation of the fund
would increase the value, not only of the original fund investment, but also of
the additional fund shares received through reinvestment. As a result, the value
of the fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(R) Money Markets. In comparing the fund's
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Shares of the fund are not insured or guaranteed by the U.S.
government and returns and net asset values will fluctuate. The debt securities
held by the fund generally 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.
[OBJECT OMITTED]
- ---------------------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM) Ibbotson Assoc.,
Chi. (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
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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. These returns do not account for transaction costs.
The average return represents a compound annual return. Year-to-year
fluctuations in certain markets have been significant and negative returns have
been experienced in certain markets from time to time. Stocks are measured by
the S&P 500, an unmanaged weighted index comprising 500 widely held common
stocks and varying in composition. Unlike investors in bonds and U.S. Treasury
bills, common stock investors do not receive fixed income payments and are not
entitled to repayment of principal. These differences contribute to investment
risk. Returns shown for long-term government bonds are based on U.S. Treasury
bonds with 20-year maturities. Inflation is measured by the Consumer Price
Index. The indexes are unmanaged and are not available for investment.
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 January 1, 1926 to December 31, 1998, stocks beat all
other traditional asset classes. A $10,000 investment in the stocks comprising
the S&P 500 grew to $23,495,420, significantly more than any other investment.
TAXES
BACKUP WITHHOLDING. The fund is required to withhold 31% of all dividends,
capital gain distributions and redemption proceeds payable to individuals and
certain other non-corporate shareholders who do not provide the fund 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 fund
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 fund 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.
CONVERSION OF CLASS B SHARES. A shareholder will recognize no gain or loss
as a result of a conversion from Class B shares to Class A shares.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. To qualify for treatment
as a regulated investment company ("RIC") under the Internal Revenue Code, the
fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income and net short-term capital gain) ("Distribution Requirement") and must
meet several additional requirements. These additional 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 that does not represent more than 10% of the issuer's
outstanding voting securities; 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
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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 without being able to deduct the distributions
it makes 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 December of any year and payable to shareholders of record on a date in that
month will be deemed to have been paid by the fund and received by the
shareholders on December 31 if the distributions are paid by the fund during the
following January.
A portion of the dividends from the fund's investment company taxable
income (whether paid in cash or in 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
federal alternative minimum tax.
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 thereon. Investors also
should be aware that if shares are purchased shortly before the record date for
a 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 the calendar 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 derived by the fund with respect to
its business of investing in securities will qualify as permissible income under
the Income Requirements.
Offsetting positions in any actively traded security, option or futures
entered into or held by the fund may constitute a "straddle" for federal income
tax purposes. Straddles are subject to certain rules that may affect the amount,
character and timing of the fund's gains and losses with respect to positions of
the straddle by requiring, among other things, that (1) loss realized on
disposition of one position of a straddle be deferred to the extent of any
unrealized gain in an offsetting position until the latter position is disposed
of, (2) the fund's holding period in certain straddle positions not begin until
the straddle is terminated (possibly resulting in gain being treated as
short-term rather than long-term capital gain) and (3) losses recognized with
respect to certain straddle positions, that otherwise would constitute
short-term capital losses, be treated as long-term capital losses. Applicable
regulations also provide certain "wash sale" rules, which apply to transactions
where a position is sold at a loss and a new offsetting position is acquired
within a prescribed period, and "short sale" rules applicable to straddles.
Different elections are available to the fund, which may mitigate the effects of
the straddle rules, particularly with respect to "mixed straddles" (I.E., a
straddle of which at least one, but not all, positions are section 1256
contracts).
When a covered call option written (sold) by the fund expires, it realizes
a short-term capital gain equal to the amount of the premium it received for
writing the option. When the fund terminates its obligations under such an
option by entering into a closing transaction, it realizes a short-term capital
gain (or loss), depending on whether the cost of the closing transaction is less
(or more) than the premium it received when it wrote the option. When a covered
call option written by the fund is exercised, the fund is treated as having sold
the underlying security, producing long-term or short-term capital gain or loss,
depending on the holding period of the underlying security and whether the sum
of the option price received on the exercise plus the premium received when it
wrote the option is more or less than the basis of the underlying security.
30
<PAGE>
If the fund has an "appreciated financial position"-- generally, an
interest (including an interest through an option, futures or short sale) with
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis--and enters into a "constructive sale" of the position, the fund will be
treated as having made an actual sale thereof, with the result that gain will be
recognized at that time. A constructive sale generally consists of a short sale,
an offsetting notional principal contract or a futures contract entered into by
the fund or a related person with respect to the same or substantially identical
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
identical property will be deemed a constructive sale. The foregoing will not
apply, however, to the fund's transaction during any taxable year that otherwise
would be treated as a constructive sale if the transaction is closed within 30
days after the end of that year and the fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that
60-day period is the fund's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially identical
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale or granting an option to buy
substantially identical stock or securities).
The foregoing is only a general summary of some of the important federal
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 other 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,
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.
31
<PAGE>
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.
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.
32
<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 PaineWebber
DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE DSI Core Equity Fund
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.
------------
------------------------------------------
Statement of Additional Information
, 2000
------------------------------------------
PAINEWEBBER
(C)2000 PaineWebber Incorporated. All rights reserved. Member SIPC.
<PAGE>
PART C. OTHER INFORMATION
Item 23. EXHIBITS
(1) Trust Instrument (filed herewith)
(2) By-Laws (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(4) (a) Investment Advisory and Administration Contract 2/
(b) Sub-Advisory Contract 2/
(5) (a) Distribution Contract (Class A Shares ) 2/
(b) Distribution Contract (Class B Shares ) 2/
(c) Distribution Contract (Class C Shares ) 2/
(d) Distribution Contract (Class Y Shares) 2/
(e) Exclusive Dealer Agreement (Class A Shares) 2/
(f) Exclusive Dealer Agreement (Class B Shares) 2/
(g) Exclusive Dealer Agreement (Class C Shares) 2/
(h) Exclusive Dealer Agreement (Class Y Shares) 2/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement 2/
(8) Transfer Agency Agreement 2/
(9) Opinion and consent of counsel 2/
(10) Other opinions, appraisals, rulings and consents: Auditor's consent 2/
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent 2/
(13) (a) Rule 12b-1 Plan of Distribution with respect to Class A Shares 2/
(b) Rule 12b-1 Plan of Distribution with respect to Class B Shares 2/
(c) Rule 12b-1 Plan of Distribution with respect to Class C Shares 2/
(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/ To be filed.
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
Until PaineWebber DSI Core Equity Fund ("Fund"), the sole series of
Mitchell Hutchins Securities Trust, has public shareholders, Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins") is a controlling person of the Fund.
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 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. The Fund's
sub-advisory contract contains similar provisions with respect to the Fund's
sub-adviser. 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").
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C-2
<PAGE>
Item 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 Incorporated
("PaineWebber") which is, in turn, a wholly owned subsidiary of Paine Webber
Group Inc. ("Paine Webber Group"), a publicly owned financial services holding
company. 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.
DSI International Management, Inc. ("DSI"), 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. DSI is
primarily engaged in the investment advisory business. Information as to the
officers and directors of DSI is included in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-30558), 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 LIR MONEY 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
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
- ---- --------------- -------------------------------
Dianne E. O'Donnell Trustee, Vice President Senior Vice President and
and Secretary Deputy General Counsel of
Mitchell Hutchins
C-3
<PAGE>
Positions and Offices Positions and Offices With
Name With Registrant Underwriter or Exclusive Dealer
- ---- --------------- -------------------------------
Victoria E. Schonfeld Trustee, President, Managing Director and General
Chief Executive Officer Counsel of Mitchell Hutchins
and Chairman of the and a Senior Vice President
Board of Trustees of PaineWebber
Paul H. Schubert Vice President and Senior Vice President and
Treasurer Director of the Mutual Fund
Finance Department of
Mitchell Hutchins
c) None
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, at
1285 Avenue of the Americas, New York, New York 10019 or 51 West 52nd Street,
New York, New York 10019-6114. 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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 23rd day of
December, 1999.
MITCHELL HUTCHINS SECURITIES 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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Victoria E. Schonfeld President and Trustee December 23, 1999
- ------------------------- (Chief Executive Officer)
Victoria E. Schonfeld
/s/ Dianne E. O'Donnell Trustee December 23, 1999
- -----------------------
Dianne E. O'Donnell
/s/ Paul H. Schubert Vice President and Treasurer December 23, 1999
- ----------------------- (Chief Financial and Accounting
Paul H. Schubert Officer)
</TABLE>
<PAGE>
MITCHELL HUTCHINS SECURITIES TRUST
EXHIBIT INDEX
-------------
Exhibit
Number
- ------
(1) Trust Instrument (filed herewith)
(2) By-Laws (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 1/
(4) (a) Investment Advisory and Administration Contract 2/
(b) Sub-Advisory Contract 2/
(5) (a) Distribution Contract (Class A Shares ) 2/
(b) Distribution Contract (Class B Shares ) 2/
(c) Distribution Contract (Class C Shares ) 2/
(d) Distribution Contract (Class Y Shares) 2/
(e) Exclusive Dealer Agreement (Class A Shares) 2/
(f) Exclusive Dealer Agreement (Class B Shares) 2/
(g) Exclusive Dealer Agreement (Class C Shares) 2/
(h) Exclusive Dealer Agreement (Class Y Shares) 2/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement 2/
(8) Transfer Agency Agreement 2/
(9) Opinion and consent of counsel 2/
(10) Other opinions, appraisals, rulings and consents: Auditor's consent 2/
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent 2/
(13) (a) Rule 12b-1 Plan of Distribution with respect to Class A Shares 2/
(b) Rule 12b-1 Plan of Distribution with respect to Class B Shares 2/
(c) Rule 12b-1 Plan of Distribution with respect to Class C Shares 2/
(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/ To be filed.
Exhibit No. 1
MITCHELL HUTCHINS SECURITIES TRUST
TRUST INSTRUMENT
December 23, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS..................................................................1
ARTICLE II
TRUSTEES.....................................................................2
Section 1. Management of the Trust.....................................2
Section 2. Initial Trustees; Number and Election of Trustees...........2
Section 3. Term of Office..............................................2
Section 4. Vacancies; Appointment of Trustees..........................3
Section 5. Temporary Vacancy or Absence................................3
Section 6. Chairman....................................................3
Section 7. Action by the Trustees......................................3
Section 8. Ownership of Trust Property.................................4
Section 9. Effect of Trustees Not Serving..............................4
Section 10. Trustees, Etc. as Shareholders.............................4
ARTICLE III
POWERS OF THE TRUSTEES.......................................................4
Section 1. Powers......................................................4
Section 2. Certain Transactions........................................7
ARTICLE IV
SERIES; CLASSES; SHARES......................................................8
Section 1. Establishment of Series or Class............................8
Section 2. Shares......................................................8
Section 3. Investment in the Trust.....................................9
Section 4. Assets and Liabilities of Series............................9
Section 5. Ownership and Transfer of Shares...........................10
Section 6. Status of Shares; Limitation of Shareholder Liability......10
ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS...............................................10
Section 1. Distributions..............................................10
Section 2. Redemptions................................................11
Section 3. Determination of Net Asset Value...........................11
Section 4. Suspension of Right of Redemption..........................11
Section 5. Redemptions Necessary for Qualification as Regulated
Investment Company........................................12
i
<PAGE>
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS....................................12
Section 1. Voting Power...............................................12
Section 2. Meetings of Shareholders...................................13
Section 3. Quorum; Required Vote......................................13
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS............................................13
Section 1. Investment Adviser.........................................13
Section 2. Principal Underwriter......................................14
Section 3. Transfer Agency, Shareholder Services, and Administration
Agreements.................................................14
Section 4. Custodian..................................................14
Section 5. Parties to Contracts With Service Providers................14
Section 6. Requirements of the 1940 Act...............................14
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES............................................15
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION.................................16
Section 1. Limitation of Liability....................................16
Section 2. Indemnification............................................16
Section 3. Indemnification of Shareholder.............................18
ARTICLE X
MISCELLANEOUS...............................................................18
Section 1. Trust Not a Partnership....................................18
Section 2. Trustee Action; Expert Advice; No Bond or Surety...........18
Section 3. Record Dates...............................................18
Section 4. Termination of the Trust...................................19
Section 5. Reorganization.............................................20
Section 6. Trust Instrument...........................................20
Section 7. Applicable Law.............................................20
Section 8. Amendments.................................................21
Section 9. Fiscal Year................................................21
Section 10. Severability..............................................21
ii
<PAGE>
MITCHELL HUTCHINS SECURITIES TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on December 23, 1999, to establish a
business trust for the investment and reinvestment of funds contributed to the
Trust by investors. The Trustees declare that all money and property contributed
to the Trust shall be held and managed in trust pursuant to this Trust
Instrument. The name of the Trust created by this Trust Instrument is Mitchell
Hutchins Securities Trust.
ARTICLE I
---------
DEFINITIONS
-----------
Unless otherwise provided or required by the context:
(a) "By-laws" means the By-laws of the Trust adopted by the Trustees, as
amended from time to time;
(b) "Class" means a class of Shares in a Series established pursuant to
Article IV;
(c) "Commission," "Interested Person," and "Principal Underwriter" have
the meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article IX, Section 2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(g) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(h) "Registered Investment Company" means a company registered as a
management investment company under the 1940 Act.
(i) "Outstanding Shares" means Shares shown on the books of the Trust or
its transfer agent as then issued and outstanding, but does not include Shares
which have been repurchased or redeemed by the Trust;
(j) "Series" means a series of Shares established pursuant to Article IV;
(k) "Shareholder" means a record owner of Outstanding Shares;
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(l) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest of each Series or Class is divided from time
to time (including whole Shares and fractions of Shares);
(m) "Trust" means Mitchell Hutchins Securities Trust established hereby,
and reference to the Trust, when applicable to one or more Series, refers to
that Series;
(n) "Trustees" means the persons who have signed this Trust Instrument, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder;
(o) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or any Series
or the Trustees on behalf of the Trust or any Series; and
(p) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
----------
TRUSTEES
--------
Section 1. MANAGEMENT OF THE TRUST. The business and affairs of the Trust
shall be managed by or under the direction of the Trustees, and they shall have
all powers necessary or desirable to carry out that responsibility. No
Shareholder shall have any right to conduct any Trust business solely by reason
of being a Shareholder. The Trustees may execute all instruments and take all
action they deem necessary or desirable to promote the interests of the Trust.
Any determination made by the Trustees in good faith as to what is in the
interests of the Trust shall be conclusive.
Section 2. INITIAL TRUSTEES; NUMBER AND ELECTION OF TRUSTEES. The initial
Trustees shall be the persons initially signing this Trust Instrument. The
number of Trustees (other than the initial Trustees) shall be fixed from time to
time by a majority of the Trustees; provided, that there shall be at least two
(2) Trustees. The Shareholders shall elect the Trustees (other than the initial
Trustees) on such dates as the Trustees may fix from time to time.
Section 3. TERM OF OFFICE. Each Trustee shall hold office for life or
until his or her successor is elected or the Trust terminates; except that (a)
any Trustee may resign by delivering to the other Trustees or to any Trust
officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee may be removed with or without cause at any
time by a written instrument signed by at least two-thirds of the other
Trustees, specifying the effective date of removal; (c) any Trustee who requests
to be retired, or who has become physically or mentally incapacitated or is
otherwise unable to serve, may be retired by a written instrument signed by a
majority of the other Trustees, specifying the effective date of retirement; and
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(d) any Trustee may be removed at any meeting of the Shareholders by a vote of
at least two-thirds of the Outstanding Shares.
Section 4. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a vacancy shall
exist in the Board of Trustees, regardless of the reason for such vacancy, the
remaining Trustees shall appoint any person as they determine in their sole
discretion to fill that vacancy, consistent with the limitations under the 1940
Act. Such appointment shall be made by a written instrument signed by a majority
of the Trustees or by a resolution of the Trustees, duly adopted and recorded in
the records of the Trust, specifying the effective date of the appointment. The
Trustees may appoint a new Trustee as provided above in anticipation of a
vacancy expected to occur because of the retirement, resignation, or removal of
a Trustee, or an increase in number of Trustees, provided that such appointment
shall become effective only at or after the expected vacancy occurs. As soon as
any such Trustee has accepted his or her appointment in writing, the trust
estate shall vest in the new Trustee, together with the continuing Trustees,
without any further act or conveyance, and he or she shall be deemed a Trustee
hereunder.
Section 5. TEMPORARY VACANCY OR ABSENCE. Whenever a vacancy in the Board
of Trustees shall occur, until such vacancy is filled, or while any Trustee is
absent from his or her domicile (unless that Trustee has made arrangements to be
informed about, and to participate in, the affairs of the Trust during such
absence), or is physically or mentally incapacitated, the remaining Trustees
shall have all the powers hereunder and their certificate as to such vacancy,
absence, or incapacity shall be conclusive. Any Trustee may, by power of
attorney, delegate his or her powers as Trustee for a period not exceeding six
(6) months at any one time to any other Trustee or Trustees to the extent
permitted by the 1940 Act.
Section 6. CHAIRMAN. The Trustees shall appoint one of their number to be
Chairman of the Board of Trustees. The Chairman shall preside at all meetings of
the Trustees, shall be responsible for the execution of policies established by
the Trustees and the administration of the Trust, and may be the chief
executive, financial and/or accounting officer of the Trust.
Section 7. ACTION BY THE TRUSTEES. The Trustees shall act by majority vote
at a meeting duly called (including a meeting by telephonic or other electronic
means, unless the 1940 Act requires that a particular action be taken only at a
meeting of Trustees in person) at which a quorum is present or by written
consent of a majority of Trustees (or such greater number as may be required by
applicable law) without a meeting. A majority of the Trustees shall constitute a
quorum at any meeting. Meetings of the Trustees may be called orally or in
writing by the Chairman of the Board of Trustees or by any two other Trustees.
Notice of the time, date and place of all Trustees meetings shall be given to
each Trustee by telephone, facsimile or other electronic mechanism sent to his
or her home or business address at least twenty-four hours in advance of the
meeting or by written notice mailed to his or her home or business address at
least seventy-two hours in advance of the meeting. Notice need not be given to
any Trustee who attends the meeting without objecting to the lack of notice or
who signs a waiver of notice either before or after the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
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Trustee or Trustees authority to approve particular matters or take particular
actions on behalf of the Trust. Any written consent or waiver may be provided
and delivered to the Trust by facsimile or other similar electronic mechanism.
Section 8. OWNERSHIP OF TRUST PROPERTY. The Trust Property of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. All of the Trust Property and legal title thereto
shall at all times be considered as vested in the Trustees on behalf of the
Trust, except that the Trustees may cause legal title to any Trust Property to
be held by or in the name of the Trust, or in the name of any person as nominee.
No Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or of any Series or any right of partition or possession
thereof, but each Shareholder shall have, as provided in Article IV, a
proportionate undivided beneficial interest in the Trust or Series represented
by Shares.
Section 9. EFFECT OF TRUSTEES NOT SERVING. The death, resignation,
retirement, removal, incapacity, or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Trust Instrument.
Section 10. TRUSTEES, ETC. AS SHAREHOLDERS. Subject to any restrictions in
the By-laws, any Trustee, officer, agent or independent contractor of the Trust
may acquire, own and dispose of Shares to the same extent as any other
Shareholder; the Trustees may issue and sell Shares to and buy Shares from any
such person or any firm or company in which such person is interested, subject
only to any general limitations herein.
ARTICLE III
-----------
POWERS OF THE TRUSTEES
----------------------
Section 1. POWERS. The Trustees shall have exclusive and absolute control
over the Trust Property and over the business of the Trust to the same extent as
if they were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted in this Trust
Instrument. The Trustees in all instances shall act as principals, free of the
control of the Shareholders. The Trustees shall have full power and authority to
take or refrain from taking any action and to execute any contracts and
instruments that they may consider necessary or desirable in the management of
the Trust. The Trustees shall not in any way be bound or limited by current or
future laws or customs applicable to trust investments, but shall have full
power and authority to make any investments which they, in their sole
discretion, deem proper to accomplish the purposes of the Trust. The Trustees
may exercise all of their powers without recourse to any court or other
authority. Subject to any applicable limitation herein or in the By-laws,
operating documents or resolutions of the Trust, the Trustees shall have power
and authority, without limitation:
(a) To operate as and carry on the business of a Registered Investment
Company and to exercise all the powers necessary and proper to conduct such a
business
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(b) To subscribe for, invest in, reinvest in, purchase, or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, or
otherwise deal in or dispose of any form of property, including cash (U.S.
currency), foreign currencies and related instruments, and securities (including
common and preferred stocks, warrants, bonds, debentures, time notes, and all
other evidences of indebtedness, negotiable or non-negotiable instruments,
obligations, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, reverse repurchase agreements, convertible securities,
forward contracts, options, and futures contracts) issued, guaranteed, or
sponsored by any state, territory, or possession of the United States or the
District of Columbia or their political subdivisions, agencies, or
instrumentalities, or by the U.S. government, any foreign government, or any
agency, instrumentality, or political subdivision thereof, or by any
international instrumentality, or by any bank, savings institution, corporation,
or other business entity organized under the laws of the United States
(including a Registered Investment Company or any series thereof, subject to the
provisions of the 1940 Act) or under foreign laws, without regard to whether any
such securities mature before or after the possible termination of the Trust; to
exercise any and all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and description; and to
hold cash or other property uninvested, without in any event being bound or
limited by any current or future law or custom concerning investments by
trustees;
(c) To adopt By-laws not inconsistent with this Trust Instrument providing
for the conduct of the business of the Trust and to amend and repeal them to the
extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such
agents as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(f) To retain one or more transfer agents and Shareholder servicing
agents, or both;
(g) To provide for the distribution of Shares either through a Principal
Underwriter as provided herein or by the Trust itself, or both, or pursuant to a
distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the
By-laws;
(i) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, independent contractor, manager, investment
adviser, custodian or underwriter;
(j) To sell, exchange or otherwise dispose of any or all of the assets of
the Trust, subject to Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
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(l) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other property;
(m) To hold any security or other property (i) in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable form,
or (ii) either in the Trust's or Trustees' own name or in the name of a
custodian or a nominee or nominees, subject to safeguards according to the usual
practice of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article IV;
(o) To incur and pay all expenses that in the Trustees' opinion are
necessary or incidental to carry out any of the purposes of this Trust
Instrument; to pay reasonable compensation to themselves as Trustees from the
Trust Property or the assets belonging to any appropriate Series or Class; to
pay themselves such compensation for special services, including legal and
brokerage services, and such reimbursement for expenses reasonably incurred by
themselves on behalf of the Trust or any Series or Class, as they in good faith
may deem reasonable; and to fix the compensation of all officers and employees
of the Trust;
(p) To the full extent permitted by Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article IV,
Section 4;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to Shareholders
in the manner hereinafter provided for;
(t) To borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging, or otherwise subjecting as security any assets of the
Trust, including the lending of portfolio securities, and to endorse, guarantee,
or undertake the performance of any obligation, contract, or engagement of any
other person, firm, association, or corporation;
(u) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum;
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(v) To purchase, and pay for, out of Trust Property or the assets
belonging to any appropriate Series, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, and/or independent
contractors of the Trust (including the investment adviser of any Series)
against all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such person in such capacity, whether or
not the Trust would have the power to indemnify such person against such claim;
(w) To establish committees for such purposes, with such membership, and
with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened;
(x) To interpret the investment policies, practices, or limitations of any
Series;
(y) To establish a registered office and have a registered agent in the
State of Delaware;
(z) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued;
(aa) To carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary or desirable to
accomplish any purpose or to further any of the foregoing powers, and to take
every other action incidental to the foregoing business or purposes, objects or
powers; and
(bb) To select such name for the Trust, or any Series or Class, as the
Trustees deem proper in their discretion, without Shareholder approval, in which
event the Trust may hold its property and conduct its activities under such
other name.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Trust Instrument, the presumption shall be in favor of a grant of power to the
Trustees.
Section 2. CERTAIN TRANSACTIONS. Except as prohibited by applicable law,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust to, any Trustee or officer of the
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Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such person
is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
custodian or in any other capacity upon customary terms.
ARTICLE IV
----------
SERIES; CLASSES; SHARES
-----------------------
Section 1. ESTABLISHMENT OF SERIES OR CLASS. The Trust shall consist of
one or more Series. The Trustees hereby establish the Series listed in Schedule
A attached hereto and made a part hereof. Each additional Series shall be
established by the adoption of a resolution by the Trustees. The Trustees may
designate the relative rights and preferences of the Shares of each Series. The
Trustees may divide the Shares of any Series into Classes and hereby establish
the Classes listed in Schedule A. In such case each Class of a Series shall
represent a proportional beneficial interest in the assets of that Series and
have identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that expenses allocated to a Class may be borne solely by
such Class as determined by the Trustees and a Series or Class may have
exclusive voting rights with respect to matters affecting only that Series or
Class. The Trust shall maintain separate and distinct records for each Series
and hold and account for the assets thereof separately from the other assets of
the Trust or of any other Series. A Series may issue any number of Shares and
need not issue Shares. Each Share of a Series shall represent an equal
beneficial interest in the net assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his or her pro rata share of all
distributions made with respect to such Series, provided that, if Classes of a
Series are outstanding, each holder of Shares of a Class shall be entitled to
receive his or her pro rata share of all distributions made with respect to such
Class of the Series. Upon redemption of his or her Shares, such Shareholder
shall be paid solely out of the assets and property of such Series.
Section 2. SHARES. The beneficial interest in the Trust shall be divided
into Shares of one or more separate and distinct Series or Classes established
by the Trustees. The number of Shares of the Trust and of each Series and Class
is unlimited and each Share shall have a par value of $0.001 per Share. All
Shares issued hereunder shall be fully paid and nonassessable. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust. The Trustees shall have full power and
authority, in their sole discretion and without obtaining Shareholder approval:
to issue original or additional Shares and fractional Shares at such times and
on such terms and conditions as they deem appropriate; to establish and to
change in any manner Shares of any Series or Classes with such preferences,
terms of conversion, voting powers, rights and privileges as the Trustees may
determine (but the Trustees may not change Outstanding Shares in a manner
materially adverse to the Shareholders of such Shares); to divide or combine the
Shares of any Series or Classes into a greater or lesser number; to classify or
reclassify any unissued Shares of any Series or Classes into one or more Series
or Classes of Shares; to abolish any one or more Series or Classes of Shares; to
issue Shares to acquire other assets (including assets subject to, and in
connection with, the assumption of liabilities) and businesses; and to take such
other action with respect to the Shares as the Trustees may deem desirable.
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Section 3. INVESTMENT IN THE TRUST. The Trustees shall accept investments
in any Series from such persons and on such terms as they may from time to time
authorize. At the Trustees' discretion, such investments, subject to applicable
law, may be in the form of cash or securities in which that Series is authorized
to invest, valued as provided in Article V, Section 3. Investments in a Series
shall be credited to each Shareholder's account in the form of full and
fractional Shares at the Net Asset Value per Share next determined after the
investment is received or accepted in good form as may be determined by the
Trustees; provided, however, that the Trustees may, in their sole discretion,
(a) impose a sales charge upon investments in any Series or Class, or (b)
determine the Net Asset Value per Share of the initial capital contribution. The
Trustees shall have the right to refuse to accept investments in any Series at
any time without any cause or reason therefor whatsoever.
Section 4. ASSETS AND LIABILITIES OF SERIES. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof (including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be), shall
be held and accounted for separately from the other assets of the Trust and
every other Series and are referred to as "assets belonging to" that Series. The
assets belonging to a Series shall belong only to that Series for all purposes,
and to no other Series, subject only to the rights of creditors of that Series.
Any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series shall
be allocated by the Trustees between and among one or more Series as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series for all purposes, and such assets,
earnings, income, profits or funds, or payments and proceeds thereof shall be
referred to as assets belonging to that Series. The assets belonging to a Series
shall be so recorded upon the books of the Trust, and shall be held by the
Trustees in trust for the benefit of the Shareholders of that Series. The assets
belonging to a Series shall be charged with the liabilities of that Series and
all expenses, costs, charges and reserves attributable to that Series, except
that liabilities and expenses allocated solely to a particular Class shall be
borne by that Class. Any general liabilities, expenses, costs, charges or
reserves of the Trust which are not readily identifiable as belonging to any
particular Series or Class shall be allocated and charged by the Trustees
between or among any one or more of the Series or Classes in such manner as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the Trustees
to allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally or of any other Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be set
forth in the certificate of trust of the Trust (whether originally or by
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amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, with respect to that Series. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or belonging
to any other Series.
Section 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust shall maintain a
register containing the names and addresses of the Shareholders of each Series
and Class thereof, the number of Shares of each Series and Class held by such
Shareholders, and a record of all Share transfers. The register shall be
conclusive as to the identity of Shareholders of record and the number of Shares
held by them from time to time. The Trustees shall not be required to, but may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates.
Section 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY. Shares
shall be deemed to be personal property giving Shareholders only the rights
provided in this Trust Instrument. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Trust Instrument and to have become a party hereto.
No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or any Series. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the Shareholder. Shareholders
shall have the same limitation of personal liability as is extended to
shareholders of a private corporation for profit incorporated in the State of
Delaware. Every written obligation of the Trust or any Series may contain a
statement to the effect that such obligation may only be enforced against the
assets of the Trust or such Series; however, the omission of such statement
shall not operate to bind or create personal liability for any Shareholder or
Trustee.
ARTICLE V
---------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
Section 1. DISTRIBUTIONS. The Trustees may declare and pay dividends and
other distributions, including dividends on Shares of a particular Series and
other distributions from the assets belonging to that Series. The amount and
payment of dividends or distributions and their form, whether they are in cash,
Shares or other Trust Property, shall be determined by the Trustees. Dividends
and other distributions may be paid pursuant to a standing resolution adopted
once or more often as the Trustees determine. All dividends and other
distributions on Shares of a particular Series shall be distributed pro rata to
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the Shareholders of that Series in proportion to the number of Shares of that
Series they held on the record date established for such payment, except that
such dividends and distributions shall appropriately reflect expenses allocated
to a particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
Section 2. REDEMPTIONS. Each Shareholder of a Series shall have the right
at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his or her Shares at a redemption price per Share
equal to the Net Asset Value per Share at such time as the Trustees shall have
prescribed by resolution less such charges as are determined by the Trustees and
described in the Trust's Registration Statement for that Series under the
Securities Act of 1933 or any prospectus or statement of additional information
contained therein, as supplemented. In the absence of such resolution, the
redemption price per Share shall be the Net Asset Value next determined after
receipt by the Series of a request for redemption in proper form less such
charges as are determined by the Trustees and described in the Trust's
Registration Statement for that Series under the Securities Act of 1933 or any
prospectus or statement of additional information contained therein, as
supplemented.
The Trustees may specify conditions, prices, and places of redemption, and
may specify binding requirements for the proper form or forms of requests for
redemption. Payment of the redemption price may be wholly or partly in
securities or other assets at the value of such securities or assets used in
such determination of Net Asset Value, or may be in cash. Upon redemption,
Shares may be reissued from time to time. The Trustees may require Shareholders
to redeem Shares for any reason under terms set by the Trustees, including the
failure of a Shareholder to supply a personal identification number if required
to do so, or to have the minimum investment required, or to pay when due for the
purchase of Shares issued to him or her. To the extent permitted by law, the
Trustees may retain the proceeds of any redemption of Shares required by them
for payment of amounts due and owing by a Shareholder to the Trust or any Series
or Class. Notwithstanding the foregoing, the Trustees may postpone payment of
the redemption price and may suspend the right of the Shareholders to require
any Series or Class to redeem Shares during any period of time when and to the
extent permissible under the 1940 Act.
Section 3. DETERMINATION OF NET ASSET VALUE. The Trustees shall cause the
Net Asset Value of Shares of each Series or Class to be determined from time to
time in a manner consistent with applicable laws and regulations. The Trustees
may delegate the power and duty to determine Net Asset Value per Share to one or
more Trustees or officers of the Trust or to an investment manager,
administrator or investment adviser, custodian, depository or other agent
appointed for such purpose. The Net Asset Value of Shares shall be determined
separately for each Series or Class at such times as may be prescribed by the
Trustees or, in the absence of action by the Trustees, as of the close of
regular trading on the New York Stock Exchange on each day for all or part of
which such Exchange is open for unrestricted trading.
Section 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred to in
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
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close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no right of redemption or payment
until the Trustees declare the end of the suspension. If the right of redemption
is suspended, a Shareholder may either withdraw his request for redemption or
receive payment based on the Net Asset Value per Share next determined after the
suspension terminates.
Section 5. REDEMPTIONS NECESSARY FOR QUALIFICATION AS REGULATED INVESTMENT
COMPANY. If the Trustees shall determine that direct or indirect ownership of
Shares of any Series has or may become concentrated in any person to an extent
which would disqualify any Series as a regulated investment company under the
Internal Revenue Code, then the Trustees shall have the power (but not the
obligation) by lot or other means they deem equitable to (a) call for redemption
by any such person of a number, or principal amount, of Shares sufficient to
maintain or bring the direct or indirect ownership of Shares into conformity
with the requirements for such qualification and (b) refuse to transfer or issue
Shares to any person whose acquisition of Shares in question would, in the
Trustees' judgment, result in such disqualification. Any such redemption shall
be effected at the redemption price and in the manner provided in this Article.
Shareholders shall upon demand disclose to the Trustees in writing such
information concerning direct and indirect ownership of Shares as the Trustees
deem necessary to comply with the requirements of any taxing authority.
ARTICLE VI
----------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 1. VOTING POWER. The Shareholders shall have power to vote only
with respect to (a) the election of Trustees as provided in Section 2 of this
Article; (b) the removal of Trustees as provided in Article II, Section 3(d);
(c) any investment advisory or management contract as provided in Article VII,
Section 1; (d) any termination of the Trust as provided in Article X, Section 4;
(e) the amendment of this Trust Instrument to the extent and as provided in
Article X, Section 8; and (f) such additional matters relating to the Trust as
may be required or authorized by law, this Trust Instrument, or the By-laws or
any registration of the Trust with the Commission or any State, or as the
Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted by individual Series, except (a) when required by the 1940 Act, Shares
shall be voted in the aggregate and not by individual Series, and (b) when the
Trustees have determined that the matter affects only the interests of one or
more Classes, then the Shareholders of only such Class or Classes shall be
entitled to vote thereon. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the By-laws. The By-laws may provide that proxies may be
given by any electronic or telecommunications device or in any other manner, but
if a proposal by anyone other than the officers or Trustees is submitted to a
vote of the Shareholders of any Series or Class, or if there is a proxy contest
or proxy solicitation or proposal in opposition to any proposal by the officers
or Trustees, Shares may be voted only in person or by written proxy. Until
Shares of a Series or Class thereof are issued, as to that Series or Class, the
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Trustees may exercise all rights of Shareholders and may take any action
required or permitted to be taken by Shareholders by law, this Trust Instrument
or the By-laws.
Section 2. MEETINGS OF SHAREHOLDERS. The first Shareholders' meeting of
the Trust (but not the first shareholders' meeting of a Series that is not also
the first shareholders' meeting of the Trust) shall be held to elect Trustees at
such time and place as the Trustees designate. Annual meetings shall not be
required. Special meetings of the Shareholders of any Series or Class may be
called by the Trustees and shall be called by the Trustees upon the written
request of Shareholders owning at least ten percent of the Outstanding Shares of
such Series or Class, or at least ten percent of the Outstanding Shares of the
Trust entitled to vote. Special meetings of Shareholders shall be held, notice
of such meetings shall be delivered and waiver of notice shall occur according
to the provisions of the Trust's By-laws. Any action that may be taken at a
meeting of Shareholders may be taken without a meeting according to the
procedures set forth in the By-laws.
Section 3. QUORUM; REQUIRED VOTE. One-third of the Outstanding Shares of
each Series or Class, or one-third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser number shall be
sufficient for adjournments. Any adjourned session of a Shareholders' meeting
may be held within a reasonable time without further notice. Except when a
Majority Shareholder Vote or other larger vote is required by law, this Trust
Instrument or the By-laws, a majority of the Outstanding Shares voted, in person
or by proxy, shall decide any matters to be voted upon with respect to the
entire Trust and a plurality of such Outstanding Shares voted shall elect a
Trustee; provided, that if this Trust Instrument or applicable law permits or
requires that Shares be voted on any matter by an individual Series or Class,
then a majority of the Outstanding Shares voted, in person or by proxy, of that
Series or Class (or, if required by law, regulation, Commission order, or
no-action letter, a Majority Shareholder Vote or other larger vote of that
Series or Class) voted, in person or by proxy, on the matter shall decide that
matter insofar as that Series or Class is concerned. Shareholders may act as to
the Trust or any Series or Class by the written consent of a majority (or such
greater amount as may be required by applicable law) of the Outstanding Shares
of the Trust or of such Series or Class, as the case may be.
ARTICLE VII
-----------
CONTRACTS WITH SERVICE PROVIDERS
--------------------------------
Section 1. INVESTMENT ADVISER. The Trustees may enter into one or more
investment advisory contracts on behalf of the Trust or any Series, providing
for investment advisory services, statistical and research facilities and
services, and other facilities and services to be furnished to the Trust or
Series on terms and conditions acceptable to the Trustees. Any such contract may
provide for the investment adviser to effect purchases, sales or exchanges of
portfolio securities or other Trust Property on behalf of the Trustees or may
authorize any officer or agent of the Trust to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser. The Trustees
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may authorize the investment adviser to employ one or more sub-advisers or
servicing agents.
Section 2. PRINCIPAL UNDERWRITER. The Trustees may enter into contracts on
behalf of the Trust or any Series or Class, providing for the distribution and
sale of Shares by the other party, either directly or as sales agent, on terms
and conditions acceptable to the Trustees. The Trustees may adopt a plan or
plans of distribution with respect to Shares of any Series or Class and enter
into any related agreements, whereby the Series or Class finances directly or
indirectly any activity that is primarily intended to result in sales of its
Shares, subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder, and other applicable rules and regulations.
Section 3. TRANSFER AGENCY, SHAREHOLDER SERVICES, AND ADMINISTRATION
AGREEMENTS. The Trustees, on behalf of the Trust or any Series or Class, may
enter into transfer agency agreements, Shareholder service agreements, and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
Section 4. CUSTODIAN. The Trustees shall at all times place and maintain
the securities and similar investments of the Trust and of each Series with a
custodian meeting the requirements of Section 17(f) of the 1940 Act and the
rules thereunder or as otherwise permitted by the Commission or its staff. The
Trustees, on behalf of the Trust or any Series, may enter into an agreement with
a custodian on terms and conditions acceptable to the Trustees, providing for
the custodian, among other things, (a) to hold the securities owned by the Trust
or any Series and deliver the same upon written order or oral order confirmed in
writing, (b) to receive and receipt for any moneys due to the Trust or any
Series and deposit the same in its own banking department or elsewhere, (c) to
disburse such funds upon orders or vouchers, and (d) to employ one or more
sub-custodians.
Section 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS. The Trustees may
enter into any contract referred to in this Article with any entity, although
one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, partner, shareholder, or member of such entity, and no such
contract shall be invalidated or rendered void or voidable because of such
relationship. No person having such a relationship shall be disqualified from
voting on or executing a contract in his or her capacity as Trustee and/or
Shareholder, or be liable merely by reason of such relationship for any loss or
expense to the Trust with respect to such a contract or accountable for any
profit realized directly or indirectly therefrom; provided, that the contract
was reasonable and fair and not inconsistent with this Trust Instrument or the
By-laws.
Section 6. REQUIREMENTS OF THE 1940 ACT. Any contract referred to in
Sections 1 and 2 of this Article shall be consistent with and subject to the
applicable requirements of Section 15 of the 1940 Act and the rules and orders
thereunder with respect to its continuance in effect, its termination, and the
method of authorization and approval of such contract or renewal. No amendment
to a contract referred to in Section 1 of this Article shall be effective unless
assented to in a manner consistent with the requirements of Section 15 of the
1940 Act, and the rules and orders thereunder, if applicable.
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ARTICLE VIII
------------
EXPENSES OF THE TRUST AND SERIES
--------------------------------
Subject to Article IV, Section 4, the Trust or a particular Series shall
pay, or shall reimburse the Trustees from the Trust estate or the assets
belonging to the particular Series, for their expenses and disbursements,
including, but not limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; insurance
premiums; applicable fees, interest charges and expenses of third parties,
including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents and fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and its
Series and maintaining its existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of additional information
and reports for Shareholders and delivering them to Shareholders; expenses of
meetings of Shareholders and proxy solicitations therefor (unless otherwise
agreed to by another party); costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust or any Series; costs of Trustee meetings;
Commission registration fees and related expenses; state or foreign securities
laws registration fees and related expenses; and for such non-recurring items as
may arise, including litigation to which the Trust or a Series (or a Trustee or
officer of the Trust acting as such) is a party, and for all losses and
liabilities by them incurred in administering the Trust. The Trustees shall have
a lien on the assets belonging to the appropriate Series, or in the case of an
expense allocable to more than one Series, on the assets of each such Series,
prior to any rights or interests of the Shareholders thereto, for the
reimbursement to them of such expenses, disbursements, losses and liabilities.
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ARTICLE IX
----------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
Section 1. LIMITATION OF LIABILITY. All persons contracting with or having
any claim against the Trust or a particular Series shall look only to the assets
of the Trust or such Series for payment under such contract or claim; and
neither the Trustees nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor. Any
written instrument or obligation on behalf of the Trust or any Series may
contain a statement to the foregoing effect, but the absence of such statement
shall not operate to make any Trustee or officer of the Trust liable thereunder.
Provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Trust, the Trustees
and officers of the Trust shall not be responsible or liable for any act or
omission or for neglect or wrongdoing of them or any officer, agent, employee,
investment adviser or independent contractor of the Trust, but nothing contained
in this Trust Instrument or in the Delaware Act shall protect any Trustee or
officer of the Trust against liability to the Trust or to Shareholders to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Section 2. INDEMNIFICATION. (a) Subject to the exceptions and limitations
contained in subsections (b) and (c) below:
(i) every person who is, or has been, a Trustee or an officer,
employee, investment manager and administrator, director, officer or
employee of an investment manager and administrator, investment
adviser or agent of the Trust ("Covered Person") shall be
indemnified by the Trust or the appropriate Series to the fullest
extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any
claim, action, suit or proceeding in which he or she becomes
involved as a party or otherwise by virtue of his or her being or
having been a Covered Person and against amounts paid or incurred by
him or her in the settlement thereof; and
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals), actual or
threatened, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person who
is, or has been: an investment manager and administrator; director, officer or
employee of an investment manager and administrator; an investment adviser or an
agent of the Trust and:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, negligence
or reckless disregard of the duties involved in the conduct of his
or her office, or (B) not to have acted in good faith in the
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reasonable belief that his or her action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, negligence or reckless disregard of the
duties involved in the conduct of his or her office; (A) by the
court or other body approving the settlement; (B) by the vote of at
least a majority of those Trustees who are neither Interested
Persons of the Trust nor are parties to the proceeding based upon a
review of readily available facts (as opposed to a full trial-type
inquiry); or (C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry).
(c) No indemnification shall be provided hereunder to a Covered Person who
is, or has been, a Trustee or an officer or employee of the Trust, and
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office, or (B) not to have acted in good faith
in the reasonable belief that his or her action was in the best
interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office; (A) by the
court or other body approving the settlement; (B) by the vote of at
least a majority of those Trustees who are neither Interested
Persons of the Trust nor are parties to the proceeding based upon a
review of readily available facts (as opposed to a full trial-type
inquiry); or (C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry).
(d) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(e) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him or her to the Trust or
applicable Series if it is ultimately determined that he or she is not entitled
to indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the proceeding, or independent legal counsel
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in a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(f) Any repeal or modification of this Article IX by the Shareholders of
the Trust, or adoption or modification of any other provision of the Trust
Instrument or By-laws inconsistent with this Article, shall be prospective only,
to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification or adoption.
Section 3. INDEMNIFICATION OF SHAREHOLDER. If any Shareholder or former
Shareholder of any Series shall be held personally liable solely by reason of
his or her being or having been a Shareholder and not because of his or her acts
or omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or in
the case of any entity, its general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by such Shareholder,
assume the defense of any claim made against such Shareholder for any act or
obligation of the Series and satisfy any judgment thereon from the assets of the
Series.
ARTICLE X
---------
MISCELLANEOUS
-------------
Section 1. TRUST NOT A PARTNERSHIP. This Trust Instrument creates a trust
and not a partnership. No Trustee shall have any power to bind personally either
the Trust's officers or any Shareholder.
Section 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY. The exercise
by the Trustees of their powers and discretion hereunder in good faith and with
reasonable care under the circumstances then prevailing shall be binding upon
everyone interested. Subject to the provisions of Article IX, the Trustees shall
not be liable for errors of judgment or mistakes of fact or law. The Trustees
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article IX,
shall not be liable for any act or omission in accordance with such advice or
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is obtained.
Section 3. RECORD DATES. The Trustees may fix in advance a date up to
ninety (90) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
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any such change, conversion or exchange of Shares. Record dates for adjourned
meetings of Shareholders shall be set according to the Trust's By-laws.
Section 4. TERMINATION OF THE TRUST. (a) This Trust shall have perpetual
existence. Subject to a Majority Shareholder Vote of the Trust or of each Series
to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another Series or to another entity
which is a a Registered Investment Company, or a series thereof, for
adequate consideration, which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust or any affected Series, and which may
include shares of or interests in such Series, entity, or series
thereof; or
(ii) at any time sell and convert into money all or substantially
all of the assets of the Trust or any affected Series.
Upon making reasonable provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of the Trust or any affected
Series then outstanding; however, the payment to any particular Class of such
Series may be reduced by any fees, expenses or charges allocated to that Class.
Nothing in this Trust Instrument shall preclude the Trustees from distributing
such remaining proceeds or assets so that holders of the Shares of a particular
Class of the Trust or any affected Series receive as their ratable distribution
shares solely of an analogous class, as determined by the Trustees, of a
Registered Investment Company or series thereof.
(b) The Trustees may take any of the actions specified in subsection (a)
(i) and (ii) above without obtaining a Majority Shareholder Vote of the Trust or
any Series if a majority of the Trustees determines that the continuation of the
Trust or Series is not in the best interests of the Trust, such Series, or their
respective Shareholders as a result of factors or events adversely affecting the
ability of the Trust or such Series to conduct its business and operations in an
economically viable manner. Such factors and events may include the inability of
the Trust or a Series to maintain its assets at an appropriate size, changes in
laws or regulations governing the Trust or the Series or affecting assets of the
type in which the Trust or Series invests, or economic developments or trends
having a significant adverse impact on the business or operations of the Trust
or such Series.
(c) Upon completion of the distribution of the remaining proceeds or
assets pursuant to subsection (a), the Trust or affected Series shall terminate
and the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder with respect thereto and the right, title and
interest of all parties therein shall be canceled and discharged. Upon
termination of the Trust, following completion of winding up of its business,
the Trustees shall cause a certificate of cancellation of the Trust's
certificate of trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
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Section 5. REORGANIZATION. Notwithstanding anything else herein, to change
the Trust's form of organization the Trustees may, without Shareholder approval,
(a) cause the Trust to merge or consolidate with or into one or more entities,
if the surviving or resulting entity is the Trust or another open-end management
investment company under the 1940 Act, or a series thereof, that will succeed to
or assume the Trust's registration under the 1940 Act, or (b) cause the Trust to
incorporate to the extent permitted by law. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of
the Delaware Act, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 5 may effect any amendment to the Trust
Instrument or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
Section 6. TRUST INSTRUMENT. The original or a copy of this Trust
Instrument and of each amendment hereto or Trust Instrument supplemental shall
be kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by a Trustee or an
officer of the Trust as to the authenticity of the Trust Instrument or any such
amendments or supplements and as to any matters in connection with the Trust.
The masculine gender herein shall include the feminine and neuter genders.
Headings herein are for convenience only and shall not affect the construction
of this Trust Instrument. This Trust Instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
Section 7. APPLICABLE LAW. This Trust Instrument and the Trust created
hereunder are governed by and shall be construed and administered according to
the Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware
Code, or (b) any provisions of the laws (statutory or common) of the State of
Delaware (other than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or agency of trustee
accounts or schedules of trustee fees and charges, (ii) affirmative requirements
to post bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards of responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a Delaware business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust under Delaware law. The
Trust specifically reserves the right to exercise any of the powers or
privileges afforded to trusts or actions that may be engaged in by trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
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Section 8. AMENDMENTS. The Trustees may, without any Shareholder vote,
amend or otherwise supplement this Trust Instrument by making an amendment, a
Trust Instrument supplemental hereto or an amended and restated trust
instrument; provided, that Shareholders shall have the right to vote on any
amendment (a) which would affect the voting rights of Shareholders granted in
Article VI, Section 1, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, or (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, any amendment to Article IX
which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon.
Section 9. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the By-laws. The Trustees may change the fiscal
year of the Trust or any Series without Shareholder approval.
Section 10. SEVERABILITY. The provisions of this Trust Instrument are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision hereof shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach to such provision only in such jurisdiction and shall not affect such
provision in any other jurisdiction or any other provision of this Trust
Instrument.
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SCHEDULE A
Series of the Trust
- -------------------
PaineWebber DSI Core Equity Fund
Classes of Shares of Series
- ---------------------------
An unlimited number of shares of beneficial interest have been established by
the Board as Class A shares, Class B shares, Class C shares and Class Y shares
of the above Series. Each of the Class A shares, Class B shares, Class C shares
and Class Y shares of the Series represents interests in the assets of only that
Series and has the same preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of shares, except as provided in the Trust's Trust
Instrument and as set forth below with respect to the Class B shares of the
Series:
1. Each Class B share, other than a share purchased through the reinvestment
of a dividend or a distribution with respect to the Class B share, shall
be converted automatically, and without any action or choice on the part
of the holder thereof, into Class A shares of the same Series, based on
the relative net asset value of each such class at the time of the
calculation of the net asset value of such class of shares on the date
that is the first Business Day (as defined in the Series' prospectus
and/or statement of additional information) of the month in which the
sixth anniversary of the issuance of such Class B shares occurs (which,
for the purpose of calculating the holding period required for conversion,
shall mean (i) the date on which the issuance of such Class B shares
occurred or (ii) for Class B shares obtained through an exchange, the date
on which the issuance of the Class B shares of an eligible PaineWebber
fund occurred, if such shares were exchanged directly, or through a series
of exchanges for the Series' Class B shares (the "Conversion Date")).
2. Each Class B share purchased through the reinvestment of a dividend or a
distribution with respect to the Class B shares and the dividends and
distributions on such shares shall be segregated in a separate sub-account
on the stock records of the Series for each of the holders of record
thereof. On any Conversion Date, a number of the shares held in the
sub-account of the holder of record of the share or shares being
converted, calculated in accordance with the next following sentence,
shall be converted automatically, and without any action or choice on the
part of the holder thereof, into Class A shares of the same Series. The
number of shares in the holder's sub-account so converted shall bear the
same relation to the total number of shares maintained in the sub-account
on the Conversion Date as the number of shares of the holder converted on
the Conversion Date pursuant to Paragraph 2(a) hereof bears to the total
number of Class B shares of the holder on the Conversion Date not
purchased through the automatic reinvestment of dividends or distributions
with respect to the Class B shares.
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3. The number of Class A shares into which a Class B share is converted
pursuant to paragraphs 1 and 2 hereof shall equal the number (including
for this purpose fractions of a share) obtained by dividing the net
asset value per share of the Class B shares for purposes of sales and
redemptions thereof at the time of the calculation of the net asset
value on the Conversion Date by the net asset value per share of the
Class A shares for purposes of sales and redemptions thereof at the
time of the calculation of the net asset value on the Conversion Date.
4. On the Conversion Date, the Class B shares converted into Class A
shares will cease to accrue dividends and will no longer be outstanding
and the rights of the holders thereof will cease (except the right to
receive declared but unpaid dividends to the Conversion Date).
For purposes of Paragraph 1 above, the term "eligible PaineWebber fund" includes
any and all mutual funds for which PaineWebber Incorporated or Mitchell Hutchins
Asset Management Inc. serves as investment adviser that offer shares with a
contingent deferred sales charge imposed upon certain redemptions of such shares
and that are exchangeable with the Class B shares of the Series.
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IN WITNESS WHEREOF, the undersigned, being all the Trustees of the
Trust, have executed this Trust Instrument as of the date and year first above
written.
/s/ Victoria E. Schonfeld /s/ Dianne E. O'Donnell
- ------------------------- -----------------------
Victoria E. Schonfeld Dianne E. O'Donnell
BY-LAWS
OF
MITCHELL HUTCHINS SECURITIES TRUST
December 23, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I PRINCIPAL OFFICE AND SEAL........................................1
Section 1. Principal Office..........................................1
Section 2. Seal......................................................1
ARTICLE II MEETINGS OF TRUSTEES............................................1
Section 1. Action by Trustees........................................1
Section 2. Compensation of Trustees..................................1
Section 3. Retirement of Trustees....................................1
ARTICLE III COMMITTEES.....................................................2
Section 1. Establishment.............................................2
Section 2. Proceedings; Quorum; Action...............................2
Section 3. Compensation of Committee Members.........................2
ARTICLE IV OFFICERS........................................................2
Section 1. General...................................................2
Section 2. Election..................................................2
Section 3. Vacancies and Newly Created Offices.......................2
Section 4. Removal and Resignation...................................2
Section 5. Chairman..................................................3
Section 6. President.................................................3
Section 7. Vice President(s).........................................3
Section 8. Treasurer and Assistant Treasurer(s)......................3
Section 9. Secretary and Assistant Secretaries.......................4
Section 10. Compensation of Officers...................................4
Section 11. Surety Bond................................................4
ARTICLE V MEETINGS OF SHAREHOLDERS.........................................4
Section 1. No Annual Meetings........................................4
Section 2. Special Meetings..........................................4
Section 3. Notice of Meetings; Waiver................................5
Section 4. Adjourned Meetings........................................5
Section 5. Validity of Proxies.......................................5
Section 6. Record Date...............................................6
Section 7. Action Without a Meeting..................................6
ARTICLE VI SHARES OF BENEFICIAL INTEREST...................................6
Section 1. No Share Certificates.....................................6
Section 2. Transfer of Shares........................................6
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ARTICLE VII CUSTODY OF SECURITIES..........................................6
Section 1. Employment of a Custodian.................................6
Section 2. Termination of Custodian Agreement........................6
Section 3. Other Arrangements........................................7
ARTICLE VIII FISCAL YEAR AND ACCOUNTANT....................................7
Section 1. Fiscal Year...............................................7
Section 2. Accountant................................................7
ARTICLE IX AMENDMENTS......................................................7
Section 1. General...................................................7
Section 2. By Shareholders Only......................................7
ARTICLE X NET ASSET VALUE..................................................7
ARTICLE XI MISCELLANEOUS...................................................8
Section 1. Inspection of Books.......................................8
Section 2. Severability..............................................8
Section 3. Headings..................................................8
ii
<PAGE>
BY-LAWS
OF
MITCHELL HUTCHINS SECURITIES TRUST
These By-laws of Mitchell Hutchins Securities Trust (the "Trust"), a
Delaware business trust, are subject to the Trust Instrument of the Trust dated
as of December 23, 1999, as from time to time amended, supplemented or restated
(the "Trust Instrument"). Capitalized terms used herein have the same meanings
as in the Trust Instrument.
ARTICLE I
PRINCIPAL OFFICE AND SEAL
-------------------------
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located in New York, New York, or such other location as the Trustees determine.
The Trust may establish and maintain other offices and places of business as the
Trustees determine.
SECTION 2. SEAL. The Trustees may adopt a seal for the Trust in such
form and with such inscription as the Trustees determine. Any Trustee or
officer of the Trust shall have authority to affix the seal to any document.
ARTICLE II
MEETINGS OF TRUSTEES
--------------------
SECTION 1. ACTION BY TRUSTEES. Trustees may take actions at meetings held
at such places and times as the Trustees may determine, or without meetings, all
as provided in Article II, Section 7, of the Trust Instrument.
SECTION 2. COMPENSATION OF TRUSTEES. Each Trustee who is neither an
employee of an investment adviser of the Trust or any Series nor an employee of
an entity affiliated with the investment adviser may receive such compensation
from the Trust for services as the Trustees may determine. Each Trustee may
receive such reimbursement for expenses as the Trustees may determine.
SECTION 3. RETIREMENT OF TRUSTEES. Each Trustee who has attained the age
of seventy-two (72) years as of December 31 of any year shall retire from
service as a Trustee on such date unless that retirement would cause the Trust
to be required to call a meeting of Shareholders to fill the resulting vacancy
on the Board of Trustees; provided, however, that this requirement may be waived
on an annual basis for individual Trustees by resolution of the Board of
Trustees. Such waiver may include a period ending at the close of business on
December 31 of the following year. Notwithstanding anything in this Section, a
Trustee may retire at any time as provided for in the Trust Instrument.
<PAGE>
ARTICLE III
COMMITTEES
----------
SECTION 1. ESTABLISHMENT. The Trustees may designate one or more
committees of the Trustees, which may include an Executive Committee, a
Nominating Committee, and an Audit Committee. The Trustees shall determine the
number of members of each committee and its powers and shall appoint its members
and its chair. Each committee member shall serve at the pleasure of the
Trustees. The Trustees may abolish any committee at any time. Each committee
shall maintain records of its meetings and report its actions to the Trustees.
The Trustees may rescind any action of any committee, but such rescission shall
not have retroactive effect. The Trustees may delegate to any committee any of
its powers, subject to the limitations of applicable law.
SECTION 2. PROCEEDINGS; QUORUM; ACTION. Each committee may adopt such
rules governing its proceedings, quorum and manner of acting as it shall deem
proper and desirable. In the absence of such rules, a majority of any committee
shall constitute a quorum, and a committee shall act by the vote of a majority
of a quorum.
SECTION 3. COMPENSATION OF COMMITTEE MEMBERS. Each committee member who is
not an "interested person" of the Trust, as defined in the 1940 Act
("Disinterested Trustees") may receive such compensation from the Trust for
services as the Trustees may determine. Each Trustee may receive such
reimbursement for expenses as the Trustees may determine.
ARTICLE IV
OFFICERS
--------
SECTION 1. GENERAL. The officers of the Trust shall be a Chairman, a
President, one or more Vice Presidents, a Treasurer, and a Secretary, and may
include one or more Assistant Treasurers or Assistant Secretaries and such other
officers ("Other Officers") as the Trustees may determine.
SECTION 2. ELECTION. Tenure and Qualifications of Officers. The Trustees
shall elect the officers of the Trust. Each officer elected by the Trustees
shall hold office until his or her successor shall have been elected and
qualified or until his or her earlier death, inability to serve, or resignation.
Any person may hold one or more offices, except that the Chairman and the
Secretary may not be the same individual. A person who holds more than one
office in the Trust may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer. No officer other than the
Chairman need be a Trustee or Shareholder.
SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy
shall occur in any office or if any new office is created, the Trustees may
fill such vacancy or new office.
SECTION 4. REMOVAL AND RESIGNATION. Officers serve at the pleasure of the
Trustees and may be removed at any time with or without cause. The Trustees may
delegate this power to the Chairman or President with respect to any Other
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Officer. Such removal shall be without prejudice to the contract rights, if any,
of the person so removed. Any officer may resign from office at any time by
delivering a written resignation to the Trustees, Chairman, or the President.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
SECTION 5. CHAIRMAN. The Chairman shall preside at all meetings of the
Trustees and shall in general exercise the powers and perform the duties of the
Chairman of the Trustees. The Chairman shall exercise such other powers and
perform such other duties as the Trustees may assign to the Chairman.
SECTION 6. PRESIDENT. The President shall be the chief executive officer
of the Trust. The President shall preside at any Shareholders' meetings. Subject
to the direction of the Trustees, the President shall have general charge,
supervision and control over the Trust's business affairs and shall be
responsible for the management thereof and the execution of policies established
by the Trustees. Except as the Trustees may otherwise order, the President shall
have the power to grant, issue, execute or sign powers of attorney, proxies,
agreements or other documents. The President also shall have the power to employ
attorneys, accountants and other advisers and agents for the Trust, except as
otherwise required by the 1940 Act. At the request or in the absence or
disability of the Chairman, the President shall perform all the duties of the
Chairman and, when so acting, shall have all the powers of the Chairman.
SECTION 7. VICE PRESIDENT(s). The Vice President(s) shall have such powers
and perform such duties as the Trustees or the Chairman may determine. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) shall perform all the duties of the
President and, when so acting, shall have all the powers of the President. The
Trustees may designate a Vice President as the principal financial officer of
the Trust or to serve one or more other functions. If a Vice President is
designated as principal financial officer of the Trust, he or she shall have
general charge of the finances and books of the Trust and shall report to the
Trustees annually regarding the financial condition of each Series as soon as
possible after the close of such Series's fiscal year. The Trustees also may
designate one of the Vice Presidents as Executive Vice President.
SECTION 8. TREASURER AND ASSISTANT TREASURER(s). The Treasurer may be
designated as the principal financial officer or as the principal accounting
officer of the Trust. If designated as principal financial officer, the
Treasurer shall have general charge of the finances and books of the Trust, and
shall report to the Trustees annually regarding the financial condition of each
Series as soon as possible after the close of such Series' fiscal year. The
Treasurer shall be responsible for the delivery of all funds and securities of
the Trust to such company as the Trustees shall retain as Custodian. The
Treasurer shall furnish such reports concerning the financial condition of the
Trust as the Trustees may request. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the Trustees' supervision, and
shall perform such additional duties as the Trustees may designate.
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Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record
all votes and proceedings of the meetings of Trustees and Shareholders in books
to be kept for that purpose. The Secretary shall be responsible for giving and
serving notices of the Trust. The Secretary shall have custody of any seal of
the Trust and shall be responsible for the records of the Trust, including the
Share register and such other books and documents as may be required by the
Trustees or by law. The Secretary shall perform all acts incidental to the
office of Secretary, subject to the supervision of the Trustees, and shall
perform such additional duties as the Trustees may designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
SECTION 10. COMPENSATION OF OFFICERS. Each officer may receive such
compensation from the Trust for services and reimbursement for expenses as
the Trustees may determine.
SECTION 11. SURETY BOND. The Trustees may require any officer or agent of
the Trust to execute a bond (including, without limitation, any bond required by
the 1940 Act and the rules and regulations of the Securities and Exchange
Commission ("Commission")) to the Trust in such sum and with such surety or
sureties as the Trustees may determine, conditioned upon the faithful
performance of his or her duties to the Trust, including responsibility for
negligence and for the accounting of any of the Trust's property, funds or
securities that may come into his or her hands.
ARTICLE V
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. NO ANNUAL MEETINGS. There shall be no annual Shareholders'
meetings, unless required by law.
SECTION 2. SPECIAL MEETINGS. The Secretary shall call a special
meeting of Shareholders of any Series or Class whenever ordered by the
Trustees.
The Secretary also shall call a special meeting of Shareholders of any
Series or Class upon the written request of Shareholders owning at least ten
percent of the Outstanding Shares of such Series or Class entitled to vote at
such meeting; provided, that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the Shareholders
requesting such meeting shall have paid to the Trust the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Shareholders. If the Secretary fails for more than
thirty days to call a special meeting when required to do so, the Trustees or
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the Shareholders requesting such a meeting may, in the name of the Secretary,
call the meeting by giving the required notice. The Secretary shall not call a
special meeting upon the request of Shareholders of any Series or Class to
consider any matter that is substantially the same as a matter voted upon at any
special meeting of Shareholders of such Series or Class held during the
preceding twelve months, unless requested by the holders of a majority of the
Outstanding Shares of such Series or Class entitled to be voted at such meeting.
A special meeting of Shareholders of any Series or Class shall be held at
such time and place as is determined by the Trustees and stated in the notice of
that meeting.
SECTION 3. NOTICE OF MEETINGS; WAIVER. The Secretary shall call a special
meeting of Shareholders by giving written notice of the place, date, time, and
purposes of that meeting at least fifteen days before the date of such meeting.
The Secretary may deliver or mail, postage prepaid, the written notice of any
meeting to each Shareholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States mail directed to
the Shareholder at his or her address as it appears on the records of the Trust.
SECTION 4. ADJOURNED MEETINGS. A Shareholders' meeting may be adjourned
one or more times for any reason, including the failure of a quorum to attend
the meeting. No notice of adjournment of a meeting to another time or place need
be given to Shareholders if such time and place are announced at the meeting at
which the adjournment is taken or reasonable notice is given to Persons present
at the meeting, and if the adjourned meeting is held within a reasonable time
after the date set for the original meeting. Determination of reasonable notice
and a reasonable time for purposes of the foregoing sentence is to be made by
the officers of the Trust. Any business that might have been transacted at the
original meeting may be transacted at any adjourned meeting. If after the
adjournment a new record date is fixed for the adjourned meeting, the Secretary
shall give notice of the adjourned meeting to Shareholders of record entitled to
vote at such meeting. Any irregularities in the notice of any meeting or the
nonreceipt of any such notice by any of the Shareholders shall not invalidate
any action otherwise properly taken at any such meeting.
SECTION 5. VALIDITY OF PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy;
provided, that either (1) the Shareholder or his or her duly authorized attorney
has signed and dated a written instrument authorizing such proxy to act, or (2)
the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, but if a proposal by anyone other than the officers or Trustees is
submitted to a vote of the Shareholders of any Series or Class, or if there is a
proxy contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees, Shares may be voted only in person or by written
proxy. Unless the proxy provides otherwise, it shall not be valid for more than
eleven months before the date of the meeting. All proxies shall be delivered to
the Secretary or other person responsible for recording the proceedings before
being voted. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of such proxy the Trust receives a specific written notice to the contrary from
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<PAGE>
any one of them. Unless otherwise specifically limited by their terms, proxies
shall entitle the Shareholder to vote at any adjournment of a Shareholders'
meeting. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. At every meeting of
Shareholders, unless the voting is conducted by inspectors, the chairman of the
meeting shall decide all questions concerning the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes. Subject to the
provisions of the Delaware Business Trust Act, the Trust Instrument, or these
By-laws, the General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder shall govern all matters
concerning the giving, voting or validity of proxies, as if the Trust were a
Delaware corporation and the Shareholders were shareholders of a Delaware
corporation.
SECTION 6. RECORD DATE. The Trustees may fix in advance a date up to
ninety days before the date of any Shareholders' meeting as a record date for
the determination of the Shareholders entitled to notice of, and to vote at, any
such meeting. The Shareholders of record entitled to vote at a Shareholders'
meeting shall be deemed the Shareholders of record at any meeting reconvened
after one or more adjournments, unless the Trustees have fixed a new record
date.
SECTION 7. ACTION WITHOUT A MEETING. Shareholders may take any action
without a meeting if a majority (or such greater amount as may be required by
law) of the Outstanding Shares entitled to vote on the matter consent to the
action in writing and such written consents are filed with the records of
Shareholders' meetings. Such written consent shall be treated for all purposes
as a vote at a meeting of the Shareholders.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
-----------------------------
SECTION 1. NO SHARE CERTIFICATES. Neither the Trust nor any Series or
Class shall issue certificates certifying the ownership of Shares, unless the
Trustees may otherwise specifically authorize such certificates.
SECTION 2. TRANSFER OF SHARES. Shares shall be transferable only by a
transfer recorded on the books of the Trust by the Shareholder of record in
person or by his or her duly authorized attorney or legal representative. Shares
may be freely transferred and the Trustees may, from time to time, adopt rules
and regulations regarding the method of transfer of such Shares.
ARTICLE VII
CUSTODY OF SECURITIES
---------------------
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall at all times place
and maintain all cash, securities and other assets of the Trust and of each
Series in the custody of a custodian meeting the requirements set forth in
Article VII, Section 4 of the Trust Instrument ("Custodian"). The Custodian
shall be appointed from time to time by the Board of Trustees, who shall
determine its remuneration
SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of any
Custodian Agreement or the inability of the Custodian to continue to serve as
custodian, in either case with respect to the Trust or any Series, the Board of
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Trustees shall (a) use its best efforts to obtain a successor Custodian; and (b)
require that the cash, securities and other assets owned by the Trust or any
Series be delivered directly to the successor Custodian.
SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other
arrangements for the custody of its assets (including deposit arrangements)
as may be required by any applicable law, rule or regulation.
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT
--------------------------
SECTION 1. FISCAL YEAR. The fiscal year of the Trust or a Series of
the Trust shall end on such date as the Trustees may determine by resolution.
SECTION 2. ACCOUNTANT. The Trust shall employ independent certified public
accountants as its Accountant to examine the accounts of the Trust and to sign
and certify financial statements filed by the Trust. The Accountant's
certificates and reports shall be addressed both to the Trustees and to the
Shareholders. A majority of the Disinterested Trustees shall select the
Accountant, acting upon the recommendation of the Audit Committee. The
employment of the Accountant shall be conditioned upon the right of the Trust to
terminate such employment without any penalty by vote of a Majority Shareholder
Vote at any Shareholders' meeting called for that purpose.
ARTICLE IX
AMENDMENTS
----------
SECTION 1. GENERAL. Except as provided in Section 2 of this Article,
these By-laws may be amended by the Trustees, or by the affirmative vote of a
majority of the Outstanding Shares entitled to vote at any meeting.
SECTION 2. BY SHAREHOLDERS ONLY. After the issue of any Shares, this
Article may only be amended by the affirmative vote of the holders of the lesser
of (a) at least two-thirds of the Outstanding Shares present and entitled to
vote at any meeting, or (b) at least fifty percent of the Outstanding Shares.
ARTICLE X
NET ASSET VALUE
---------------
The term "Net Asset Value" of any Series shall mean that amount by which
the assets belonging to that Series exceed its liabilities, all as determined by
or under the direction of the Trustees. Net Asset Value per Share shall be
determined separately for each Series and each Class and shall be determined on
such days and at such times as the Trustees may determine. The Trustees shall
make such determination with respect to securities for which market quotations
are readily available, at the market value of such securities, and with respect
to other securities and assets, at the fair value as determined in good faith by
the Trustees; provided, however, that the Trustees, without Shareholder
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approval, may alter the method of appraising portfolio securities insofar as
permitted under the 1940 Act and the rules, regulations and interpretations
thereof promulgated or issued by the SEC or insofar as permitted by any order of
the SEC applicable to the Series or to the Class. The Trustees may delegate any
of their powers and duties under this Article X with respect to appraisal of
assets and liabilities. At any time the Trustees may cause the Net Asset Value
per Share last determined to be determined again in a similar manner and may fix
the time when such redetermined values shall become effective.
ARTICLE XI
MISCELLANEOUS
-------------
SECTION 1. INSPECTION OF BOOKS. The Board of Trustees shall from time to
time determine whether and to what extent, and at what times and places, and
under what conditions the accounts and books of the Trust or any Series or Class
shall be open to the inspection of Shareholders. No Shareholder shall have any
right to inspect any account or book or document of the Trust except as
conferred by law or otherwise by the Board of Trustees or by resolution of
Shareholders.
SECTION 2. SEVERABILITY. The provisions of these By-laws are severable. If
the Board of Trustees determine, with the advice of counsel, that any provision
hereof conflicts with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of these
By-laws; provided, however, that such determination shall not affect any of the
remaining provisions of these By-laws or render invalid or improper any action
taken or omitted prior to such determination. If any provision hereof shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of these Bylaws.
SECTION 3. HEADINGS. Headings are placed in these By-laws for
convenience of reference only and in case of any conflict, the text of these
By-laws rather than the headings shall control.
8
