As filed with the Securities and Exchange Commission on March 7, 2000
1933 Act Registration No. 333-94065
1940 Act Registration No. 811-09745
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No 3 [ X ]
-----
Post-Effective Amendment No. _____ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [ X ]
----- ---
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 Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 7, 2000
PAINEWEBBER
ENHANCED S&P 500 FUND
PAINEWEBBER
ENHANCED NASDAQ-100 FUND
-------------------------------
PROSPECTUS
MARCH , 2000
-------------------------------
This prospectus offers four classes of shares in two of PaineWebber's stock
funds -- 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 either fund's shares or determined whether this
prospectus is complete or accurate. To state otherwise is a crime.
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.
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
CONTENTS
THE FUNDS
--------------------------------------------------------------------
PaineWebber Enhanced S&P 500 Fund:
What every investor 3 Investment Objective, Strategies and Risks
should know about 5 Expenses and Fee Tables
the funds
PaineWebber Enhanced Nasdaq-100 Fund:
6 Investment Objective, Strategies and Risks
8 Expenses and Fee Tables
9 More About Risks and Investment Strategies
YOUR INVESTMENT
--------------------------------------------------------------------
Information for 11 Managing Your Fund Account
managing your fund -- Initial Subscription Period
account -- Flexible Pricing
-- Buying Shares
-- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION
--------------------------------------------------------------------
Additional important 18 Management
information about
the funds 20 Dividends and Taxes
21 Appendix
--------------------------------------------------------------------
Where to learn more Back Cover
about PaineWebber
mutual funds
--------------------------------------
The funds are not complete or balanced
investment programs.
--------------------------------------
2
<PAGE>
PaineWebber Enhanced S&P 500 Fund
-------------------------------------
PAINEWEBBER ENHANCED S&P 500 FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
------------------------------------------
FUND OBJECTIVE
To seek higher total return over the long term than the S&P 500 Index.
PRINCIPAL INVESTMENT STRATEGIES
The fund seeks to achieve its investment objective by using its sub-adviser's
proprietary enhanced S&P 500 strategy to invest in a selection of common stocks
that are included in the Standard & Poor's Composite Index of 500 Stocks ("S&P
500 Index"). The fund expects normally to invest in approximately 250 to 400
stocks and to weight its holdings of individual stocks based on its
sub-adviser's proprietary enhanced S&P 500 strategy. Compared to the stock
weightings in the S&P 500 Index, the fund overweights stocks that its strategy
ranks positively and underweights stocks that its strategy 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
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 generally expects to
rebalance its portfolio monthly but may do so more often if its sub-adviser
considers it appropriate to do so.
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 S&P 500 strategy, which consists of an adaptive stock ranking 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 (such as 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 stock ranking 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 S&P 500 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
3
<PAGE>
a portfolio for the fund that outperforms the total return of the S&P 500 Index.
As a result, the fund may not achieve its investment objective and may even
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 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.
The fund's investments in derivatives may rise or fall more rapidly than other
investments. Foreign securities involve risks that normally are not associated
with securities of U.S. issuers.
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 DSI Proprietary Strategy Risk
o Derivatives Risk
o Foreign Securities Risk
PERFORMANCE INFORMATION
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. SEE "MANAGEMENT - ENHANCED S&P 500 FUND ADDITIONAL INFORMATION
ABOUT DSI" FOR INFORMATION ABOUT THE PERFORMANCE OF PRIVATE ACCOUNTS MANAGED BY
DSI WITH DISCRETIONARY AUTHORITY USING ITS PROPRIETARY ENHANCED S&P 500
STRATEGY.
4
<PAGE>
PaineWebber Enhanced S&P 500 Fund
----------------------------------------
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)............................. 3% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)............................. None 3% 0.65% None
Exchange Fee.............................................. None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
Management Fees........................................... 0.40% 0.40% 0.40% 0.40%
Distribution and/or Service (12b-1) Fees.................. 0.25 0.65 0.65 None
Other Expenses*........................................... 0.33 0.33 0.33 0.33
---- ---- ---- ----
Total Annual Fund Operating Expenses..................... 0.98% 1.38% 1.38% 0.73%
==== ==== ==== ====
* "Other Expenses" are based on estimated amounts for the current fiscal year.
</TABLE>
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, except that
the fund's initial organizational expenses are only included for its first year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
------ -------
Class A ................................................. $397 $592
Class B (assuming sale of all shares at end of period)... 441 626
Class B (assuming no sale of shares)................ 141 426
Class C (assuming sale of all shares at end ofperiod).... 206 426
Class C (assuming no sale of shares)..................... 141 426
Class Y ................................................. 75 233
5
<PAGE>
PaineWebber Enhanced Nasdaq-100 Fund
----------------------------------------------------------
PAINEWEBBER ENHANCED NASDAQ-100 FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
------------------------------------------
FUND OBJECTIVE
To seek higher total return over the long term than the Nasdaq-100 Index.
PRINCIPAL INVESTMENT STRATEGIES
The fund seeks to achieve its investment objective by following its
sub-adviser's proprietary enhanced Nasdaq-100 strategy to invest primarily in a
selection of common stocks that are included in the Nasdaq-100 Index(R)
("Nasdaq-100 Index"). The fund expects normally to invest in a majority of the
stocks in the Nasdaq-100 Index and to weight its holdings of individual stocks
based on its sub-adviser's proprietary enhanced Nasdaq-100 strategy. Compared to
the stock weightings in the Nasdaq-100 Index, the fund overweights stocks that
its strategy ranks positively and underweights stocks that its strategy ranks
negatively. Generally, the fund gives stocks with a neutral ranking the same
weight as in the Nasdaq-100 Index.
The fund seeks to control the risk of its portfolio by maintaining a general
correlation between its performance and the performance of the Nasdaq-100 Index
over time, but does not expect to maintain as close a correlation as Enhanced
S&P 500 Fund does to its benchmark index. To maintain this general correlation,
the fund gives each stock in its portfolio a weighting that is close to the
Nasdaq-100 Index weighting and, if necessary, readjusts the weighting when it
rebalances the portfolio. The fund also considers relative industry weighting
and market capitalization. The fund generally expects to rebalance its portfolio
monthly but may do so more often if its sub-adviser considers it appropriate to
do so. As of December 31, 1999, approximately 74% of the value of the stocks
currently in the Nasdaq-100 Index were in the technology sector, and the fund
expects that its investments will reflect a similar concentration in the
technology sector.
The fund may invest in U.S. dollar-denominated foreign securities that are
included in the Nasdaq-100 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 Nasdaq-100
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 Nasdaq-100 strategy, which consists of an adaptive stock ranking model
and a portfolio construction model. DSI has developed a quantitative, dynamic,
bottom up, multi-factor model to rank the stocks in the Nasdaq-100 Index, using
relatively independent factors (such as earnings expectations, earnings growth,
valuation, 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 stock ranking model to the stocks in the Nasdaq-100
Index, so that relative rankings of the stocks in the Nasdaq-100 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 Nasdaq-100 strategy, the fund expects a general
correlation between its performance and that of the Nasdaq-100 Index in both
rising and falling markets. This strategy, however, may not be successful in
6
<PAGE>
selecting a portfolio for the fund that outperforms the total return of the
Nasdaq-100 Index. As a result, the fund may not achieve its investment objective
and may even underperform relative to the Nasdaq-100 Index. The fund's
performance also may deviate from that of the Nasdaq-100 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
Nasdaq-100 Index.
The stocks in the Nasdaq-100 Index are concentrated in the technology sector and
the fund's investments also are expected to be concentrated in this sector to
permit its portfolio generally to follow the Nasdaq-100 Index. As a result, both
the price performance of the Nasdaq-100 Index and the price of the fund's shares
may be more volatile when compared to other broad-based stock indices. In
addition, the fund's performance will be more severely affected by unfavorable
developments in the technology industry than if it invested in a broader range
of businesses. Because the fund is non-diversified, it can invest more of its
assets in a single issuer than a diversified fund can and expects to do so as
necessary generally to follow the Nasdaq-100 Index. As a result, changes in the
market value of a single issuer can have a greater effect on the fund's
performance and share price than if the fund held a smaller position.
The fund's investments in derivatives may rise or fall more rapidly than other
investments. Foreign securities involve risks that normally are not associated
with securities of U.S. issuers.
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 DSI Proprietary Strategy Risk
o Technology Sector Concentration Risk
o Individual Stock Concentration Risk
o Derivatives Risk
o Foreign Securities Risk
PERFORMANCE INFORMATION
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.
7
<PAGE>
PaineWebber Enhanced Nasdaq-100 Fund
----------------------------------------------------------
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> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price).......................... 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price).......................... None 5% 1% None
Exchange Fee........................................... None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
Management Fees........................................ 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees............... 0.25 1.00 1.00 None
Other Expenses*........................................ 0.28 0.28 0.28 0.28
---- ---- ---- ----
Total Annual Fund Operating Expenses................... 1.28% 2.03% 2.03% 1.03%
==== ==== ==== ====
</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, except that
the fund's initial organizational expenses are only included for its first year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
------ -------
Class A.................................................. $575 $832
Class B (assuming sale of all shares at end of period)... 706 930
Class B (assuming no sale of shares)..................... 206 630
Class C (assuming sale of all shares at end of period)... 306 630
Class C (assuming no sale of shares)..................... 206 630
Class Y.................................................. 105 321
8
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
MORE ABOUT RISKS AND INVESTMENT STRATEGIES
------------------------------------------
PRINCIPAL RISKS
The main risks of investing in one or both of the funds are described below. Not
all of these risks apply to each fund. You can find a list of the main risks
that apply to a particular fund by looking under the "Investment Objective,
Strategies and Risks" heading for that fund.
Other risks of investing in a fund, along with further detail about some of the
risks described below, are discussed in the funds' 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. A fund may lose
a substantial part, or even all, of its investment in a company's stock.
DSI PROPRIETARY STRATEGY RISK. By using DSI's proprietary strategies, each fund
seeks to outperform the total return of its benchmark index and to maintain a
correlation between the fund's performance and that of the benchmark index in
both rising and falling markets. The DSI proprietary strategies, however, may
not be successful in selecting a portfolio for a fund that outperforms the total
return of its benchmark index. As a result, a fund may not achieve its
investment objective and may even underperform relative to its benchmark index.
A fund's performance also may deviate from that of its benchmark index due to
the daily cash flows to which each fund is subject and which will result in the
ongoing purchases and sales of stocks and transactional expenses, including
brokerage fees. In addition, each fund must pay fees and expenses that are not
borne by an index.
TECHNOLOGY SECTOR CONCENTRATION RISK. Enhanced Nasdaq-100 Fund expects to
concentrate its investments in a particular industry sector to the extent
necessary generally to follow the Nasdaq-100 Index. The risk of concentrating
the fund's investments in issuers that conduct business in the same industry is
that the fund will be more susceptible to the risks that are associated with
that sector than a fund that does not concentrate its investments. As of
December 31, 1999, approximately 74% of the index underlying the Nasdaq-100
Index was concentrated in companies in the technology sector, which has shown
relatively high volatility in price performance. As a result, both the price
performance of the Nasdaq-100 Index and the price of the fund's shares may be
more volatile when compared to other broad-based stock indices. In addition, the
fund's performance will be more severely affected by unfavorable developments in
the technology industry than if it invested in a broader range of businesses.
Individual issuers within the technology sector as well as the technology sector
as a whole, can be significantly affected by obsolescence of existing
technology, short product cycles, falling prices and profits, and competition
from new market entrants.
INDIVIDUAL STOCK CONCENTRATION RISK. Enhanced Nasdaq-100 Fund is
non-diversified, which means that it is not subject to certain limitations on
its ability to invest more than 5% of its total assets in securities of a single
issuer. The fund expects to invest more than 5% of its total assets in the
securities of specific companies as needed generally to follow the Nasdaq-100
Index. The identity and capitalization weightings of the companies which
represented 5% or more of the Nasdaq-100 Index as of February 29, 2000 were as
follows: Microsoft Corporation (7.06%), Cisco Systems, Inc. (6.93%), Intel
Corporation (5.88%) and Qualcomm Incorporated (5.32%). When a fund holds a large
position in the securities of one issuer, changes in the financial condition or
in the market's assessment of that issuer may cause larger changes in the fund's
total return and in the price of its shares than if the fund held only a smaller
position.
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 a fund to lose more than the amount it invested in the derivative.
Options and futures contracts are examples of derivatives. A fund's use of
derivatives may not succeed for various reasons, including unexpected changes in
the values of the derivatives or the assets underlying the derivatives. If a
fund uses derivatives to adjust or "hedge" the overall risk of its portfolio, it
is possible that the hedge will not succeed if changes in the value of the
derivatives that are not matched by opposite changes in the value of the rest of
a fund's portfolio.
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.
9
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES
USE OF PROCEEDS OF INITIAL OFFERING. The funds may not be fully invested in
stocks until approximately 30 days after they begin investment operations.
During that period, each 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 its benchmark
index.
PORTFOLIO TURNOVER. Each fund may engage in frequent trading to achieve its
investment objective. Frequent trading can result in portfolio turnover of 100%
or more (high portfolio turnover).
Frequent trading may increase the portion of a fund's capital gains that are
realized for tax purposes in any given year. This may increase the fund's
taxable dividends in that year. Frequent trading also may increase the portion
of a fund's realized capital gains that are considered "short-term" for tax
purposes. Shareholders will pay higher taxes on dividends that represent
short-term gains than they would pay on dividends that represent long-term
gains. Frequent trading also may result in higher fund expenses due to
transaction costs.
The funds do not restrict the frequency of trading in order to limit expenses or
the tax effect that the fund's dividends may have on shareholders.
MORE INFORMATION ABOUT THE BENCHMARK INDICES
The S&P 500 Index is composed of 500 common stocks that are selected by Standard
& Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). Most of these
500 stocks trade on the New York Stock Exchange. These stocks represent
approximately 75% of the market value of all U.S. common stocks but do not
necessarily represent the largest companies. S&P selects the component stocks
included in the S&P 500 Index with the aim of achieving a distribution that is
representative of the various industry components of the U.S. market for common
stocks. S&P also considers aggregate market value and trading activity in the
selection process. Enhanced S&P 500 Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in the fund. S&P 500(R) is a trademark of The McGraw-Hill Companies,
Inc. and has been licensed for use by Mitchell Hutchins.
The Nasdaq-100 Index is a modified capitalization-weighted index composed of 100
of the largest non-financial domestic or international companies listed on the
National Market tier of The Nasdaq Stock Market, Inc. ("Nasdaq"). All companies
listed on the Nasdaq-100 Index have an average daily trading volume of at least
100,000 shares, must be "seasoned" (generally by having been listed on a market
for at least two years) and must meet other requirements. The Nasdaq-100 Index
was created in 1985. Enhanced Nasdaq-100 Fund is not sponsored, endorsed, sold
or promoted by Nasdaq, and Nasdaq makes no representation regarding the
advisability of investing in the fund. Nasdaq-100(R) and Nasdaq-100 IndEx(R) and
NaSdaq(R) are trade or serviCE marks of Nasdaq and have been licensed for use by
Mitchell Hutchins.
10
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
Your Investment
MANAGING YOUR FUND ACCOUNT
--------------------------
INITIAL SUBSCRIPTION PERIOD
During an initial subscription period currently scheduled to end on or about
April 25, 2000, each fund will offer its Class B, C and Y shares at a
subscription price equal to its initial net asset value per share of $10 and
will offer its Class A shares at that price plus any applicable sales charge.
You must pay the purchase price as indicated below. Shares of the funds may not
be purchased through an exchange for shares of other PaineWebber mutual funds
during the initial subscription period. Each fund expects to begin investment
operations shortly after the subscription period ends. After April 28, 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, each 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 a fund during this period, but you will be able to
sell your shares. Mitchell Hutchins will decide whether a fund should
temporarily stop offering its shares based on its judgment of whether the
sub-adviser can invest the initial offering proceeds more effectively without
daily inflows of new money.
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 date,
although no payment is due until the offering period closes. During the offering
period, a fund may cancel or modify the offering of shares without notice. A
fund may also refuse any order in whole or in part.
FLEXIBLE PRICING
The funds offer 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.
Each 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 a 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 each fund are described in the following tables.
11
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ENHANCED S&P 500 FUND -- CLASS A SALES CHARGES
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE*
- -------------------- -------------- ------------------- -----------------------------
<S> <C> <C> <C>
Less than $50,000.......... 3.00% 3.09% 2.75%
$50,000 to $99,999......... 2.50 2.56 2.25
$100,000 to $249,999...... 2.00 2.04 1.75
$250,000 to $499,999 ...... 1.50 1.52 1.25
$500,000 to $999,999 ...... 1.25 1.27 1.00
$1,000,000 and over (1) ... None None 0.50(2)
ENHANCED NASDAQ-100 FUND -- CLASS A SALES CHARGES
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
- -------------------- -------------- ------------------- ----------------------------
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>
_____________
**For the initial subscription period ending on or about April 25, 2000,
Mitchell Hutchins will reallow the full amount of the sales charge to
selected dealers.
(1) A contingent deferred sales charge of 1% (0.50% for Enhanced S&P 500 Fund)
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 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% (0.50% for Enhanced S&P 500 Fund) 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;
12
<PAGE>
- 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 funds' 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 funds. 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 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 (0.40% of average net assets
for Enhanced S&P 500 Fund and 0.75% of average net assets for Enhanced
Nasdaq-100 Fund). Both funds also pay 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:
ENHANCED S&P 500 FUND
PERCENTAGE BY WHICH THE
IF YOU SELL SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
------------- -------------------
1st year since purchase 3%
2nd year since purchase 3
3rd year since purchase 2
4th year since purchase 2
5th year since purchase 1
6th year since purchase 1
7th year since purchase None
ENHANCED NASDAQ-100 FUND
PERCENTAGE BY WHICH THE
IF YOU SELL SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
------------- -------------------
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
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:
13
<PAGE>
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; or
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.
NOTE: If you think you qualify for any of these sales charge waivers, you may
need to provide documentation to PaineWebber or the funds. 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 level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.
Class C shares pay an annual 12b-1 distribution fee (0.40% of average net assets
for Enhanced S&P 500 Fund and 0.75% of average net assets for Enhanced
Nasdaq-100 Fund). Both funds pay 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.
Class C shares also have a contingent deferred sales charge of 0.65% for
Enhanced S&P 500 Fund and 1% for Enhanced Nasdaq-100 Fund. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying the applicable percentage 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.
NOTE: If you think you qualify for any of these sales charge waivers, you may
need to provide documentation to PaineWebber or the funds. 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 funds' 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 funds through the funds' 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:
14
<PAGE>
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you wish to invest in other PaineWebber Funds, you can do so by:
o Contacting your Financial Advisor (if you have an account at PaineWebber or
at a PaineWebber correspondent firm);
o Mailing an application with a check; or
o Opening an account by exchanging shares from another PaineWebber fund.
You do not have to complete an application when you make additional investments
in the same fund.
The funds 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
Each fund may waive or reduce these amounts for:
o Employees of PaineWebber or its affiliates; or
o Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the funds' automatic investment plans.
FREQUENT TRADING. The interests of a 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. A 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
15
<PAGE>
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 each fund money to maintain shareholder accounts. Therefore, the funds
reserve the right to repurchase all shares in any account that has a net asset
value of less than $500. If a 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. A fund will not repurchase shares in accounts that fall below $500 solely
because of a decrease in the fund's net asset value.
EXCHANGING SHARES
- -----------------
Except as described below, you may exchange Class A, Class B or Class C shares
of each fund for shares of the same class of most other PaineWebber funds. You
may not exchange Class Y shares. You also may not exchange shares of other
PaineWebber mutual funds for shares of the funds during the initial subscription
period or during the following period of up to 60 days that the funds may stop
offering their shares for purchase.
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. Each 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 AND CORRESPONDENT FIRM 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
A fund may modify or terminate the exchange privilege at any time, subject to
any required notice.
PRICING AND VALUATION
- ---------------------
The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. Each 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 funds do not price their
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, each 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.
Each fund calculates its net asset value based on the current market value for
its portfolio securities. The funds normally obtain 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
16
<PAGE>
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 funds normally use the amortized cost method to value debt
securities that will mature in 60 days or less.
17
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
MANAGEMENT
----------
INVESTMENT ADVISER
Mitchell Hutchins is the investment adviser and administrator for each fund.
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 31 investment companies with 75 separate portfolios and aggregate assets of
approximately $52.7 billion.
DSI International Management, Inc., also a wholly owned asset management
subsidiary of PaineWebber Incorporated, is the sub-adviser for each fund. DSI is
located at 301 Merritt 7, Norwalk, Connecticut 06851. As of January 31, 2000,
DSI had over $5.0 billion in assets under management. Although DSI has been in
the investment advisory business since 1988, it has not previously advised
mutual funds.
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 each fund's
portfolio.
ADVISORY FEES
The funds pay fees to Mitchell Hutchins for its advisory and administration
services at the following annual contract rates, expressed as a percentage of a
fund's average daily net assets.
Enhanced S&P 500 Fund.............. 0.40%
Enhanced Nasdaq-100 Fund........... 0.75%
OTHER INFORMATION
The funds have received an exemptive order from the SEC that permits the board
to appoint and replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval.
18
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
ENHANCED S&P 500 FUND - ADDITIONAL INFORMATION ABOUT DSI
Performance information relating to DSI's proprietary enhanced S&P 500 strategy
and the S&P 500 Index is set forth below. There is no comparable prior account
performance for Enhanced Nasdaq-100 Fund.
Although Enhanced S&P 500 Fund is new and has no performance information to
include in this prospectus, DSI will adhere to its proprietary enhanced S&P 500
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 Enhanced S&P 500 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 total 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
ENHANCED S&P 500 FUND, SHOULD NOT BE CONSIDERED A SUBSTITUTE FOR THE FUND'S
PERFORMANCE AND SHOULD NOT BE INTERPRETED AS PREDICTING THE FUND'S FUTURE
PERFORMANCE. The private accounts have investment objectives, policies and
investment strategies that are substantially similar to those of the fund.
However, 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.
The performance information used in the following tables was obtained from the
records maintained by DSI and adjusted by Mitchell Hutchins to reflect the
estimated fees and expenses of Enhanced S&P 500 Fund.
Plot Points for Bar Chart Showing Composite Annual Total Returns of Private
Accounts Managed with DSI Enhanced S&P 500 Strategy and Annual Total Returns of
S&P 500 Index
Year DSI Composite Annual Total Returns Annual Total Returns of
(as of 12/31) of Similar Accounts* S&P 500 Index
------------- -------------------- -------------
1997 34.46% 33.35%
1998 29.40% 28.58%
1999 20.14% 21.04%
* 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 S&P 500 Strategy (adjusted to show the maximum sales load and
estimated annual expenses of each class of shares) and Average Annual Total
Returns of S&P 500 Index**
<TABLE>
<CAPTION>
DSI Composite Average Annual
Total Returns of Similar Accounts
as of 12/31/99 Class A Class B Class C Class Y S&P 500 Index
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
One Year.......................... 16.55% 16.67% 19.04% 20.44% 21.04%
Life (since 10/1/96)............. 27.44% 27.78% 28.11% 28.93% 28.30%
</TABLE>
** The composite average annual total returns in the table reflects both
maximum sales charges for the fund's 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.
19
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
DIVIDENDS AND TAXES
-------------------
DIVIDENDS
The funds normally declare and pay dividends, if any, 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 funds 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 a 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.
Each 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. Each fund will tell you how you should treat its dividends
for tax purposes.
20
<PAGE>
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
- --------------------------------------------------------------------------------
APPENDIX
ADDITIONAL INFORMATION CONCERNING THE S&P 500 INDEX. Enhanced S&P 500 Fund is
not sponsored, endorsed, sold or promoted by Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation or
warranty, express or implied, to the shareholders of the fund or any member of
the public regarding the advisability of investing in securities generally or in
the fund particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to Mitchell Hutchins or the fund is
the licensing of certain trademarks and trade names of S&P and the S&P 500
Index, which is determined, composed, and calculated by S&P without regard to
Mitchell Hutchins or the fund. S&P has no obligation to take the needs of
Mitchell Hutchins or the shareholders of the fund into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the timing of the issuance or sale of the fund's
shares or the determination or calculation of the equation by which shares of
the fund are priced or converted into cash. S&P has no obligation or liability
in connection with the administration of the fund or the marketing or sale of
the fund's shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE FUND OR ITS SHAREHOLDERS OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
ADDITIONAL INFORMATION CONCERNING THE NASDAQ-100 INDEX. Enhanced Nasdaq-100 Fund
is not sponsored, endorsed, sold or promoted by The Nasdaq Stock Market, Inc.
(including its affiliates) (Nasdaq, with its affiliates, are referred to as the
CORPORATIONS). The Corporations have not passed on the legality or suitability
of, or the accuracy or adequacy of descriptions and disclosures relating to, the
fund. The Corporations make no representation or warranty, express or implied,
to the shareholders of the fund or any member of the public regarding the
advisability of investing in securities generally or in the fund particularly,
or the ability of the Nasdaq-100 Index(R) to track general stock market
performance. The Corporations' only relationship to the fund or Mitchell
Hutchins is in the licensing of the Nasdaq-100(R), Nasdaq-100 Index(R), and
Nasdaq(R) trademarks or service marks, and certain trade names of the
Corporations and the use of the Nasdaq-100 Index(R) which is determined,
composed and calculated by Nasdaq without regard to the fund or Mitchell
Hutchins. Nasdaq has no obligation to take the needs of Mitchell Hutchins or the
shareholders of the fund into consideration in determining, composing or
calculating the Nasdaq-100 Index(R). The Corporations are not responsible for
and have not participated in the timing of the issuance or sale of the fund's
shares or the determination or calculation of the equation by which shares of
the fund are priced or converted into cash. The Corporations have no liability
in connection with the administration, marketing or trading of the fund's
shares.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION
OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MITCHELL
HUTCHINS, THE SHAREHOLDERS OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS
MAKE NO EXPRESS OR IMPLIES WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES,
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
If you want more information about the funds, the following document is
available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the funds and is incorporated
by reference into this prospectus.
You may discuss your questions about the funds by contacting your PaineWebber
Financial Advisor. You may obtain free copies of the SAI by contacting the funds
directly at 1-800-647-1568.
You may review and copy information about the funds, 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 funds:
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 Enhanced S&P 500 Fund
- PaineWebber Enhanced Nasdaq-100 Fund
Investment Company Act File No. 811-09745
(C) 2000 PaineWebber Incorporated. All rights reserved.
<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 ENHANCED S&P 500 FUND
PAINEWEBBER ENHANCED NASDAQ-100 FUND
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
PRELIMINARY
STATEMENT OF ADDITIONAL INFORMATION
Subject to Completion
PaineWebber Enhanced S&P 500 Fund is a diversified series of Mitchell
Hutchins Securities Trust ("Trust") and PaineWebber Enhanced Nasdaq-100 Fund
is a non-diversified series of the Trust. The Trust is a professionally
managed, open-end management investment company organized as a Delaware
business trust.
The investment adviser, administrator and distributor for each fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the funds, 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 each
fund.
This SAI is not a prospectus and should be read only in conjunction
with each fund's current Prospectus, dated March , 2000. A copy of each
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
March , 2000.
TABLE OF CONTENTS
PAGE
----
The Funds and Their Investment Policies............................ 2
The Funds' Investments, Related Risks and Limitations.............. 3
Strategies Using Derivative Instruments............................ 9
Organization; Trustees and Officers; Principal Holders and 15
Management Ownership of Securities..............................
Investment Advisory, Administration and Distribution Arrangements.. 21
Portfolio Transactions............................................. 25
Reduced Sales Charges, Additional Exchange and Redemption 27
Information and Other Services..................................
Conversion of Class B Shares....................................... 32
Valuation of Shares................................................ 33
Performance Information............................................ 33
Taxes.............................................................. 35
Other Information.................................................. 38
Financial Statements............................................... 40
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THE FUNDS AND THEIR INVESTMENT POLICIES
Neither fund's investment objective may be changed without shareholder
approval. Except where noted, the other investment policies of each fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that a fund will achieve its investment objective.
ENHANCED S&P 500 FUND has an investment objective of higher total return
over the long term than the S&P 500 Index. There can be no assurance that the
fund will achieve its objective. The fund seeks to achieve its objective by
investing 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 enhanced S&P 500 strategy. 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 of at least 95% 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 rebalances
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 that are included in the S&P 500 Index 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 the 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."
ENHANCED NASDAQ-100 FUND has an investment objective of higher total
return over the long term than the Nasdaq-100 Index. There can be no assurance
that the fund will achieve its objective. The fund seeks to achieve its
objective by investing primarily in the common stocks that are included in the
Nasdaq-100 Index and weighting its holdings of individual stocks based on its
sub-adviser's proprietary enhanced Nasdaq-100 strategy. The fund expects to
invest in a majority of the stocks in the Nasdaq-100 Index. Relative to the
stock weightings in the Nasdaq-100 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 a
general correlation of at least 90% between its performance and the performance
of the Nasdaq-100 Index over time, with a relatively low tracking error. To
maintain this general correlation, the fund gives each stock in its portfolio a
weighting that is close to the Nasdaq-100 Index weighting and, if necessary,
readjusts the weighting when it rebalances the portfolio. The fund also
considers relative industry sector weighting and market capitalization.
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DSI monitors the fund's performance relative to the Nasdaq-100 Index at
least weekly. At least monthly, DSI reviews the fund's stock holdings and
rebalances 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. To the extent that the Nasdaq-100 Index is
concentrated in a particular industry sector, the fund expects that its assets
also would be concentrated in that sector. The fund also expects to invest more
than 5% of its total assets in the stocks of specific companies as needed
generally to follow the weightings of those stocks in the Nasdaq-100 Index. The
fund would not do so, however, if the investment would cause it to fail to
qualify as a regulated investment company under the Internal Revenue Code.
Under normal circumstances, the fund invests at least 65% of its total
assets in common stocks that are included in the Nasdaq-100 Index 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 the Nasdaq-100 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 FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following supplements the information contained in the Prospectus and
above concerning the funds' investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or this SAI, the funds have established
no policy limitations on their 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 depositary 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
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.
Depositary 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 a fund may experience a substantial or
complete loss on an individual equity investment.
INVESTING IN FOREIGN SECURITIES. A 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
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<PAGE>
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 a fund than is available
concerning U.S. companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory requirements comparable to those applicable to U.S. companies.
A 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 each 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 funds 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 funds would be subject.
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 a 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 or the sub-adviser 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 a 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 it writes 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. A 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 a 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, a fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time a fund may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a 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
4
<PAGE>
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 a fund, however, could affect adversely the
marketability of such portfolio securities, and a 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 and the sub-adviser pursuant to guidelines
approved by the board. Mitchell Hutchins and the sub-adviser take 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 and the sub-adviser monitor the liquidity of restricted securities in
each fund's portfolio and report periodically on such decisions to the board.
Mitchell Hutchins and the sub-adviser also monitor each fund's overall
holdings of illiquid securities. If a fund's holdings of illiquid securities
comes to exceed its limitation on investments in illiquid securities for any
reason, such as a security ceasing to qualify as liquid, changes in relative
market values of portfolio securities or shareholder redemptions, Mitchell
Hutchins and the sub-adviser will consider what action would be in the best
interests of the fund and its shareholders. Such action may include engaging in
an orderly disposition of securities to reduce the fund's holdings of illiquid
securities. However, a fund is not required immediately to dispose of illiquid
securities under the circumstances and Mitchell Hutchins and the sub-adviser,
with the concurrence of the fund's board, may determine that it is in the best
interests of the fund and its shareholders to continue to hold the illiquid
securities.
MONEY MARKET INSTRUMENTS. Money market instruments in which a 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, a 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 a 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 a 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 a
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.
A 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.
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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 a 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, a 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
Funds' Investments, Related Risks and Limitations -- Segregated Accounts."
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by a 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 a 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. Each fund is authorized to lend its
portfolio securities to broker-dealers or institutional investors that Mitchell
Hutchins deems qualified. Lending securities enables a fund to earn additional
income, but could result in a loss or delay in recovering these securities. The
borrower of a 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. Each fund may reinvest any cash collateral in money market
investments or other short-term liquid investments, including other investment
companies. A fund also may reinvest cash collateral in private investment
vehicles similar to money market funds, including one managed by Mitchell
Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. Each fund will
retain authority to terminate any of its loans at any time. Each 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. A fund will receive amounts equivalent to any dividends,
interest or other distributions on the securities loaned. A 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 that fund's interest.
Pursuant to procedures adopted by the board governing each fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each fund. The board also has authorized the payment of fees
(including fees calculated as a percentage of invested cash collateral) to
PaineWebber for these services. The board periodically reviews all portfolio
securities loan transactions for which PaineWebber acted as lending agent.
PaineWebber also has been approved as a borrower under each fund's securities
lending program.
SHORT SALES "AGAINST THE BOX." Each 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 a fund, and a fund is
obligated to replace the securities borrowed at a date in the future. When a
fund sells short, it establishes a margin account with the broker effecting the
short sale and deposits collateral with the broker. In addition, a fund
maintains with its custodian, in a segregated account, the securities that could
be used to cover the short sale. Each fund incurs transaction costs, including
interest expense, in connection with opening, maintaining and closing short
sales against the box.
A fund might make a short sale "against the box" to hedge against market
risks when the sub-adviser 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 a fund's long position after the short sale should be
reduced by a gain in the short position. Conversely, any gain
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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 a fund owns, either directly or indirectly, and in the case where a
fund owns convertible securities, changes in the investment value or conversion
premiums of such securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each 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 a fund later than
the normal settlement date for such securities at a stated price and yield. A
fund generally would not pay for such securities or start earning interest on
them until they are received. However, when a 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 a 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, a 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 a fund's
total assets, including the value of when-issued and delayed delivery securities
held by that 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 a fund's net asset value. When a 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 Funds' Investments, Related Risks
and Limitations -- Segregated Accounts." A fund may sell the right to acquire
the security prior to delivery if the sub-adviser deems it advantageous to do
so, which may result in a gain or loss to the fund.
COUNTERPARTIES. A 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 each fund's board, monitors and evaluates the
creditworthiness of the parties with which the fund does business.
SEGREGATED ACCOUNTS. When a 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 a 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. Each fund may invest in
securities of other investment companies, subject to limitations under the
Investment Company Act of 1940, as amended ("Investment Company Act"). Among
other things, these limitations currently restrict a fund's aggregate
investments in other investment companies to no more than 10% of its total
assets. A fund's reinvestment of cash collateral from securities lending in a
private investment vehicle similar to a money market fund and managed by
Mitchell Hutchins is not subject to this restriction. 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, a 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 FUNDS
FUNDAMENTAL LIMITATIONS. The following fundamental investment limitations
cannot be changed for a 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
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. With regard to the borrowings
limitation in fundamental limitation (2), each fund will comply with the
applicable restrictions of Section 18 of the Investment Company Act.
7
<PAGE>
Each fund will not:
(1) 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 and provided that the
fund will invest 25% or more of its total assets in securities of issuers in the
same industry if necessary to replicate the weighting of that particular
industry in its benchmark index.
(2) 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.
(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
(4) engage in the business of underwriting securities of other issuers,
except to the extent that the fund might be considered an underwriter under the
federal securities laws in connection with its disposition of portfolio
securities.
(5) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by interests
in real estate are not subject to this limitation, and except that the 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.
(6) 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.
In addition, Enhanced S&P 500 Fund will not:
(7) 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.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of the appropriate 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.
8
<PAGE>
Each fund will not:
(1) invest more than 15% of its net assets in illiquid securities.
(2) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
(3) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(4) engage in short sales of securities or maintain a short position,
except that the fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(5) purchase securities of other investment companies, except to the
extent permitted by the Investment Company Act or under the terms of an
exemptive order granted by the SEC and except that this limitation does not
apply to securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation, or merger.
STRATEGIES USING DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Each 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. A 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, a 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 funds are described below.
A 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, a 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
9
<PAGE>
specified dollar amount times the difference between the securities index value
at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, contracts are closed out prior to the expiration
date of the contract.
INTEREST RATE 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. A fund may
use Derivative Instruments to simulate investment in its benchmark 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, a fund may attempt to reduce the risk of adverse price movements
("hedge") in the securities of its benchmark index while investing cash received
from investor purchases of fund shares or selling securities to meet shareholder
redemptions. A 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 a fund's portfolio. Thus, in a short hedge a 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, a
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, a 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, a 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 a fund intends to acquire. Thus, in a long
hedge, a 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.
A 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. A fund
might enter into a long straddle when the sub-adviser 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. A fund might enter into a short straddle when
the sub-adviser believes it unlikely that the prices of the securities will be
as volatile during the term of the option as the option pricing implies.
10
<PAGE>
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a 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 a 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 a fund's
exposure to different asset classes without buying or selling the underlying
instruments. A 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, a 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
each fund's Prospectus, the funds' sub-adviser 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. The sub-adviser may use
these opportunities for a fund to the extent that they are consistent with a
fund's investment objective and permitted by its investment limitations and
applicable regulatory authorities. The funds' 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 a fund's investment adviser 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 the sub-adviser 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 a fund entered into a short
hedge because the applicable investment adviser projected a decline in the price
of a security in that fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Derivative Instrument. Moreover, if the price of the
Derivative Instrument declined by more than the increase in the price of the
security, a fund could suffer a loss. In either such case, a fund would have
been in a better position had it not hedged at all.
(4) As described below, a fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
11
<PAGE>
positions in Derivative Instruments involving obligations to third parties
(I.E., Derivative Instruments other than purchased options). If a 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 a 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. A 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 a fund.
COVER FOR STRATEGIES USING DERIVATIVE INSTRUMENTS. Transactions using
Derivative Instruments, other than purchased options, expose a fund to an
obligation to another party. A 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. Each 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 a
fund's assets to cover positions or to segregated accounts could impede
portfolio management or a fund's ability to meet redemption requests or other
current obligations.
OPTIONS. Each 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. A 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 a 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 affected 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 a fund would be
considered illiquid to the extent described under "The Funds' 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.
A fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a 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, a 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 tran action. Closing transactions permit a fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
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<PAGE>
The funds 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 clear ng 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 a fund
and its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a 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 a fund as
well as the loss of any expected benefit of the transaction.
The funds' ability to establish and close out positions in exchange-traded
options de ends on the existence of a liquid market. The funds intend to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
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
funds will enter into over-the-counter options only with counterparties that are
expected to be capable of entering into closing transactions with the funds,
there is no assurance that a 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, a fund might be unable to close out
an over-the-counter option position at any time prior to its expiration.
If a 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 a could cause material losses because that fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
A 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 funds may purchase and sell stock index futures contracts and
interest rate future contracts. A 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, a 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.
A 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. A 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 a 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
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
13
<PAGE>
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to a fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
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 a fund's obligations to or from a futures
broker. When a fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a 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 a 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 funds intend 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 a 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. A fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, a 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. A fund's use of
futures and related options is governed by the following guideline, which can be
changed by the board without shareholder vote:
To the extent a 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.
14
<PAGE>
ORGANIZATION; TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS
AND MANAGEMENT OWNERSHIP OF SECURITIES
The Trust was formed on December 23, 1999, as a business trust under the
laws of Delaware. The Trust has two 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>
<S> <C> <C> <C>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Margo N. Alexander*+; 53 Trustee and Mrs. Alexander is Chairman
President (since March1999), chief
executive officer and a
director of Mitchell Hutchins
(since January 1995), and an
executive vice president and
director of PaineWebber
(since March 1984). Mrs.
Alexander is president and
director or trustee of 32
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Richard Q. Armstrong; 64 Trustee Mr. Armstrong is chairman and
R.Q.A. Enterprises principal of R.Q.A.
One Old Church Road Enterprises (management
Unit #6 consulting firm) (since April
Greenwich, CT 06830 1991 and principal occupation
since March 1995).
Mr. Armstrong was chairman of
the board, chief executive
officer and co-owner of
Adirondack Beverages
(producer and distributor of
soft drinks and
sparkling/still waters)
(October 1993-March 1995). He
was a partner of The New
England Consulting Group
(management consulting firm)
(December 1992-September
1993). He was managing
director of LVMH U.S.
Corporation (U.S. subsidiary
of the French luxury goods
conglomerate, Louis Vuitton
Moet Hennessey Corporation)
(1987-1991) and chairman of
its wine and spirits
subsidiary, Schieffelin &
Somerset Company (1987-1991).
Mr. Armstrong is a director
or trustee of 31 investment
companies for which Mitchell
Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of
Jr.**+; 73 Chairman of the Paine Webber Group Inc.
Board of Trustees ("PW Group") (holding company
of PaineWebber and Mitchell
Hutchins). Prior to December
1995, he was a consultant to
PW Group. Prior to 1988, he
was chairman of the board,
president and chief executive
officer of American Bakeries
Company. Mr. Bewkes is a
director of Interstate
Bakeries Corporation.
Mr. Bewkes is a director or
trustee of 35 investment
companies for which Mitchell
Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
Richard R. Burt; 53 Trustee Mr. Burt is chairman of IEP
1275 Pennsylvania Ave, Advisors, LLP (international
N.W. investments and consulting
Washington, DC 20004 firm (since March 1994), a
partner of McKinsey & Company
(management consulting firm)
(since 1991). He is also a
director of
Archer-Daniels-Midland Co.
(agricultural commodities),
Hollinger International Co.
(publishing) and Homestake
Mining Corp. (gold mining),
vice chairman of Anchor
Gaming (provides technology
to gaming and wagering
industry) (since July 1999)
and chairman of Weirton Steel
Corp (makes and finishes
steel products) (since April
1996). He was the chief
negotiator in the Strategic
Arms Reduction Talks with the
former Soviet Union
(1989-1991) and the U.S.
Ambassador to the Federal
Republic of Germany
(1985-1989). Mr. Burt is a
director or trustee of 31
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Mary C. Farrell**+; 50 Trustee Ms. Farrell is a managing
director, senior investment
strategist and member of the
Investment Policy Committee
of PaineWebber. Ms. Farrell
joined PaineWebber in 1982.
She is a member of the
Financial Women's Association
and Women's Economic
Roundtable and appears as a
regular panelist on Wall
$treet Week with Louis
Rukeyser. She also serves
on the Board of Overseers
of New York University's
Stern School of Business.
Ms. Farrell is a director
or trustee of 30 investment
companies for which Mitchell
Hutchins, PaineWebber or one
of their affiliates serves as
investment adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Meyer Feldberg; 58 Trustee Mr. Feldberg is Dean and
Columbia University Professor of Management of
101 Uris Hall the Graduate School of
New York, NY 10027 Business, Columbia
University. Prior to 1989, he
was president of the
Illinois Institute of
Technology. Dean Feldberg is
also a director of Primedia
Inc. (publishing), Federated
Department Stores, Inc.
(operator of department
stores) and Revlon, Inc.
(cosmetics). Dean Feldberg is
a director or trustee of
34 investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
George W. Gowen; 70 Trustee Mr. Gowen is a partner in the
666 Third Avenue law firm of Dunnington,
New York, NY 10017 Bartholow & Miller. Prior to
May 1994, he was a partner in
the law firm of Fryer, Ross &
Gowen. Mr. Gowen is a
director or trustee of 34
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Frederic V. Malek; 63 Trustee Mr. Malek is chairman of
Thayer Capital Partners
1455 Pennsylvania Ave, (merchant bank) and chairman
N.W. of Thayer Hotel Investors II
Suite 350 and Lodging Opportunities
Washington, DC 20004 Fund (hotel investment
partnerships). From January
1992 to November 1992, he was
he was campaign manager of
Bush-Quayle '92. From 1990
to 1992, he was vice chairman
and, from 1989 to 1990, he
was president of Northwest
Airlines Inc. and NWA Inc.
(holding company of Northwest
Airlines Inc.). Prior to
1989, he was employed by
the Marriott Corporation
(hotels, restaurants, airline
catering and contract
feeding), where he most
most recently was an
executive vice president and
president of Marriott Hotels
and Resorts. Mr. Malek is
also a director of Aegis
Communications, Inc. (tele-
services), American
Management Systems, Inc.
(management consulting and
computer related services),
Automatic Data Processing,
Inc., (computing services),
CB Richard Ellis, Inc. (real
estate services), FPL Group,
Inc. (electric services),
Global Vacation Group
(packaged vacations),
HCR/Manor Care, Inc.
(health care), SAGA Systems,
Inc. (software company) and
Northwest Airlines Inc.
Mr. Malek is a director or
trustee of 31 investment
companies for which Mitchell
Hutchins, PaineWebber or one
of their affiliates serves
as investment adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Carl W. Schafer; 64 Trustee Mr. Schafer is president of
66 Witherspoon Street, the Atlantic Foundation
#1100 (charitable foundation
Princeton, NJ 08542 supporting mainly
oceanographic exploration and
research). He is a director
of Labor Ready, Inc.
(temporary employment),
Roadway Express, Inc.
(trucking), The Guardian
Group of Mutual Funds, the
Harding, Loevner Funds,
E.I.I. Realty Trust
(investment company), Evans
Systems, Inc. (motor fuels,
convenience store and
diversified company),
Electronic Clearing House,
Inc. (financial transactions
processing), Frontier Oil
Corporation and Nutraceutix,
Inc. (biotechnology company).
Prior to January 1993, he
was chairman of the
Investment Advisory Committee
of the Howard Hughes Medical
Institute. Mr. Schafer is a
director or trustee of 31
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Brian M. Storms*+; 45 Trustee Mr. Storms is president and
chief operating officer of
Mitchell Hutchins (since
March 1999). Mr. Storms was
president of Prudential
Investments (1996-1999).
Prior to joining Prudential
he was a managing director
at Fidelity Investments. Mr.
Storms is a director or
trustee of 31 investment
companies for which Mitchell
Hutchins, PaineWebber or one
of their affiliates serves
as investment adviser.
T. Kirkham Barneby*; 53 Vice President Mr. Barneby is a managing
director and chief
investment officer--
quantitative investments
of Mitchell Hutchins.
Mr. Barneby is a vice
president of eight
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Tom Disbrow**; 34 Vice President and Mr. Disbrow is a first vice
Assistant Treasurer president and a senior
manager of the mutual
fund finance department of
Mitchell Hutchins. Prior to
November 1999, he was a vice
president of Zweig/Glaser
Advisers. Mr. Disbrow is
a vice president and
assistant treasurer of 32
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
John J. Holmgren***; 61 Vice President Mr. Holmgren is president,
chief executive officer and
a director of DSI. He is a
vice president of one
investment company for which
Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
John J. Holmgren, Jr.***; Vice President Mr. Holmgren is executive vice
38 president, chief operating
officer, a portfolio manager and
a director of DSI. Prior to
January 1997, he was president
of DSC Data Services, Inc., a
consulting firm. Mr. Holmgren
is a vice president of one
investment company for which
Mitchell Hutchins, PaineWebber
or one of their affiliates
serves as investment adviser.
John J. Lee**; 31 Vice President and Mr. Lee is a vice president and
Assistant Treasurer a manager of the mutual fund
finance department of
Mitchell Hutchins. Prior to
September 1997, he was an
audit manager in the
financial services practice
of Ernst & Young LLP. Mr. Lee
is a vice president and
assistant treasurer of 32
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Kevin J. Mahoney**; 34 Vice President and Mr. Mahoney is a first vice
Assistant Treasurer president and a senior
manager of the mutual fund
finance department of
Mitchell Hutchins. From
August 1996 through March
1999, he was the manager of
the mutual fund internal
control group of Salomon
Smith Barney. Prior to August
1996, he was an associate
and assistant treasurer
for BlackRock Financial
Management L.P. Mr. Mahoney
is a vice president and
and assistant treasurer
of 32 investment companies
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Ann E. Moran**; 42 Vice President and Ms. Moran is a vice president
Assistant Treasurer and a manager of the mutual
fund finance department of
Mitchell Hutchins. Ms. Moran
is a vice president and
assistant treasurer of 32
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Dianne E. O'Donnell**; 47 Vice President and Ms. O'Donnell is a senior
Secretary vice president and deputy
general counsel of Mitchell
Hutchins. Ms. O'Donnell is
a vice president and
secretary of 31 investment
companies and a vice
president and assistant
secretary of one investment
company for which Mitchell
Hutchins, PaineWebber or one
of their affiliates serves
as investment adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
--------------------- ------------------- ----------------------------------------
Emil Polito*; 39 Vice President Mr. Polito is a senior vice
president and director of
operations and control for
Mitchell Hutchins. Mr. Polito
is a vice president of 32
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Victoria E. Schonfeld**; Vice President Ms. Schonfeld is a managing
49 director and general counsel
of Mitchell Hutchins and
(since July 1995) a senior
vice president of
PaineWebber. Ms. Schonfeld
is a vice president of 31
investment companies and a
vice president and secretary
of one investment company
for which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Paul H. Schubert**; 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.
Barney A. Taglialatela**; Vice President and Mr. Taglialatela is a vice
39 Assistant Treasurer president and a manager of
the mutual fund finance
department of Mitchell
Hutchins. Mr. Taglialatela
is a vice president and
assistant treasurer of 32
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
Keith A. Weller**; 38 Vice President and Mr. Weller is a first vice
Assistant Secretary president and associate
general counsel of Mitchell
Hutchins. Prior to May 1995,
he was an attorney in
private practice. Mr. Weller
is a vice president and
assistant secretary of 31
investment companies for
which Mitchell Hutchins,
PaineWebber or one of their
affiliates serves as
investment adviser.
</TABLE>
- -------------
* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
** This person's business address is 1285 Avenue of the Americas, New York, New
York 10019.
*** This person's business address is 301 Merritt 7, Norwalk, Connecticut 06851.
+ Mrs. Alexander, Mr. Bewkes, Ms. Farrell and Mr. Storms are "interested
persons" of each fund as defined in the Investment Company Act by virtue of
their positions with Mitchell Hutchins, PaineWebber, and/or PW Group.
The Trust pays trustees who are not "interested persons" of the Trust
$1,000 annually for each series and $150 per series for each board meeting and
each separate meeting of a board committee. The Trust presently has two series
and thus pays each such trustee $2,000 annually, plus any additional
20
<PAGE>
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 funds, the Trust requires no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber presently
receives any compensation from the Trust for acting as a trustee or officer.
The table below includes certain information relating to the estimated
compensation of the Trust's trustees and the compensation of those trustees from
all PaineWebber funds during the 1999 calendar year.
COMPENSATION TABLE+
ESTIMATED ANNUAL
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
NAME OF PERSON, POSITION FROM THE TRUST* THE FUND COMPLEX**
------------------------ -------------- ----------------
Richard Q. Armstrong,
Trustee............. $ 3,500 $ 101,372
Richard R. Burt,
Trustee............ 3,500 101,372
Meyer Feldberg,
Trustee............ 3,500 116,222
George W. Gowen,
Trustee............ 4,250 108,272
Frederic V. Malek,
Trustee............ 3,500 101,372
Carl W. Schafer,
Trustee............ 3,500 101,372
- --------------------
+ 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 during its initial full fiscal year.
** Represents total compensation paid during the calendar year ended
December 31, 1999, to each trustee by 31 investment companies (34 in the
case of Messrs. Feldberg and Gowen) for which Mitchell Hutchins,
PaineWebber or one of their affiliates served as investment adviser. No
fund within the PaineWebber fund complex has a bonus, pension, profit
sharing or retirement plan.
PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP OF SECURITIES
As of March 2, 2000, Mitchell Hutchins owned 100% of all outstanding
shares of each fund and thus may be deemed a controlling shareholder of each
fund until additional investors purchase shares. None of the trustees and
officers of the Trust beneficially owned any of the outstanding shares of either
fund.
INVESTMENT ADVISORY, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY AND ADMINISTRATION ARRANGEMENTS. Mitchell Hutchins
acts as the investment adviser and administrator of each fund pursuant to an
investment advisory and administration contract ("Advisory Contract") with the
Trust. Under the Advisory Contract, Enhanced S&P 500 Fund pays Mitchell Hutchins
a fee, computed daily and paid monthly, at the annual rate of 0.40% of average
daily net assets and Enhanced Nasdaq-100 Fund pays Mitchell Hutchins a fee,
computed daily and paid monthly, at the annual rate of 0.75% of average daily
net assets.
21
<PAGE>
The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers but does not require Mitchell Hutchins to do so. Under separate
sub-advisory contracts (each a "Sub-Advisory Contract") DSI International
Management, Inc. serves as sub-adviser for each fund. Under each applicable
Sub-Advisory Contract, Mitchell Hutchins (not the fund) pays DSI a fee in the
annual amount of 0.20% of average daily net assets for Enhanced S&P 500 Fund and
0.35% of average daily net assets for Enhanced Nasdaq-100 Fund.
Under the terms of the Advisory Contract, each 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 each 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 a fund's shares under federal and/or 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
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; (14) costs of mailing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials to existing shareholders; (15) any extraordinary expenses (including
fees and disbursements of counsel) incurred by the fund; (16) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (17) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof;
(18) the cost of investment company literature and other publications provided
to trustees and officers; (19) costs of mailing, stationery and communications
equipment; (20) expenses incident to any dividend, withdrawal or redemption
options; (21) charges and expenses of any outside pricing service used to value
portfolio securities; (22) interest on borrowings of the fund; and (23) fees or
expenses related to license agreements with respect to securities indices.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by a 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 for a fund upon its assignment and is terminable at any time
without penalty by the board or by vote of the holders of a majority of a 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 each 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, a fund, its
shareholders or Mitchell Hutchins in connection with each 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 each Sub-Advisory Contract. Each 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 a fund's outstanding voting securities on 60
days' notice to DSI, or by DSI on 120 days' notice to Mitchell Hutchins. Each
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.
22
<PAGE>
PaineWebber provides transfer agency related services to each fund
pursuant to a delegation of authority from PFPC Inc., not the funds, and is
compensated for those services by PFPC Inc. not the funds.
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).................... $ 9,890.5
Global............................................... 4,777.3
Equity/Balanced...................................... 10,074.1
Fixed Income (excluding Money Market)................ 4,593.7
Taxable Fixed Income.............................. 3,171.5
Income Tax-Free Fixed Income...................... 1,422.2
Money Market Funds................................... 38,247.0
PERSONAL TRADING POLICIES. The funds, Mitchell Hutchins and DSI each have
adopted codes of ethics under Rule 17j-1 of the Investment Company Act that
permits their trustees, directors, officers and employees to invest in
securities, including securities that may be held or purchased by a fund.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of each fund under separate distribution contracts with the
Trust ("Distribution Contracts"). Each Distribution Contract requires Mitchell
Hutchins to use its best efforts, consistent with its other businesses, to sell
shares of the funds. Shares of each fund are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
relating to each class of shares of the funds ("Exclusive Dealer Agreements"),
PaineWebber and its correspondent firms sell the funds' shares. Mitchell
Hutchins is located at 51 West 52nd Street, New York, New York 10019-6114 and
PaineWebber is located at 1285 Avenue of the Americas, New York, New York 10019.
Under separate plans of distribution pertaining to the Class A, Class B
and Class C shares of each 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"), each
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, Enhanced S&P 500 Fund pays
Mitchell Hutchins a distribution fee, accrued daily and payable monthly, at the
annual rate of 0.40% of the average daily net assets of the Class B shares and
Class C shares, respectively. Under the Class B Plan and the Class C Plan,
Enhanced Nasdaq-100 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 funds' Class Y shares, and the funds pay
no service or distribution fees with respect to their 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 each
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 each
fund's Class B and Class C shares, respectively.
o Offset a 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.
23
<PAGE>
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 each fund must pay service and distribution fees to
Mitchell Hutchins for its service and distribution activities, not as
reimbursement for specific expenses incurred. Therefore, even if Mitchell
Hutchins' expenses exceed the service or distribution fees it receives, the
funds 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 funds. Annually, the board of
each 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 board, including those trustees who are not "interested persons" of the
funds and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by a 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 applicable class of a fund and (4) while the
Plan remains in effect, the selection and nomination of trustees who are not
"interested persons" of the Trust shall be committed to the discretion of the
trustees who are not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins allocates expenses attributable to the sale of each class of a 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 a fund's
shares will not be used to subsidize the sale of any other class of fund shares.
In approving each fund's overall Flexible Pricing(SM) 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 for each fund, 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
24
<PAGE>
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 for each fund, 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 for each fund, the board considered all the
features of the distribution system, including (1) the advantage to investors in
having no initial sales charges deducted from fund purchase payments and instead
having the entire amount of their purchase payments immediately invested in fund
shares, (2) the advantage to investors in being free from contingent deferred
sales charges upon redemption for shares held more than one year and paying for
distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the ability
of PaineWebber Financial Advisors and correspondent firms to receive sales
compensation for their sales of Class C shares on an ongoing basis, along with
continuing service fees, while their customers invest their entire purchase
payments immediately in Class C shares and generally do not face contingent
deferred sales charges, would prove attractive to the Financial Advisors and
correspondent firms, resulting in greater growth 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 or contingent deferred sales charges upon redemption, except within one
year after purchase, was conditioned upon its expectation of being compensated
under the Class C Plan.
With respect to each Plan, the board considered for each fund 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 each
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 each 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 a 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 funds 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 funds have no obligation to deal with any broker or group of brokers
in the execution of portfolio transactions. The funds contemplate that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
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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 funds
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
funds' 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 a fund to
purchase and sell portfolio securities through brokers who provide the
sub-adviser with brokerage or research services. The funds 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 that fund and its other clients.
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 its
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 it advises
may be used in advising the funds.
Investment decisions for a 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 a 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 that 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 a 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 funds.
The funds will not purchase securities that are offered in underwritings
in which PaineWebber is a member of the underwriting or selling group, except
pursuant to procedures adopted by each board pursuant to Rule 10f-3 under the
Investment Company Act. Among other things, these procedures
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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 funds.
PORTFOLIO TURNOVER. Each fund's annual portfolio turnover rate may vary
greatly from year to year but will not be a limiting factor in the funds'
operations. The portfolio turnover rate is calculated by dividing the lesser of
a 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:
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 a
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.
COMBINED PURCHASE PRIVILEGE -- CLASS A SHARES. Investors and eligible
groups of related fund investors may combine purchases of Class A shares of the
funds 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 funds 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");
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(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25% or
more of the outstanding voting securities of a corporation will be deemed to
control the corporation, and a partnership will be deemed to be controlled by
each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by 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;
(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 A fund shares and Class A shares of any other PaineWebber
mutual fund. The purchaser must provide sufficient information to permit
confirmation of his or her holdings, and the acceptance of the purchase order is
subject to such confirmation. The right of accumulation may be amended or
terminated at any time.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed Class
A shares of a 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 will not be deductible to the extent the reinstatement
privilege is exercised within 30 days after redemption, in which event an
adjustment will be made to the shareholder's tax basis for shares acquired
pursuant to the reinstatement privilege. Gain or loss on a redemption also will
be readjusted for federal income tax purposes by the amount of any sales charge
paid on Class A shares, under the circumstances and to the extent described in
"Taxes -- Special Rules for Class A Shareholders," 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.
PURCHASES OF CLASS Y SHARES THROUGH THE PACESM MULTI ADVISOR PROGRAM. An
investor who participates in the PACESM Multi Advisor Program is eligible to
purchase Class Y shares. The PACESM Multi Advisor Program is an advisory program
sponsored by PaineWebber that provides comprehensive investment
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services, including investor profiling, a personalized asset allocation strategy
using an appropriate combination of funds, and a quarterly investment
performance review. Participation in the PACESM 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.
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 or other markups/markdowns.
PURCHASES AND SALES OF CLASS Y SHARES FOR PARTICIPANTS IN PW 401(K) PLUS
PLAN. The trustee of the PW 401(k) Plus Plan, a defined contribution plan
sponsored by PW Group, buys and sells Class Y shares of the funds that are
included as investment options under the Plan to implement the investment
choices of individual participants with respect to their Plan contributions.
Individual Plan participants should consult the Summary Plan Description and
other plan material of the PW 401(k) Plus Plan (collectively, "Plan Documents")
for a description of the procedures and limitations applicable to making and
changing investment choices. Copies of the Plan Documents are available from the
Benefits Connection, 100 Halfday Road, Lincolnshire, IL 60069 or by calling
1-888-PWEBBER (1-888-793-2237). As described in the Plan Documents, the price at
which Class Y shares are bought and sold by the trustee of PW 401(k) Plus Plan
might be more or less than the price per share at the time the participants made
their investment choices.
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 a fund's investment objective, policies and
restrictions.
If conditions exist that make cash payments undesirable, each 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 a 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. Each 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 funds may suspend redemption privileges or postpone the date of
payment during any period (1) when the New York Stock Exchange ("NYSE") is
closed or trading on the NYSE is restricted as determined by the SEC, (2) when
an emergency exists, as defined by the SEC, that makes it not reasonably
practicable for a 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 a fund's portfolio at the time.
SERVICE ORGANIZATIONS. A 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. A
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 a 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.
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AUTOMATIC INVESTMENT PLAN. PaineWebber offers an automatic investment plan
with a minimum initial investment of $1,000 through which a 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 a 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:
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 a 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 a 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 a 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.
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PAINEWEBBER RMA RESOURCE ACCUMULATION PLANSM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(R) (RMA)(R)
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.
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
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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;
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 a fund will automatically convert to Class A shares of
that 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
(1) the date on which such Class B shares were issued or (2) 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
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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 their higher ongoing expenses 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
Each 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. 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 funds' 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 funds' 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
sharesof 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 adversitement 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 3.0% sales charge for Enhanced S&P 500 Fund or 4.5% sales charge for
Enhanced Nasdaq-100 Fund 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 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.
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The funds 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 funds calculate 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 funds may compare
their 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 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 Nasdaq-100 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 funds 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 funds and
comparative mutual fund data and ratings reported in independent periodicals,
including THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE
WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.
The funds 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 funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(R) Money Markets. In comparing the funds'
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 funds 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 any
fund involves greater risks than an investment in either a money market fund or
a CD.
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The funds may also compare their performance to general trends in the
stock and bond markets, as illustrated by the following graph prepared by
Ibbotson Associates, Chicago.
IBBOTSON CHART PLOT POINTS
Chart showing performance of S&P 500, long-term U.S. government bonds,
Treasury Bills and inflation from 1925 through 1999
YEAR COMMON STOCKS LONG-TERM GOV'T BONDS INFLATION/CPI TREASURY BILLS
1925 $10,000 $10,000 $10,000 $10,000
1926 $11,162 $10,777 $9,851 $10,327
1927 $15,347 $11,739 $9,646 $10,649
1928 $22,040 $11,751 $9,553 $11,028
1929 $20,185 $12,153 $9,572 $11,552
1930 $15,159 $12,719 $8,994 $11,830
1931 $8,590 $12,044 $8,138 $11,957
1932 $7,886 $14,073 $7,300 $12,072
1933 $12,144 $14,062 $7,337 $12,108
1934 $11,969 $15,472 $7,486 $12,128
1935 $17,674 $16,243 $7,710 $12,148
1936 $23,669 $17,464 $7,803 $12,170
1937 $15,379 $17,504 $8,045 $12,207
1938 $20,165 $18,473 $7,821 $12,205
1939 $20,082 $19,570 $7,784 $12,208
1940 $18,117 $20,761 $7,859 $12,208
1941 $16,017 $20,955 $8,622 $12,216
1942 $19,275 $21,629 $9,423 $12,248
1943 $24,267 $22,080 $9,721 $12,291
1944 $29,060 $22,702 $9,926 $12,332
1945 $39,649 $25,139 $10,149 $12,372
1946 $36,449 $25,113 $11,993 $12,416
1947 $38,529 $24,454 $13,073 $12,478
1948 $40,649 $25,285 $13,426 $12,580
1949 $48,287 $26,916 $13,184 $12,718
1950 $63,601 $26,932 $13,948 $12,870
1951 $78,875 $25,873 $14,767 $13,063
1952 $93,363 $26,173 $14,898 $13,279
1953 $92,439 $27,125 $14,991 $13,521
1954 $141,084 $29,075 $14,916 $13,638
1955 $185,614 $28,699 $14,972 $13,852
1956 $197,783 $27,096 $15,400 $14,193
1957 $176,457 $29,117 $15,866 $14,639
1958 $252,975 $27,342 $16,145 $14,864
1959 $283,219 $26,725 $16,387 $15,303
1960 $284,549 $30,407 $16,629 $15,711
1961 $361,060 $30,703 $16,741 $16,045
1962 $329,545 $32,818 $16,946 $16,483
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YEAR COMMON STOCKS LONG-TERM GOV'T BONDS INFLATION/CPI TREASURY BILLS
1963 $404,685 $33,216 $17,225 $16,997
1964 $471,388 $34,381 $17,430 $17,598
1965 $530,081 $34,625 $17,765 $18,289
1966 $476,737 $35,889 $18,361 $19,159
1967 $591,038 $32,594 $18,920 $19,966
1968 $656,415 $32,509 $19,814 $21,005
1969 $600,590 $30,860 $21,024 $22,388
1970 $624,653 $34,596 $22,179 $23,849
1971 $714,058 $39,173 $22,924 $24,895
1972 $849,559 $41,400 $23,706 $25,851
1973 $725,003 $40,942 $25,792 $27,643
1974 $533,110 $42,725 $28,939 $29,855
1975 $731,443 $46,653 $30,969 $31,588
1976 $905,842 $54,470 $32,458 $33,193
1977 $840,766 $54,095 $34,656 $34,893
1978 $895,922 $53,458 $37,784 $37,398
1979 $1,061,126 $52,799 $42,812 $41,279
1980 $1,405,137 $50,715 $48,120 $45,917
1981 $1,336,161 $51,657 $52,421 $52,671
1982 $1,622,226 $72,507 $54,451 $58,224
1983 $1,987,451 $72,979 $56,518 $63,347
1984 $2,111,991 $84,274 $58,753 $69,586
1985 $2,791,166 $110,371 $60,968 $74,960
1986 $3,306,709 $137,446 $61,657 $79,580
1987 $3,479,675 $133,716 $64,376 $83,929
1988 $4,064,583 $146,650 $67,221 $89,257
1989 $5,344,555 $173,215 $70,345 $96,728
1990 $5,174,990 $183,924 $74,640 $104,286
1991 $6,755,922 $219,420 $76,927 $110,121
1992 $7,274,115 $237,092 $79,159 $113,982
1993 $8,000,785 $280,339 $81,334 $117,284
1994 $8,105,379 $258,556 $83,510 $121,862
1995 $11,139,184 $340,435 $85,630 $128,680
1996 $13,709,459 $337,265 $88,475 $135,381
1997 $18,272,762 $390,735 $89,897 $142,496
1998 $23,495,420 $441,777 $91,513 $149,416
1999 $28,456,286 $402,177 $93,998 $156,414
Source: STOCKS, BONDS, BILLS AND INFLATION 1999 YEARBOOKTM, Ibbotson
Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
The chart is shown for illustrative purposes only and does not represent
any 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.
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, 1999, stocks beat all
other traditional asset classes. A $10,000 investment in the stocks comprising
the S&P 500 grew to $28,456,286, significantly more than any other investment.
TAXES
BACKUP WITHHOLDING. Each 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.
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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 either fund's shares for shares of another PaineWebber mutual fund
generally will have similar tax consequences. In addition, if a 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 a 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. Each fund intends to
qualify for treatment as a regulated investment company ("RIC") under the
Internal Revenue Code. To so qualify, each 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 a 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 a fund's taxable year, not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
government securities or the securities of other RICs) of any one issuer. By
qualifying as a RIC, a fund (but not its shareholders) will be relieved of
federal income tax on the part of its investment company taxable income and net
capital gain (I.E., the excess of net long-term capital gain over net short-term
capital loss) that it distributes to its shareholders). If a 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, a 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 a 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 each 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 a 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.
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Each 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 a 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 a 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) a 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 funds, 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 a fund expires, it realizes a
short-term capital gain equal to the amount of the premium it received for
writing the option. When a 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 a 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.
If a 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 a 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 a 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 funds and their shareholders. No
attempt is made to present a complete explanation of the federal tax treatment
of the funds' 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.
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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 funds could, under certain conflicts of laws jurisprudence
in various states, be held personally liable for the obligations of the Trust or
the funds. However, the Trust's trust instrument disclaims shareholder liability
for acts or obligations of the Trust or its series (the funds) 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 each fund's property for all losses
and expenses of any series shareholder held personally liable for the
obligations of the funds. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which a
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 a 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 each fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the funds.
Delaware law gives shareholders of the Trust the right to obtain a current
list of the names and last known mailing address of the Trust's other
shareholders, subject to reasonable standards established by the board governing
the time, location and expense of providing the relevant information and
documents.
CLASSES OF SHARES. A share of each class of each 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 a
fund will affect the performance of those classes. Each share of a fund is
entitled to participate equally in dividends, other distributions and the
proceeds of any liquidation of that fund. However, due to the differing expenses
of the classes, dividends and liquidation proceeds on Class A, B, C and Y shares
will differ.
VOTING RIGHTS. Shareholders of each 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 Trust may elect all of the trustees of the Trust. The shares of a
fund will be voted together, except that only the shareholders of a particular
class of a fund may vote on matters affecting only that class, such as the terms
of a Rule 12b-1 Plan as it relates to the class.
The funds do 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. Each fund may determine to allocate certain of
its expenses to the specific classes of that fund's shares to which those
expenses are attributable. For example, Class B and 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,
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Massachusetts 02171, serves as custodian and recordkeeping agent for each fund.
PFPC Inc., a subsidiary of PNC Bank, N.A., serves as each 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 funds.
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 funds.
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FINANCIAL STATEMENTS
MITCHELL HUTCHINS SECURITIES TRUST
PAINEWEBBER ENHANCED S&P 500 FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 1, 2000
Assets:
Cash $ 50,000
Deferred offering expenses 115,000
Prepaid expenses 94,000
------------
Total assets 259,000
-------
Liabilities:
Offering expenses payable 115,000
Payable to adviser 94,000
------
Total liabilities 209,000
-------
Net Assets (beneficial interest, $0.001 par $ 50,000
value, issued and outstanding) ===========
CLASS A:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value and redemption value per $ 10.00
===========
share
Maximum offering price per share (net asset
value plus sales charge of 3.00% of $ 10.31
===========
offering price)
CLASS B:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value and offering price per share $ 10.00
===========
CLASS C:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value and offering price per share $ 10.00
===========
CLASS Y:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value, offering price and $ 10.00
===========
redemption value per share
ORGANIZATION
PaineWebber Enhanced S&P 500 Fund ("Fund") is a diversified series of
Mitchell Hutchins Securities Trust ("Trust"), an open-end management investment
company organized as a Delaware business trust on December 23, 1999. The Fund
has had no operations other than the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins"), the investment adviser, a wholly owned subsidiary of
PaineWebber Incorporated ("PaineWebber"), of 1,250 shares
40
<PAGE>
of beneficial interest of Class A for the amount of $12,500, 1,250 shares of
beneficial interest of Class B for the amount of $12,500, 1,250 shares of
beneficial interest of Class C for the amount of $12,500 and 1,250 shares of
beneficial interest of Class Y for the amount of $12,500, on March 1, 2000. Each
class represents assets of the Fund, and the classes are identical except for
differences in ongoing service and distribution fees and certain transfer agency
expenses. The trustees of the Trust have authority to issue an unlimited number
of shares of beneficial interest, par value $0.001 per share. Class Y shares are
currently offered for sale only to limited groups of investors.
Costs incurred and to be incurred in connection with the offering and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such costs
will be expensed over the first year of the Fund. Costs incurred in organizing
the fund will be borne by the adviser.
MANAGEMENT AGREEMENT
Mitchell Hutchins acts as the investment adviser and administrator to the
Fund pursuant to a contract (the "Advisory Contract") with the Trust dated March
1, 2000. Under the Advisory Contract, the Fund pays Mitchell Hutchins a fee,
computed daily and paid monthly, at an annual rate of 0.40% of average daily net
assets.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of each class of the Fund's shares
and has appointed PaineWebber as the exclusive dealer for the sale of those
shares.
Under separate plans of distribution pertaining to the Class A, Class B,
Class C and Class Y 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 0.40% of the average daily net assets of the
Class B shares and the Class C shares, respectively. There is no distribution
plan with respect to the Fund's Class Y shares, and the Fund pays no service or
distribution fees with respect to its Class Y shares.
41
<PAGE>
MITCHELL HUTCHINS SECURITIES TRUST
PAINEWEBBER ENHANCED NASDAQ-100 FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 1, 2000
Assets:
Cash $ 50,000
Deferred offering expenses 115,000
Prepaid expenses 97,000
------------
Total assets 262,000
-------
Liabilities:
Offering expenses payable 115,000
Payable to adviser 97,000
------
Total liabilities 212,000
-------
Net Assets (beneficial interest, $0.001 par $ 50,000
value, issued and outstanding) ======
CLASS A:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value and redemption value per $ 10.00
===========
share
Maximum offering price per share (net asset
value plus sales charge of 4.50% of $ 10.47
===========
offering price)
CLASS B:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value and offering price per share $ 10.00
===========
CLASS C:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value and offering price per share $ 10.00
===========
CLASS Y:
Net Assets $ 12,500
-----------
Shares outstanding 1,250
-----------
Net asset value, offering price and $ 10.00
===========
redemption value per share
ORGANIZATION
PaineWebber Enhanced Nasdaq-100 Fund ("Fund") is a non-diversified series
of Mitchell Hutchins Securities Trust ("Trust"), an open-end management
investment company organized as a Delaware business trust on December 23, 1999.
The Fund has had no operations other than the sale to Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), the investment adviser, a wholly
42
<PAGE>
owned subsidiary of PaineWebber Incorporated ("PaineWebber"), of 1,250 shares of
beneficial interest of Class A for the amount of $12,500, 1,250 shares of
beneficial interest of Class B for the amount of $12,500, 1,250 shares of
beneficial interest of Class C for the amount of $12,500 and 1,250 shares of
beneficial interest of Class Y for the amount of $12,500, on March 1, 2000. Each
class represents assets of the Fund, and the classes are identical except for
differences in ongoing service and distribution fees and certain transfer agency
expenses. The trustees of the Trust have authority to issue an unlimited number
of shares of beneficial interest, par value $0.001 per share. Class Y shares are
currently offered for sale only to limited groups of investors.
Costs incurred and to be incurred in connection with the offering and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such costs
will be expensed over the first year of the Fund. Costs incurred in organizing
the fund will be borne by the adviser.
MANAGEMENT AGREEMENT
Mitchell Hutchins acts as the investment adviser and administrator to the
Fund pursuant to a contract (the "Advisory Contract") with the Trust dated March
1, 2000. Under the Advisory Contract, the Fund pays Mitchell Hutchins a fee,
computed daily and paid monthly, at an annual rate of 0.75% of average daily net
assets.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of each class of the Fund's shares
and has appointed PaineWebber as the exclusive dealer for the sale of those
shares.
Under separate plans of distribution pertaining to the Class A, Class B,
Class C and Class Y 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 the Class C shares, respectively. There is no distribution
plan with respect to the Fund's Class Y shares, and the Fund pays no service or
distribution fees with respect to its Class Y shares.
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
Mitchell Hutchins Securities Trust
We have audited the accompanying statements of assets and liabilities of
the Mitchell Hutchins Securities Trust (comprising, PaineWebber Enhanced S&P 500
Fund and PaineWebber Enhanced Nasdaq-100 Fund) (the "Trust") as of March 1,
2000. These statements of assets and liabilities are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
statements of assets and liabilities based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statement of assets
and liabilities is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall statement of assets and liabilities presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Mitchell
Hutchins Securities Trust at March 1, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
New York, New York
March 1, 2000
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR REFERRED TO IN THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL
INFORMATION. THE FUND AND ITS DISTRIBUTOR
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT. THE
PROSPECTUS AND THIS STATEMENT OF
ADDITIONAL INFORMATION ARE NOT AN OFFER TO
SELL SHARES OF THE FUND IN ANY PaineWebber
JURISDICTION WHERE THE FUND OR ITS Enhanced S&P 500 Fund
DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE Enhanced Nasdaq-100 Fund
SHARES.
____________
------------------------------------------
Statement of Additional Information
March , 2000
------------------------------------------
PAINEWEBBER
(C)2000 PaineWebber Incorporated. All rights reserved.
<PAGE>
C-5
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(1) (a) Trust Instrument 1/
(b) Amendment to Trust Instrument effective February 8, 2000 (filed
herewith)
(2) By-Laws 1/
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(4) (a) Investment Advisory and Administration Contract (filed herewith)
(b) Sub-Advisory Contract relating to PaineWebber Enhanced S&P 500 Fund
(filed herewith)
(c) Sub-Advisory Contract relating to PaineWebber Enhanced Nasdaq-100 Fund
(filed herewith)
(5) (a) Distribution Contract (Class A Shares ) (filed herewith)
(b) Distribution Contract (Class B Shares ) (filed herewith)
(c) Distribution Contract (Class C Shares ) (filed herewith)
(d) Distribution Contract (Class Y Shares) (filed herewith)
(e) Exclusive Dealer Agreement (Class A Shares) (filed herewith)
(f) Exclusive Dealer Agreement (Class B Shares) (filed herewith)
(g) Exclusive Dealer Agreement (Class C Shares) (filed herewith)
(h) Exclusive Dealer Agreement (Class Y Shares) (filed herewith)
(6) Bonus, profit sharing or pension plans - none
(7) Form of Custodian Agreement (filed herewith)
(8) Form of Transfer Agency Agreement (filed herewith)
(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents: Auditor's consent (filed
herewith)
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent (filed herewith)
(13) (a) Rule 12b-1 Plan of Distribution with respect to Class A Shares
(filed herewith)
(b) Rule 12b-1 Plan of Distribution with respect to Class B Shares
(filed herewith)
(c) Rule 12b-1 Plan of Distribution with respect to Class C Shares
(filed herewith)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan Pursuant to Rule 18f-3 (filed herewith)
(16) (a) Code of Ethics for Mitchell Hutchins Securities Trust and Mitchell
Hutchins Asset Management Inc. (to be filed)
(b) Code of Ethics for DSI International Management, Inc. (to be filed)
- ----------------------
C-1
<PAGE>
1/ Incorporated by Registrant's initial registration statement, SEC File No.
333-94065, filed December 23, 1999.
2/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles VI and IX of Registrant's By-Laws.
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Until PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund each have public shareholders, Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins") is a controlling person of each 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. Each
sub-advisory contract contains similar provisions with respect to the
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
C-2
<PAGE>
Incorporated ("PaineWebber").
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 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 an indirect 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.
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 SECURITIES TRUST
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
C-3
<PAGE>
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.
<TABLE>
<CAPTION>
Positions and Offices With Positions and Offices With
Name Registrant Underwriter or Exclusive Dealer
---- ---------- --------------------------------
<S> <C> <C>
Margo N. Alexander* President and Trustee Chairman, Chief Executive
Officer and a Director of
Mitchell Hutchins and Executive
Vice President and Director of
PaineWebber
Mary C. Farrell** Trustee Managing Director, Senior
Investment Strategist and Member
of Investment Policy Committee
of PaineWebber
Brian M. Storms* Trustee President and Chief Operating
Officer of Mitchell Hutchins
Tom Disbrow** Vice President and Assistant First Vice President and a
Treasurer Senior Manager of the Mutual
Fund Finance Department of
Mitchell Hutchins
John J. Lee** Vice President and Assistant Vice President and a Manager of
Treasurer the Mutual Fund Finance
Department of Mitchell Hutchins
Kevin J. Mahoney** Vice President and Assistant First Vice President and a
Treasurer Senior Manager of the Mutual
Fund Finance Department of
Mitchell Hutchins
Ann E. Moran** Vice President and Assistant Vice President and a Manager of
Treasurer the Mutual Fund Finance
Department of Mitchell Hutchins
Dianne E. O'Donnell** Vice President and Secretary Senior Vice President and Deputy
General Counsel of Mitchell Hutchins
Emil Polito* Vice President Senior Vice President and
Director of Operations and
Control for Mitchell Hutchins
Victoria E. Schonfeld** Vice President Managing Director and General
Counsel of Mitchell Hutchins and
Senior Vice President of PaineWebber
Paul H. Schubert** Vice President and Treasurer Senior Vice President and Director
of the Mutual Fund Finance Department
of Mitchell Hutchins
Barney A. Taglialatela** Vice President and Assistant Vice President and a Manager of
Treasurer the Mutual Fund Finance Department
of Mitchell Hutchins
C-4
<PAGE>
Positions and Offices With Positions and Offices With
Name Registrant Underwriter or Exclusive Dealer
---- ---------- --------------------------------
<S> <C> <C>
Keith A. Weller** Vice President and Assistant First Vice President and Associate
Secretary General Counsel of Mitchell Hutchins
- -------------
* The business address of this person is 51 West 52nd Street, New York, New York 10019-6114.
** The business address of this person is 1285 Avenue of the Americas, New York, New York 10019.
</TABLE>
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly cause this Pre-Effective
Amendment No. 3 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on the 6th day of March 2000.
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
Pre-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated. The undersigned hereby severally
constitute and appoint Dianne E. O'Donnell, Keith A. Weller, Arthur J. Brown,
Elinor W. Gammon and Robert A Wittie, and each of them singly, our true and
lawful attorneys, with full power to sign for each of us, and in each of our
names and in the capacities indicated below, any and all amendments to the
Registration Statement of Mitchell Hutchins Securities Trust, and all
instruments necessary or desirable in connection therewith, filed with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by said attorneys to any and all amendments to
said registration statement.
Signature Title Date
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee March 6, 2000
- ------------------------------ (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman March 6, 2000
- ------------------------------ of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee March 6, 2000
- ------------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee March 6, 2000
- ------------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee March 6, 2000
- ------------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee March 6, 2000
- ------------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee March 6, 2000
- ------------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee March 6, 2000
- ------------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee March 6, 2000
- ------------------------------
Carl W. Schafer *
/s/ Brian M. Storms Trustee March 6, 2000
- ------------------------------
Brian M. Storms **
/s/ Paul H. Schubert Vice President and March 6, 2000
- ------------------------------ Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<PAGE>
MITCHELL HUTCHINS SECURITIES TRUST
EXHIBIT INDEX
Exhibit
Number
- ------
(1) (a) Trust Instrument 1/
(b) Amendment to Trust Instrument effective February 8, 2000 (filed
herewith)
(2) By-Laws 1/
(3) Instruments defining the rights of holders of Registrant's shares of
beneficial interest 2/
(4) (a) Investment Advisory and Administration Contract (filed herewith)
(b) Sub-Advisory Contract relating to PaineWebber Enhanced S&P 500 Fund
(filed herewith)
(c) Sub-Advisory Contract relating to PaineWebber Enhanced Nasdaq-100 Fund
(filed herewith)
(5) (a) Distribution Contract (Class A Shares ) (filed herewith)
(b) Distribution Contract (Class B Shares ) (filed herewith)
(c) Distribution Contract (Class C Shares ) (filed herewith)
(d) Distribution Contract (Class Y Shares) (filed herewith)
(e) Exclusive Dealer Agreement (Class A Shares) (filed herewith)
(f) Exclusive Dealer Agreement (Class B Shares) (filed herewith)
(g) Exclusive Dealer Agreement (Class C Shares) (filed herewith)
(h) Exclusive Dealer Agreement (Class Y Shares) (filed herewith)
(6) Bonus, profit sharing or pension plans - none
(7) Form of Custodian Agreement (filed herewith)
(8) Form of Transfer Agency Agreement (filed herewith)
(9) Opinion and consent of counsel (filed herewith)
(10) Other opinions, appraisals, rulings and consents: Auditor's consent (filed
herewith)
(11) Financial Statements omitted from Part B - none
(12) Letter of investment intent (filed herewith)
(13) (a) Rule 12b-1 Plan of Distribution with respect to Class A Shares
(filed herewith)
(b) Rule 12b-1 Plan of Distribution with respect to Class B Shares
(filed herewith)
(c) Rule 12b-1 Plan of Distribution with respect to Class C Shares
(filed herewith)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan Pursuant to Rule 18f-3 (filed herewith)
(16) (a) Code of Ethics for Mitchell Hutchins Securities Trust and Mitchell
Hutchins Asset Management Inc. (to be filed)
(b) Code of Ethics for DSI International Management, Inc. (to be filed)
- ----------------------
<PAGE>
1/ Incorporated by Registrant's initial registration statement, SEC File No.
333-94065, filed December 23, 1999.
2/ Incorporated by reference from Articles IV, VI, IX and X of Registrant's
Trust Instrument and from Articles VI and IX of Registrant's By-Laws.
Exhibit (1)(b)
ACTION
IN LIEU OF MEETING OF THE TRUSTEES
OF
MITCHELL HUTCHINS SECURITIES TRUST
The undersigned, being all the trustees of Mitchell Hutchins Securities
Trust ("Trust"), do hereby approve, adopt and consent to the following
resolutions as the act of the Board of Trustees of said Trust, which shall for
all purposes be treated as a vote at a meeting:
RESOLVED, that pursuant to Section 8 of Article X of the Trust's
Trust Instrument, the name of the Trust's initial series of shares of
beneficial interest be, and it hereby is, changed from "PaineWebber DSI
Core Equity Fund" to "PaineWebber Enhanced Equity Index Fund," and be it
further
RESOLVED, that pursuant to Section 1 of Article IV of the Trust's
Trust Instrument, there is hereby established and designated a new series
of shares of beneficial interest in the Trust, having the rights and
privileges specified in the Trust's Trust Instrument, to be known as
"PaineWebber Enhanced Nasdaq-100 Fund" ("New Fund"), and be it further
RESOLVED, that the trustees hereby establish an unlimited number of
Class A shares of beneficial interest of the New Fund; and be it further
RESOLVED, that the trustees hereby establish an unlimited number of
Class B shares of beneficial interest of the New Fund; and be it further
RESOLVED, that the trustees hereby establish an unlimited number of
Class C shares of beneficial interest of the New Fund; and be it further
RESOLVED, that the trustees hereby establish an unlimited number of
Class Y shares of beneficial interest of the New Fund; and be it further
RESOLVED, that the Class A, B, C and Y shares of the New Fund shall
have the same preferences and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of shares as provided in Schedule A to the Trust's Trust
Instrument and subject to the exceptions set forth in Schedule A; and be
it further
RESOLVED, that Schedule A of the Trust's Declaration of Trust be,
and hereby is, amended and restated to reflect the name change of the
Series and the establishment of the new series; and be it further
<PAGE>
RESOLVED, that the Trust's officers be, and hereby are, authorized
and directed in the name and on behalf of the Trust, to prepare, execute
and file with the Securities and Exchange Commission ("SEC") and other
appropriate authorities Pre-Effective Amendment No. 1 ("Amendment") to the
Trust's initial registration statement on Form N-1A, such Amendment to
include a combined prospectus and statement of additional information for
the Trust's two series, and to make such changes therein as may be
required to comply with the comments of the SEC staff or as are deemed
appropriate by said officers and as are approved by the Trust's counsel;
and to file one or more additional pre-effective amendments to such
initial registration statement as said officers may determine are
necessary and appropriate; and be it further
RESOLVED, that the officers of the Trust be, and hereby are,
authorized to determine the states in which appropriate action shall be
taken to permit sales of the shares of the Trust and to perform on behalf
of the Trust any and all such acts as they may deem necessary or advisable
in order to comply with the applicable laws or regulations of any such
states, and in connection therewith to execute and file all requisite
papers and documents, including appointments of attorneys for service of
process; and the execution by such officers of any such paper or document
or the doing of them of any act in connection with the foregoing matters
shall conclusively establish their authority therefor from the Trust and
the approval and ratification by the Trust of the papers and documents so
executed and the action so taken.
Adoption of the foregoing Resolutions as the act of the Board of Trustees
shall be effective as of February 8, 2000.
Dated: February 8, 2000 /s/ Victoria E. Schonfeld
---------------------- ------------------------
Victoria E. Schonfeld
Dated: February 8, 2000 /s/ Dianne E. O'Donnell
---------------------- ----------------------
Dianne E. O'Donnell
<PAGE>
SCHEDULE A
SERIES OF THE TRUST
PaineWebber Enhanced Equity Index Fund
PaineWebber Enhanced Nasdaq-100 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 each of the above Series. Each of the Class A shares, Class B shares, Class C
shares and Class Y shares of a Series represents interests in the assets of only
that Series and has the same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of shares, except as provided in the Trust's Trust
Instrument and as set forth below with respect to the Class B shares of 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.
<PAGE>
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.
2
Exhibit (4)(a)
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of ____________ 2000, between MITCHELL HUTCHINS
SECURITIES TRUST, a Delaware business trust ("Trust"), and MITCHELL HUTCHINS
ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934
Act"), and as an investment adviser under the Investment Advisers Act of 1940,
as amended,
WHEREAS the Trust is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company, and
currently has two distinct series of shares of beneficial interest, which
correspond to distinct portfolios, which have been designated as PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS the Trust desires to retain Mitchell Hutchins as investment
adviser and administrator to furnish certain administrative, investment advisory
and portfolio management services to the Trust with respect to PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund and any
other Series as to which this Contract may hereafter be made applicable (each a
"Series"), and Mitchell Hutchins is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as
investment adviser and administrator of the Trust and each Series for the period
and on the terms set forth in this Contract. Mitchell Hutchins accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES AS INVESTMENT ADVISER.
(a) Subject to the supervision of the Trust's Board of Trustees
("Board"), Mitchell Hutchins will provide a continuous investment program for a
Series, including investment research and management with respect to all
securities and investments and cash equivalents in the Series. Mitchell Hutchins
will determine from time to time what securities and other investments will be
purchased, retained or sold by the Series. Mitchell Hutchins may delegate to a
sub-adviser, in whole or in part, Mitchell Hutchins' duty to provide a
continuous investment management program with respect to any Series, including
the provision of investment management services with respect to a portion of the
Series' assets, in accordance with paragraph 5 of this Agreement.
<PAGE>
(b) Mitchell Hutchins agrees that in placing orders with brokers, it
will attempt to obtain the best net result in terms of price and execution;
provided that, on behalf of any Series, Mitchell Hutchins may, in its
discretion, use brokers who provide the Series with research, analysis, advice
and similar services to execute portfolio transactions on behalf of the Series,
and Mitchell Hutchins may pay to those brokers in return for brokerage and
research services a higher commission than may be charged by other brokers,
subject to Mitchell Hutchins' determining in good faith that such commission is
reasonable in terms either of the particular transaction or of the overall
responsibility of Mitchell Hutchins to such Series and its other clients and
that the total commissions paid by such Series will be reasonable in relation to
the benefits to the Series over the long term. In no instance will portfolio
securities be purchased from or sold to Mitchell Hutchins, or any affiliated
person thereof, except in accordance with the federal securities laws and the
rules and regulations thereunder, or any applicable exemptive orders. Whenever
Mitchell Hutchins simultaneously places orders to purchase or sell the same
security on behalf of a Series and one or more other accounts advised by
Mitchell Hutchins, such orders will be allocated as to price and amount among
all such accounts in a manner believed to be equitable to each account. The
Trust recognizes that in some cases this procedure may adversely affect the
results obtained for the Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series, and will
furnish the Board with such periodic and special reports as the Board reasonably
may request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Mitchell Hutchins hereby agrees that all records which it maintains for the
Trust are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-l under the 1940
Act and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) Mitchell Hutchins will oversee the computation of the net asset
value and the net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement)
or as more frequently requested by the Board.
(e) The Trust hereby authorizes Mitchell Hutchins and any entity or
person associated with Mitchell Hutchins which is a member of a national
securities exchange to effect any transaction on such exchange for the account
of any Series, which transaction is permitted by Section 11(a) of the 1934 Act
and the rules thereunder, and the Trust hereby consents to the retention of
compensation by Mitchell Hutchins or any person or entity associated with
Mitchell Hutchins for such transaction.
3. Duties as Administrator. Mitchell Hutchins will administer the
affairs of the Trust and each Series subject to the supervision of the Board and
the following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of
the Trust and each Series, including oversight of transfer agency, custodial and
accounting services, except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve or deprive the Board of its
2
<PAGE>
responsibility for and control of the conduct of the affairs of the Trust and
each Series.
(b) Mitchell Hutchins will provide the Trust and each Series with such
corporate, administrative and clerical personnel (including officers of the
Trust) and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the Trust and
each Series.
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement, proxy material, tax returns and required reports to each
Series' shareholders and the Securities and Exchange Commission and other
appropriate federal or state regulatory authorities.
(d) Mitchell Hutchins will provide the Trust and each Series with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery supplies and
similar items.
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
4. FURTHER DUTIES. In all matters relating to the performance of this
Contract, Mitchell Hutchins will act in conformity with the Trust Instrument,
By-Laws, and Registration Statement of the Trust and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
5. DELEGATION OF MITCHELL HUTCHINS' DUTIES AS INVESTMENT ADVISER AND
ADMINISTRATOR. With respect to any or all Series, Mitchell Hutchins may enter
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
one or more sub-advisers or sub-administrators in which Mitchell Hutchins
delegates to such sub-advisers or sub-administrators any or all of its duties
specified in Paragraphs 2 and 3 of this Contract, provided that each
Sub-Advisory or Sub-Administration Contract imposes on the sub-adviser or
sub-administrator bound thereby all the corresponding duties and conditions to
which Mitchell Hutchins is subject by Paragraphs 2 and 3 of this Contract and
all the duties and conditions of paragraph 4 of this Contract, and further
provided that each Sub-Advisory or Sub-Administration Contract meets all
requirements of the 1940 Act and rules thereunder. Furthermore, to the extent
consistent with the regulations and orders of the Securities and Exchange
Commission, the appointment and engagement of any sub-advisor and delegation to
it of duties hereunder by Mitchell Hutchins shall be subject only to the
approval of the Board of Trustees of the Trust.
6. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby or unless otherwise agreed to by the parties hereunder
in writing. Nothing in this Contract shall limit or restrict the right of any
3
<PAGE>
director, officer or employee of Mitchell Hutchins, who may also be a Trustee,
officer or employee of the Trust, to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
7. EXPENSES.
(a) During the term of this Contract, each Series will bear all
expenses, not specifically assumed by Mitchell Hutchins, incurred in its
operations and the offering of its shares.
(b) Expenses borne by each series will include but not be limited to
the following (or each Series' proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Series and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Mitchell Hutchins under this
Contract; (iii) expenses of organizing the Trust and the Series; (iv) filing
fees and expenses relating to the registrations and qualification of the Series'
shares and the Trust under federal and/or state securities laws and maintaining
such registration and qualifications; (v) fees and salaries payable to the
Trust's Trustees and officers who are not interested persons of the Trust or
Mitchell Hutchins; (vi) all expenses incurred in connection with the Trustees'
services, including travel expenses; (vii) taxes (including any income or
franchise taxes) and governmental fees; (viii) costs of any liability,
uncollectible items of deposit and other insurance and fidelity bonds; (ix) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Trust or Series for violation of any law; (x)
legal, accounting and auditing expenses, including legal fees of special counsel
for those Trustees of the Trust who are not interested persons of the Trust;
(xi) charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders;
(xiv) costs of mailing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials to
existing shareholders; (xv) any extraordinary expenses (including fees and
disbursements of counsel, costs of actions, suits or proceedings to which the
Trust is a party and the expenses the Trust may incur as a result of its legal
obligation to provide indemnification to its officers, Trustees, agents and
shareholders) incurred by the Trust or Series; (xvi) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; (xvii) cost of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xviii) the cost
of investment company literature and other publications provided by the Trust to
its Trustees and officers; (xix) costs of mailing, stationery and communications
equipment; (xx) expenses incident to any dividend, withdrawal or redemption
options; (xxi) charges and expenses of any outside pricing service used to value
portfolio securities; and (xxii) interest on borrowings of the Trust.
(c) The Trust or a Series may pay directly any expenses incurred by it
in its normal operations and, if any such payment is consented to by Mitchell
Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to
4
<PAGE>
this Contract, the Series may reduce the fee payable to Mitchell Hutchins
pursuant to Paragraph 8 thereof by such amount. To the extent that such
deductions exceed the fee payable to Mitchell Hutchins on any monthly payment
date, such excess shall be carried forward and deducted in the same manner from
the fee payable on succeeding monthly payment dates.
(d) Mitchell Hutchins will assume the cost of any compensation for
services provided to the Trust received by the officers of the Trust and by
those Trustees who are interested persons of the Trust.
(e) The payment or assumption by Mitchell Hutchins of any expenses of
the Trust or a Series that Mitchell Hutchins is not required by this Contract to
pay or assume shall not obligate Mitchell Hutchins to pay or assume the same or
any similar expense of the Trust or a Series on any subsequent occasion.
8. COMPENSATION.
(a) For the services provided and the expenses assumed pursuant to this
Contract, with respect to PaineWebber Enhanced S&P 500 Fund, the Trust will pay
to Mitchell Hutchins a fee, computed daily and paid monthly, at an annual rate
of 0.40% of average daily net assets of such Series.
(b) For the services provided and the expenses assumed pursuant to this
Contract, with respect to PaineWebber Enhanced Nasdaq-100 Fund, the Trust will
pay to Mitchell Hutchins a fee, computed daily and paid monthly, at an annual
rate of 0.75% of average daily net assets of such Series.
(c) For the services provided and the expenses assumed pursuant to this
Contract with respect to any other Series hereafter established, the Trust will
pay to Mitchell Hutchins from the assets of such Series a fee in an amount to be
agreed upon in a written fee agreement ("Fee Agreement") executed by the Trust
on behalf of such Series and by Mitchell Hutchins. All such Fee Agreements shall
provide that they are subject to all terms and conditions of this Contract.
(d) The fee shall be computed daily and paid monthly to Mitchell
Hutchins on or before the first business day of the next succeeding calendar
month.
(e) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective day to the end of the month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. LIMITATION OF LIABILITY OF MITCHELL HUTCHINS. Mitchell Hutchins and
its delegates, including any Sub-Adviser or Sub-Administrator to any Series or
the Trust, shall be liable for any error of judgment or mistake of law or for
any loss suffered by any Series, the Trust or any of its shareholders, in
connection with the matters to which this Contract relates, except to the extent
that such a loss results from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
5
<PAGE>
its obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or become
an officer, Trustee, employee or agent of the Trust shall be deemed, when
rendering services to any Series or the Trust or acting with respect to any
business of such Series or the Trust, to be rendering such service to or acting
solely for the Series or the Trust and not as an officer, director, employee, or
agent or one under the control or direction of Mitchell Hutchins even though
paid by it.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
TRUST. No Trustee, shareholder, officer, employee or agent of any Series shall
be liable for any obligations of any Series or the Trust under this Contract,
and Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Trust in
settlement of such right or claim, and not to any Trustee, shareholder, officer,
employee or agent.
11. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date hereabove
written provided that, with respect to any Series, this Contract shall not take
effect unless it has first been approved (i) by a vote of a majority of those
Trustees of the Trust who are not parties to this Contract or interested persons
of any such party cast in person at a meeting called for the purpose of voting
on such approval, and (ii) by vote of a majority of that Series' outstanding
voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those Trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Mitchell Hutchins or
by Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Trust. Termination of this Contract with respect to
any given Series shall in no way affect the continued validity of this Contract
or the performance thereunder with respect to any other Series. This Contract
will automatically terminate in the event of its assignment.
12. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this contract as to any
given Series shall be effective until approved by vote of a majority of such
Series' outstanding voting securities.
6
<PAGE>
13. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act. To the extent that
the applicable laws of the State of Delaware conflict with the applicable
provisions of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "national
securities exchange," "net assets," "prospectus," "sale," "sell" and "security"
shall have the same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the Securities and Exchange Commission by any
rule, regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this contract is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By
---------------------------------------
MITCHELL HUTCHINS SECURITIES TRUST
Attest: By
------------------------------------
7
Exhibit (4)(b)
SUB-ADVISORY CONTRACT
Agreement made as of ______________, 2000 ("Contract") between MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"),
and DSI INTERNATIONAL MANAGEMENT, INC., a Delaware corporation ("Sub-Adviser").
RECITALS
(1) Mitchell Hutchins has entered into an Investment Advisory and
Administration Agreement, dated ________________, 2000 ("Management Agreement"),
with Mitchell Hutchins Securities Trust ("Trust"), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act");
(2) The Trust offers for public sale two distinct series of shares of
beneficial interest which correspond to distinct portfolios one of which is
known as PaineWebber Enhanced S&P 500 Fund ("Fund") and may offer additional
district series in the future;
(3) Under the Management Agreement, Mitchell Hutchins has agreed to
provide certain investment advisory and administrative services to the Fund;
(4) The Management Agreement permits Mitchell Hutchins to delegate
certain of its duties as investment adviser thereunder to a sub-adviser;
(5) Mitchell Hutchins desires to retain the Sub-Adviser to furnish
certain investment advisory services with respect to the PaineWebber Enhanced
S&P 500 Fund; and
(6) The Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the Fund for the period and on the terms
set forth in this Contract. The Sub-Adviser accepts that appointment and agrees
to render the services herein set forth, for the compensation herein provided.
2. DUTIES AS SUB-ADVISER.
(a) Subject to the supervision and direction of the Trust's Board of
Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines
adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a
continuous investment program for the Fund, including investment research and
management with respect to all securities and investments and cash equivalents
in the Fund. The Sub-Adviser will determine from time to time what investments
will be purchased, retained or sold by the Fund. The Sub-Adviser will be
<PAGE>
responsible for placing purchase and sell orders for investments and for other
related transactions. The Sub-Adviser will provide services under this Contract
in accordance with the Fund's investment objective, policies and restrictions as
stated in the Trust's currently effective registration statement under the 1940
Act, and any amendments or supplements thereto ("Registration Statement").
(b) The Sub-Adviser agrees that, in placing orders with brokers, it
will obtain the best net result in terms of price and execution; provided that,
on behalf of the Fund, the Sub-Adviser may, in its discretion, use brokers who
provide the Sub-Adviser with research, analysis, advice and similar services to
execute portfolio transactions, and the Sub-Adviser may pay to those brokers in
return for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of the Sub-Adviser to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. In no instance will
portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. The Sub-Adviser may aggregate sales
and purchase orders with respect to the assets of the Fund with similar orders
being made simultaneously for other accounts advised by the Sub-Adviser or its
affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or
sell the same security on behalf of the Fund and one or more other accounts
advised by the Sub-Adviser, the orders will be allocated as to price and amount
among all such accounts in a manner believed to be equitable over time to each
account. Mitchell Hutchins recognizes that in some cases this procedure may
adversely affect the results obtained for the Fund.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to actions by the Sub-Adviser on behalf of the Fund, and
will furnish the Board and Mitchell Hutchins with such periodic and special
reports as the Board or Mitchell Hutchins reasonably may request. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby
agrees that all records that it maintains for the Fund are the property of the
Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any records that it maintains for the Trust and that are required to be
maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender
promptly to the Trust any records that it maintains for the Fund upon request by
the Trust.
(d) At such times as shall be reasonably requested by the Board or
Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins
with economic and investment analyses and reports as well as quarterly reports
setting forth the performance of the international segment of the Fund's
investments and make available to the Board and Mitchell Hutchins any economic,
statistical and investment services that the Sub-Adviser normally makes
available to its institutional or other customers.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities and will use its reasonable efforts to arrange for
the provision of a price(s) from a party(ies) independent of the Sub-Adviser for
2
<PAGE>
each portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
3. FURTHER DUTIES. In all matters relating to the performance of this
Contract, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and Registration Statement and with the written instructions
and written directions of the Board and Mitchell Hutchins; and will comply with
the requirements of the 1940 Act and the Investment Advisers Act of 1940, as
amended ("Advisers Act") and the rules under each, Subchapter M of the Internal
Revenue Code ("Code"), as applicable to regulated investment companies; the
diversification requirements applicable to the Fund under Section 817(h) of the
Code; and all other federal and state laws and regulations applicable to the
Trust and the Fund. Mitchell Hutchins agrees to provide to the Sub-Adviser
copies of the Trust's Trust Instrument, By-Laws, Registration Statement, written
instructions and directions of the Board and Mitchell Hutchins, and any
amendments or supplements to any of these materials as soon as practicable after
such materials become available; and further agrees to identify to the
Sub-Adviser in writing any broker-dealers that are affiliated with Mitchell
Hutchins (other than PaineWebber Incorporated and Mitchell Hutchins itself).
4. EXPENSES. During the term of this Contract, the Sub-Adviser will
bear all expenses incurred by it in connection with its services under this
Contract.
5. COMPENSATION.
(a) For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Contract, Mitchell Hutchins, not the Fund, will pay
to the Sub-Adviser a sub-advisory fee, computed daily and paid monthly, at an
annual rate of 0.20% of the Fund's average daily net assets.
(b) The fee shall be accrued daily and payable monthly to the
Sub-Adviser on or before the last business day of the next succeeding calendar
month.
(c) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be pro-rated according to the proportion that such period
bears to the full month in which such effectiveness or termination occurs.
6. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund, the
Trust, its shareholders or by Mitchell Hutchins in connection with the matters
to which this Contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Contract. Nothing in this paragraph shall be deemed a limitation or waiver of
any obligation or duty that may not by law be limited or waived.
7. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants
and agrees as follows:
3
<PAGE>
(a) The Sub-Adviser (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Contract remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Contract; (iii)
has met and will seek to continue to meet for so long as this Contract remains
in effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency necessary to
be met in order to perform the services contemplated by this Contract; (iv) has
the authority to enter into and perform the services contemplated by this
Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of such code of ethics, together with
evidence of its adoption. Within forty-five days of the end of the last calendar
quarter of each year that this Contract is in effect, the president or a
vice-president of the Sub-Adviser shall certify to Mitchell Hutchins that the
Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous
year and that there has been no violation of the Sub-Adviser's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of Mitchell Hutchins, the
Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to
examine the reports required to be made to the Sub-Adviser by Rule 17j-1(c)(1)
and all other records relevant to the Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its
Form ADV, which as of the date of this Agreement is its Form ADV as most
recently filed with the Securities and Exchange Commission ("SEC") and promptly
will furnish a copy of all amendments to Mitchell Hutchins at least annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of
control of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Fund or senior management of the Sub-Adviser, in
each case prior to, or promptly after, such change.
(e) The Sub-Adviser agrees that neither it, nor any of its affiliates,
will in any way refer directly or indirectly to its relationship with the Trust,
the Fund, Mitchell Hutchins or any of their respective affiliates in offering,
marketing or other promotional materials without the prior express written
consent of Mitchell Hutchins.
8. SERVICES NOT EXCLUSIVE. The services furnished by the Sub-Adviser
hereunder are not to be deemed exclusive and the Sub-Adviser shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby or unless otherwise agreed to by the parties hereunder
in writing. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of the Sub-Adviser, who may also be a trustee,
officer or employee of the Trust, to engage in any other business or to devote
4
<PAGE>
his or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
9. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date first above
written, provided that this Contract shall not take effect unless it has first
been approved: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by vote of a majority of the Fund's outstanding securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Fund.
(c) Notwithstanding the foregoing, this Contract may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the outstanding voting securities of the Fund on 60 days'
written notice to the Sub-Adviser. This Contract may also be terminated, without
the payment of any penalty, by Mitchell Hutchins: (i) upon 120 days' written
notice to the Sub-Adviser; (ii) upon material breach by the Sub-Adviser of any
representations and warranties set forth in Paragraph 7 of this Contract, if
such breach has not been cured within a 20 day period after notice of such
breach; or (iii) immediately if, in the reasonable judgment of Mitchell
Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations
under this Contract, including circumstances such as financial insolvency of the
Sub-Adviser or other circumstances that could adversely affect the Fund. The
Sub-Adviser may terminate this Contract at any time, without the payment of any
penalty, on 120 days written notice to Mitchell Hutchins. This Contract will
terminate automatically in the event of its assignment or upon termination of
the Advisory Contract as it relates to the Fund.
10. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Contract shall be
effective until approved by a vote of a majority of those trustees of the Trust
who are not parties to this Contract or interested persons of any such party.
11. GOVERNING LAW. This Contract shall be construed in accordance with
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof. To the extent that the applicable laws of
the State of Delaware conflict with the applicable provisions of the 1940 Act,
the latter shall control.
12. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
5
<PAGE>
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net assets,"
"sale," "sell" and "security" shall have the same meaning as such terms have in
the 1940 Act, subject to such exemption as may be granted by the SEC by any
rule, regulation or order. Where the effect of a requirement of the federal
securities laws reflected in any provision of this Contract is made less
restrictive by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. This Contract may be signed in counterpart.
13. NOTICES. Any notice herein required is to be in writing and is
deemed to have been given to the Sub-Adviser or Mitchell Hutchins upon receipt
of the same at their respective addresses set forth below. All written notices
required or permitted to be given under this Contract will be delivered by
personal service, by postage mail - return receipt requested or by facsimile
machine or a similar means of same day delivery which provides evidence of
receipt (with a confirming copy by mail as set forth herein). All notices
provided to Mitchell Hutchins will be sent to the attention of Victoria E.
Schonfeld, General Counsel. All notices provided to the Sub-Adviser will be sent
to the attention of [NAME] [TITLE].
[rest of page left intentionally blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
51 West 52nd Street
New York, New York 10019-6114
Attest:
By: By:
------------------------------ ----------------------------------
Name: Name:
Title: Title:
DSI INTERNATIONAL
MANAGEMENT, INC.
301 Merritt 7
Norwalk, CT 06851
Attest:
By: By:
------------------------------ ----------------------------------
Name: Name:
Title: Title:
7
Exhibit (4)(c)
SUB-ADVISORY CONTRACT
Agreement made as of ______________, 2000 ("Contract") between MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"),
and DSI INTERNATIONAL MANAGEMENT, INC., a Delaware corporation ("Sub-Adviser").
RECITALS
(1) Mitchell Hutchins has entered into an Investment Advisory and
Administration Agreement, dated ________________, 2000 ("Management Agreement"),
with Mitchell Hutchins Securities Trust ("Trust"), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act");
(2) The Trust offers for public sale two distinct series of shares of
beneficial interest which correspond to distinct portfolios one of which is
known as PaineWebber Enhanced Nasdaq-100 Fund ("Fund") and may offer additional
district series in the future;
(3) Under the Management Agreement, Mitchell Hutchins has agreed to
provide certain investment advisory and administrative services to the Fund;
(4) The Management Agreement permits Mitchell Hutchins to delegate
certain of its duties as investment adviser thereunder to a sub-adviser;
(5) Mitchell Hutchins desires to retain the Sub-Adviser to furnish
certain investment advisory services with respect to the PaineWebber Enhanced
Nasdaq-100 Fund; and
(6) The Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the Fund for the period and on the terms
set forth in this Contract. The Sub-Adviser accepts that appointment and agrees
to render the services herein set forth, for the compensation herein provided.
2. DUTIES AS SUB-ADVISER.
(a) Subject to the supervision and direction of the Trust's Board of
Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines
adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a
continuous investment program for the Fund, including investment research and
management with respect to all securities and investments and cash equivalents
in the Fund. The Sub-Adviser will determine from time to time what investments
will be purchased, retained or sold by the Fund. The Sub-Adviser will be
responsible for placing purchase and sell orders for investments and for other
<PAGE>
related transactions. The Sub-Adviser will provide services under this Contract
in accordance with the Fund's investment objective, policies and restrictions as
stated in the Trust's currently effective registration statement under the 1940
Act, and any amendments or supplements thereto ("Registration Statement").
(b) The Sub-Adviser agrees that, in placing orders with brokers, it
will obtain the best net result in terms of price and execution; provided that,
on behalf of the Fund, the Sub-Adviser may, in its discretion, use brokers who
provide the Sub-Adviser with research, analysis, advice and similar services to
execute portfolio transactions, and the Sub-Adviser may pay to those brokers in
return for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of the Sub-Adviser to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. In no instance will
portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. The Sub-Adviser may aggregate sales
and purchase orders with respect to the assets of the Fund with similar orders
being made simultaneously for other accounts advised by the Sub-Adviser or its
affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase or
sell the same security on behalf of the Fund and one or more other accounts
advised by the Sub-Adviser, the orders will be allocated as to price and amount
among all such accounts in a manner believed to be equitable over time to each
account. Mitchell Hutchins recognizes that in some cases this procedure may
adversely affect the results obtained for the Fund.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to actions by the Sub-Adviser on behalf of the Fund, and
will furnish the Board and Mitchell Hutchins with such periodic and special
reports as the Board or Mitchell Hutchins reasonably may request. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby
agrees that all records that it maintains for the Fund are the property of the
Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any records that it maintains for the Trust and that are required to be
maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender
promptly to the Trust any records that it maintains for the Fund upon request by
the Trust.
(d) At such times as shall be reasonably requested by the Board or
Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins
with economic and investment analyses and reports as well as quarterly reports
setting forth the performance of the international segment of the Fund's
investments and make available to the Board and Mitchell Hutchins any economic,
statistical and investment services that the Sub-Adviser normally makes
available to its institutional or other customers.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities and will use its reasonable efforts to arrange for
<PAGE>
the provision of a price(s) from a party(ies) independent of the Sub-Adviser for
each portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
3. FURTHER DUTIES. In all matters relating to the performance of this
Contract, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and Registration Statement and with the written instructions
and written directions of the Board and Mitchell Hutchins; and will comply with
the requirements of the 1940 Act and the Investment Advisers Act of 1940, as
amended ("Advisers Act") and the rules under each, Subchapter M of the Internal
Revenue Code ("Code"), as applicable to regulated investment companies; the
diversification requirements applicable to the Fund under Section 817(h) of the
Code; and all other federal and state laws and regulations applicable to the
Trust and the Fund. Mitchell Hutchins agrees to provide to the Sub-Adviser
copies of the Trust's Trust Instrument, By-Laws, Registration Statement, written
instructions and directions of the Board and Mitchell Hutchins, and any
amendments or supplements to any of these materials as soon as practicable after
such materials become available; and further agrees to identify to the
Sub-Adviser in writing any broker-dealers that are affiliated with Mitchell
Hutchins (other than PaineWebber Incorporated and Mitchell Hutchins itself).
4. EXPENSES. During the term of this Contract, the Sub-Adviser will
bear all expenses incurred by it in connection with its services under this
Contract.
5. COMPENSATION.
(a) For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Contract, Mitchell Hutchins, not the Fund, will pay
to the Sub-Adviser a sub-advisory fee, computed daily and paid monthly, at an
annual rate of 0.35% of the Fund's average daily net assets.
(b) The fee shall be accrued daily and payable monthly to the
Sub-Adviser on or before the last business day of the next succeeding calendar
month.
(c) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be pro-rated according to the proportion that such period
bears to the full month in which such effectiveness or termination occurs.
6. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund, the
Trust, its shareholders or by Mitchell Hutchins in connection with the matters
to which this Contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Contract. Nothing in this paragraph shall be deemed a limitation or waiver of
any obligation or duty that may not by law be limited or waived.
7. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants
and agrees as follows:
<PAGE>
(a) The Sub-Adviser (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Contract remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Contract; (iii)
has met and will seek to continue to meet for so long as this Contract remains
in effect, any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency necessary to
be met in order to perform the services contemplated by this Contract; (iv) has
the authority to enter into and perform the services contemplated by this
Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of such code of ethics, together with
evidence of its adoption. Within forty-five days of the end of the last calendar
quarter of each year that this Contract is in effect, the president or a
vice-president of the Sub-Adviser shall certify to Mitchell Hutchins that the
Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous
year and that there has been no violation of the Sub-Adviser's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of Mitchell Hutchins, the
Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to
examine the reports required to be made to the Sub-Adviser by Rule 17j-1(c)(1)
and all other records relevant to the Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its
Form ADV, which as of the date of this Agreement is its Form ADV as most
recently filed with the Securities and Exchange Commission ("SEC") and promptly
will furnish a copy of all amendments to Mitchell Hutchins at least annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of
control of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Fund or senior management of the Sub-Adviser, in
each case prior to, or promptly after, such change.
(e) The Sub-Adviser agrees that neither it, nor any of its affiliates,
will in any way refer directly or indirectly to its relationship with the Trust,
the Fund, Mitchell Hutchins or any of their respective affiliates in offering,
marketing or other promotional materials without the prior express written
consent of Mitchell Hutchins.
8. SERVICES NOT EXCLUSIVE. The services furnished by the Sub-Adviser
hereunder are not to be deemed exclusive and the Sub-Adviser shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby or unless otherwise agreed to by the parties hereunder
in writing. Nothing in this Contract shall limit or restrict the right of any
director, officer or employee of the Sub-Adviser, who may also be a trustee,
officer or employee of the Trust, to engage in any other business or to devote
<PAGE>
his or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
9. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date first above
written, provided that this Contract shall not take effect unless it has first
been approved: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by vote of a majority of the Fund's outstanding securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Fund.
(c) Notwithstanding the foregoing, this Contract may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the outstanding voting securities of the Fund on 60 days'
written notice to the Sub-Adviser. This Contract may also be terminated, without
the payment of any penalty, by Mitchell Hutchins: (i) upon 120 days' written
notice to the Sub-Adviser; (ii) upon material breach by the Sub-Adviser of any
representations and warranties set forth in Paragraph 7 of this Contract, if
such breach has not been cured within a 20 day period after notice of such
breach; or (iii) immediately if, in the reasonable judgment of Mitchell
Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations
under this Contract, including circumstances such as financial insolvency of the
Sub-Adviser or other circumstances that could adversely affect the Fund. The
Sub-Adviser may terminate this Contract at any time, without the payment of any
penalty, on 120 days written notice to Mitchell Hutchins. This Contract will
terminate automatically in the event of its assignment or upon termination of
the Advisory Contract as it relates to the Fund.
10. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Contract shall be
effective until approved by a vote of a majority of those trustees of the Trust
who are not parties to this Contract or interested persons of any such party.
11. GOVERNING LAW. This Contract shall be construed in accordance with
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof. To the extent that the applicable laws of
the State of Delaware conflict with the applicable provisions of the 1940 Act,
the latter shall control.
12. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
<PAGE>
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net assets,"
"sale," "sell" and "security" shall have the same meaning as such terms have in
the 1940 Act, subject to such exemption as may be granted by the SEC by any
rule, regulation or order. Where the effect of a requirement of the federal
securities laws reflected in any provision of this Contract is made less
restrictive by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. This Contract may be signed in counterpart.
13. Notices. Any notice herein required is to be in writing and is
deemed to have been given to the Sub-Adviser or Mitchell Hutchins upon receipt
of the same at their respective addresses set forth below. All written notices
required or permitted to be given under this Contract will be delivered by
personal service, by postage mail - return receipt requested or by facsimile
machine or a similar means of same day delivery which provides evidence of
receipt (with a confirming copy by mail as set forth herein). All notices
provided to Mitchell Hutchins will be sent to the attention of Victoria E.
Schonfeld, General Counsel. All notices provided to the Sub-Adviser will be sent
to the attention of [NAME] [TITLE].
[rest of page left intentionally blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
51 West 52nd Street
New York, New York 10019-6114
Attest:
By: By:
-------------------------------- -------------------------------
Name: Name:
Title: Title:
DSI INTERNATIONAL
MANAGEMENT, INC.
301 Merritt 7
Norwalk, CT 06851
Attest:
By: By:
-------------------------------- -------------------------------
Name: Name:
Title: Title:
Exhibit (5)(a)
MITCHELL HUTCHINS SECURITIES TRUST
DISTRIBUTION CONTRACT
CLASS A SHARES
CONTRACT made as of ________, 2000, between MITCHELL HUTCHINS
SECURITIES TRUST, a Delaware business trust ("Trust"), and MITCHELL HUTCHINS
ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Trust is registered under the Investment Company Act of
1940, as amended ("l940 Act"), as an open-end management investment company and
currently has two distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares"); and
WHEREAS the Trust has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class A Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class A Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class A Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class A Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class A Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class A Shares directly through the Trust's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Trust, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class A Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Trust and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class A Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class A Shares of that Series and will accept such orders on
behalf of the Trust as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Trust's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class A Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Trust.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at Mitchell Hutchins' principal office plus the applicable initial
sales charge, if any, computed as set forth in the Registration Statement. The
Trust shall promptly furnish Mitchell Hutchins with a statement of each
computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Trust to repurchase Class A Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Trust or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
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<PAGE>
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO
DELEGATE DUTIES AS DISTRIBUTOR. With respect to the Class A Shares of any or all
Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class A Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class A Shares, Mitchell Hutchins shall receive from the
Trust a service fee at the rate and under the terms and conditions of the Plan
adopted by the Trust with respect to the Class A Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
retain the initial sales charge, if any, on purchases of Class A Shares as set
forth in the Registration Statement. Mitchell Hutchins is authorized to collect
the gross proceeds derived from the sale of the Class A Shares, remit the net
asset value thereof to the Trust upon receipt of the proceeds and retain the
initial sales charge, if any.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class A
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the initial sales
charges, contingent deferred sales charges, or service fees which it is paid
under this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
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<PAGE>
6. DUTIES OF THE TRUST.
(a) The Trust reserves the right at any time to withdraw offering
Class A Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Trust shall determine in its sole discretion whether
certificates shall be issued with respect to the Class A Shares. If the Trust
has determined that certificates shall be issued, the Trust will not cause
certificates representing Class A Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Trust
will cause certificates evidencing Class A Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Trust shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class A Shares,
including, without limitation, certified copies of any financial statements
prepared for the Trust by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Trust shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class A Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Trust shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class A Shares under the 1933 Act to the end that there will be available for
sale such number of Class A Shares as Mitchell Hutchins may be expected to sell.
The Trust agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Trust may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Trust as
a broker or dealer in such jurisdictions; provided that the Trust shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class A Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class A Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualifications.
7. EXPENSES OF THE TRUST. The Trust shall bear all costs and expenses
of registering the Class A Shares with the Securities and Exchange Commission
and qualifying the Class A shares with state and other regulatory bodies, and
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<PAGE>
shall assume expenses related to communications with shareholders of each
Series, including (i) fees and disbursements of its counsel and independent
public accountant; (ii) the preparation, filing and printing of registration
statements and/or prospectuses or statements of additional information required
under the federal securities laws; (iii) the preparation and mailing of annual
and interim reports, prospectuses, statements of additional information and
proxy materials to shareholders; and (iv) the qualifications of Class A Shares
for sale and of the Trust as a broker or dealer under the securities laws of
such jurisdictions as shall be selected by the Trust and Mitchell Hutchins
pursuant to Paragraph 6(e) hereof, and the costs and expenses payable to each
such jurisdiction for continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Trust and other materials used by Mitchell Hutchins in
connection with the sale of Class A Shares under this Contract, including the
additional cost of printing copies of prospectuses, statements of additional
information, and annual and interim shareholder reports other than copies
thereof required for distribution to existing shareholders or for filing with
any federal or state securities authorities; (ii) any expenses of advertising
incurred by Mitchell Hutchins in connection with such offering; (iii) the
expenses of registration or qualification of Mitchell Hutchins as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to Mitchell
Hutchins' employees and others for selling Class A Shares, and all expenses of
Mitchell Hutchins, its employees and others who engage in or support the sale of
Class A Shares as may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Trust agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Trust for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person who is also an officer or trustee
of the Trust or who controls the Trust within the meaning of Section 15 of the
1933 Act, unless a court of competent jurisdiction shall determine, or it shall
have been determined by controlling precedent, that such result would not be
against public policy as expressed in the 1933 Act; and further provided, that
in no event shall anything contained herein be so construed as to protect
Mitchell Hutchins against any liability to the Trust or to the shareholders of
any Series to which Mitchell Hutchins would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
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<PAGE>
duties or by reason of its reckless disregard of its obligations under this
Contract. The Trust shall not be liable to Mitchell Hutchins under this
indemnity agreement with respect to any claim made against Mitchell Hutchins or
any person indemnified unless Mitchell Hutchins or other such person shall have
notified the Trust in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon Mitchell Hutchins or such other person (or
after Mitchell Hutchins or the person shall have received notice of service on
any designated agent). However, failure to notify the Trust of any claim shall
not relieve the Trust from any liability which it may have to Mitchell Hutchins
or any person against whom such action is brought otherwise than on account of
this indemnity agreement. The Trust shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this indemnity agreement. If the Trust
elects to assume the defense of any such claim, the defense shall be conducted
by counsel chosen by the Trust and satisfactory to indemnified defendants in the
suit whose approval shall not be unreasonably withheld. In the event that the
Trust elects to assume the defense of any suit and retain counsel, the
indemnified defendants shall bear the fees and expenses of any additional
counsel retained by them. If the Trust does not elect to assume the defense of a
suit, it will reimburse the indemnified defendants for the reasonable fees and
expenses of any counsel retained by the indemnified defendants. The Trust agrees
to notify Mitchell Hutchins promptly of the commencement of any litigation or
proceedings against it or any of its officers or trustees in connection with the
issuance or sale of any of its Class A Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Trust, its officers and trustees and any person who controls the Trust within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement, arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
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<PAGE>
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE
TRUST. The trustees of the Trust and the shareholders of any Series shall not be
liable for any obligations of the Trust or any Series under this Contract, and
Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Trust or the
particular Series in settlement of such right or claims, and not to such
trustees or shareholders.
11. SERVICES PROVIDED TO THE TRUST BY EMPLOYEES OF MITCHELL HUTCHINS.
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, director, employee or agent or one under the
control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees") cast in person at a meeting called for the
purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class A Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class A Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Trust or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
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<PAGE>
14. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this
Contract to be executed by their officers designated as of the day and year
first above written.
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
By:
--------------------------- ------------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
By:
--------------------------- ------------------------------------
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Exhibit (5)(b)
MITCHELL HUTCHINS SECURITIES TRUST
DISTRIBUTION CONTRACT
CLASS B SHARES
CONTRACT made as of __________, 2000, between MITCHELL HUTCHINS SECURITIES
TRUST, a Delaware business trust ("Trust") and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("l940 Act"), as an open-end management investment company and
currently has two distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class B shares ("Class B Shares"); and
WHEREAS the Trust has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class B Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class B Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class B Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class B Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the Trust's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Trust, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class B Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Trust and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class B Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class B Shares of that Series and will accept such orders on
behalf of the Trust as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Trust's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class B Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Trust.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at Mitchell Hutchins' principal office. The Trust shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Trust to repurchase Class B Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Trust or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO DELEGATE
DUTIES AS DISTRIBUTOR. With respect to the Class B Shares of any or all Series,
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
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<PAGE>
or any other registered and qualified dealer with respect to sales of the Class
B Shares or the provision of service activities. In a separate contract or as
part of any such exclusive dealer agreement, Mitchell Hutchins also may delegate
to PaineWebber or another registered and qualified dealer ("sub-distributor")
any or all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class B Shares, Mitchell Hutchins shall receive from the
Trust a service fee at the rate and under the terms and conditions of the Plan
adopted by the Trust with respect to the Class B Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive from the Trust a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Trust with respect to the Class B Shares
of the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class B
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. DUTIES OF THE TRUST.
(a) The Trust reserves the right at any time to withdraw offering
Class B Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
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<PAGE>
(b) The Trust shall determine in its sole discretion whether
certificates shall be issued with respect to the Class B Shares. If the Trust
has determined that certificates shall be issued, the Trust will not cause
certificates representing Class B Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Trust
will cause certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Trust shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class B Shares,
including, without limitation, certified copies of any financial statements
prepared for the Trust by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Trust shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class B Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Trust shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class B Shares under the 1933 Act to the end that there will be available for
sale such number of Class B Shares as Mitchell Hutchins may be expected to sell.
The Trust agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Trust may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Trust as
a broker or dealer in such jurisdictions; provided that the Trust shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class B Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class B Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualifications.
7. EXPENSES OF THE TRUST. The Trust shall bear all costs and expenses of
registering the Class B Shares with the Securities and Exchange Commission and
qualifying the Class B shares with state and other regulatory bodies, and shall
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
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<PAGE>
to shareholders; and (iv) the qualifications of Class B Shares for sale and of
the Trust as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Trust and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all costs
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Trust and other materials used by Mitchell Hutchins in
connection with the sale of Class B Shares under this Contract, including the
additional cost of printing copies of prospectuses, statements of additional
information, and annual and interim shareholder reports other than copies
thereof required for distribution to existing shareholders or for filing with
any federal or state securities authorities; (ii) any expenses of advertising
incurred by Mitchell Hutchins in connection with such offering; (iii) the
expenses of registration or qualification of Mitchell Hutchins as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to Mitchell
Hutchins' employees and others for selling Class B Shares, and all expenses of
Mitchell Hutchins, its employees and others who engage in or support the sale of
Class B Shares as may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Trust agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements therein not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement; provided,
however, that this indemnity agreement shall not inure to the benefit of any
person who is also an officer or trustee of the Trust or who controls the Trust
within the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect Mitchell Hutchins against any liability to
the Trust or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Trust shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
-5-
<PAGE>
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Trust in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Trust of any claim shall not relieve the Trust
from any liability which it may have to Mitchell Hutchins or any person against
whom such action is brought otherwise than on account of this indemnity
agreement. The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity agreement. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to indemnified defendants in the suit whose
approval shall not be unreasonably withheld. In the event that the Trust elects
to assume the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by them. If
the Trust does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Trust agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class B Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Trust, its officers and trustees and any person who controls the Trust within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement, arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The trustees of the Trust and the shareholders of any Series shall not be liable
for any obligations of the Trust or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
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<PAGE>
shall look only to the assets and property of the Trust or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. SERVICES PROVIDED TO THE TRUST BY EMPLOYEES OF MITCHELL HUTCHINS. Any
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, director, employee or agent or one under the
control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class B Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class B Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Trust or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
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<PAGE>
14. GOVERNING LAW. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
-------------------- By:
--------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
-------------------- By:
--------------------------------
-8-
Exhibit (5)(c)
MITCHELL HUTCHINS SECURITIES TRUST
DISTRIBUTION CONTRACT
CLASS C SHARES
CONTRACT made as of __________, 2000 between MITCHELL HUTCHINS SECURITIES
TRUST, a Delaware business trust ("Trust"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Trust is registered under the Investment Company Act of l940,
as amended ("l940 Act"), as an open-end management investment company and
currently has two distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class C shares ("Class C Shares"); and
WHEREAS the Trust has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class C Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class C Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class C Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class C Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class C Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class C Shares directly through the Trust's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Trust, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class C Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Trust and upon the terms described in the Registration Statement.
<PAGE>
(b) Upon the later of the date of this Contract or the initial
offering of the Class C Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class C Shares of that Series and will accept such orders on
behalf of the Trust as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Trust's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class C Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Trust.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at Mitchell Hutchins' principal office. The Trust shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Trust to repurchase Class C Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Trust or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER AGREEMENTS AND TO DELEGATE
DUTIES AS DISTRIBUTOR. With respect to the Class C Shares of any or all Series,
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
C Shares or the provision of service activities. In a separate contract or as
part of any such exclusive dealer agreement, Mitchell Hutchins also may delegate
to PaineWebber or another registered and qualified dealer ("sub-distributor")
any or all of its duties specified in this Contract, provided that such separate
contract or exclusive dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
-2-
<PAGE>
subject under this Contract, and further provided that such separate contract or
exclusive dealer agreement meets all requirements of the 1940 Act and rules
thereunder.
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION.
(a) As compensation for its service activities under this contract
with respect to the Class C Shares, Mitchell Hutchins shall receive from the
Trust a service fee at the rate and under the terms and conditions of the Plan
adopted by the Trust with respect to the Class C Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive from the Trust a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Trust with respect to the Class C Shares
of the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class C Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class C
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. DUTIES OF THE TRUST.
(a) The Trust reserves the right at any time to withdraw offering
Class C Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Trust shall determine in its sole discretion whether
certificates shall be issued with respect to the Class C Shares. If the Trust
has determined that certificates shall be issued, the Trust will not cause
certificates representing Class C Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Trust
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<PAGE>
will cause certificates evidencing Class C Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Trust shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class C Shares,
including, without limitation, certified copies of any financial statements
prepared for the Trust by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Trust shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class C Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Trust shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class C Shares under the 1933 Act to the end that there will be available for
sale such number of Class C Shares as Mitchell Hutchins may be expected to sell.
The Trust agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Trust may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Trust as
a broker or dealer in such jurisdictions; provided that the Trust shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class C Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class C Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualifications.
7. EXPENSES OF THE TRUST. The Trust shall bear all costs and expenses of
registering the Class C Shares with the Securities and Exchange Commission and
qualifying the Class C shares with state and other regulatory bodies, and shall
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class C Shares for sale and of
the Trust as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Trust and Mitchell Hutchins pursuant to Paragraph
-4-
<PAGE>
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all costs
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Trust and other materials used by Mitchell Hutchins in
connection with the sale of Class C Shares under this Contract, including the
additional cost of printing copies of prospectuses, statements of additional
information, and annual and interim shareholder reports other than copies
thereof required for distribution to existing shareholders or for filing with
any federal or state securities authorities; (ii) any expenses of advertising
incurred by Mitchell Hutchins in connection with such offering; (iii) the
expenses of registration or qualification of Mitchell Hutchins as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to Mitchell
Hutchins' employees and others for selling Class C Shares, and all expenses of
Mitchell Hutchins, its employees and others who engage in or support the sale of
Class C Shares as may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Trust agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements therein not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement; provided,
however, that this indemnity agreement shall not inure to the benefit of any
person who is also an officer or trustee of the Trust or who controls the Trust
within the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect Mitchell Hutchins against any liability to
the Trust or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Trust shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Trust in writing of the
claim within a reasonable time after the summons or other first written
-5-
<PAGE>
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Trust of any claim shall not relieve the Trust
from any liability which it may have to Mitchell Hutchins or any person against
whom such action is brought otherwise than on account of this indemnity
agreement. The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity agreement. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to indemnified defendants in the suit whose
approval shall not be unreasonably withheld. In the event that the Trust elects
to assume the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by them. If
the Trust does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Trust agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class C Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Trust, its officers and trustees and any person who controls the Trust within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement, arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The trustees of the Trust and the shareholders of any Series shall not be liable
for any obligations of the Trust or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Trust or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
-6-
<PAGE>
11. SERVICES PROVIDED TO THE TRUST BY EMPLOYEES OF MITCHELL HUTCHINS. Any
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, director, employee or agent or one under the
control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such trustees collectively being referred to
herein as the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class C Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class C Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Trust or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
-7-
<PAGE>
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
-------------------- By:
--------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
-------------------- By:
--------------------------------
-8-
Exhibit (5)(d)
MITCHELL HUTCHINS SECURITIES TRUST
DISTRIBUTION CONTRACT
CLASS Y SHARES
CONTRACT made as of __________, 2000 between MITCHELL HUTCHINS SECURITIES
TRUST, a Delaware business trust ("Trust"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("l940 Act"), as an open-end management investment company and
currently has two distinct series of shares of beneficial interest ("Series"),
which correspond to distinct portfolios and have been designated as PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class Y shares ("Class Y Shares"); and
WHEREAS the Trust desires to retain Mitchell Hutchins as principal
distributor in connection with the offering and sale of the Class Y Shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Board and have Class Y Shares established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of
the Class Y Shares of each such Series on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints Mitchell Hutchins as its
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class Y Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class Y Shares directly through the Trust's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Trust, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES AND DUTIES OF MITCHELL HUTCHINS.
(a) Mitchell Hutchins agrees to sell Class Y Shares on a best
efforts basis from time to time during the term of this Contract as agent for
the Trust and upon the terms described in the Registration Statement.
<PAGE>
(b) Upon the later of the date of this Contract or the initial
offering of the Class Y Shares by a Series, Mitchell Hutchins will hold itself
available to receive purchase orders, satisfactory to Mitchell Hutchins, for
Class Y Shares of that Series and will accept such orders on behalf of the Trust
as of the time of receipt of such orders and promptly transmit such orders as
are accepted to the Trust's transfer agent. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class Y Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Trust.
(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at Mitchell Hutchins' principal office. The Trust shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class Y Shares.
(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Trust to repurchase Class Y Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement.
(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Trust or any other list of investors which it obtains in
connection with its provision of services under this Contract; provided,
however, that Mitchell Hutchins shall not sell or knowingly provide such list or
lists to any unaffiliated person.
3. AUTHORIZATION TO ENTER INTO EXCLUSIVE DEALER CONTRACTS AND TO DELEGATE
DUTIES AS DISTRIBUTOR. With respect to the Class Y Shares of any or all Series,
Mitchell Hutchins may enter into an exclusive dealer agreement with PaineWebber
or any other registered and qualified dealer with respect to sales of the Class
Y Shares. In a separate contract or as part of any such exclusive dealer
agreement, Mitchell Hutchins also may delegate to PaineWebber or another
registered and qualified dealer ("sub-distributor") any or all of its duties
specified in this Contract, provided that such separate contract or exclusive
dealer agreement imposes on the sub-distributor bound thereby all applicable
duties and conditions to which Mitchell Hutchins is subject under this Contract,
and further provided that such separate contract or exclusive dealer agreement
meets all requirements of the 1940 Act and rules thereunder.
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<PAGE>
4. SERVICES NOT EXCLUSIVE. The services furnished by Mitchell Hutchins
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. COMPENSATION AND REIMBURSEMENT OF DISTRIBUTION EXPENSES. The Trust
shall have no obligation to compensate or reimburse Mitchell Hutchins for any
services performed by it hereunder.
6. DUTIES OF THE TRUST.
(a) The Trust reserves the right at any time to withdraw offering
Class Y Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Trust shall determine in its sole discretion whether
certificates shall be issued with respect to the Class Y Shares. If the Trust
has determined that certificates shall be issued, the Trust will not cause
certificates representing Class Y Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Trust
will cause certificates evidencing Class Y Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Trust shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class Y Shares,
including, without limitation, certified copies of any financial statements
prepared for the Trust by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Trust shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class Y Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Trust shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class Y Shares under the 1933 Act to the end that there will be available for
sale such number of Class Y Shares as Mitchell Hutchins may be expected to sell.
The Trust agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class Y Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Trust may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Trust as
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<PAGE>
a broker or dealer in such jurisdictions; provided that the Trust shall not be
required to amend its Trust Instrument or By-Laws to comply with the laws of any
jurisdiction, to maintain an office in any jurisdiction, to change the terms of
the offering of the Class Y Shares in any jurisdiction from the terms set forth
in its Registration Statement, to qualify as a foreign corporation in any
jurisdiction, or to consent to service of process in any jurisdiction other than
with respect to claims arising out of the offering of the Class Y Shares.
Mitchell Hutchins shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualifications.
7. EXPENSES OF THE TRUST. The Trust shall bear all costs and expenses of
registering the Class Y Shares with the Securities and Exchange Commission and
qualifying the Class Y shares with state and other regulatory bodies, and shall
assume expenses related to communications with shareholders of each Series,
including (i) fees and disbursements of its counsel and independent public
accountant; (ii) the preparation, filing and printing of registration statements
and/or prospectuses or statements of additional information required under the
federal securities laws; (iii) the preparation and mailing of annual and interim
reports, prospectuses, statements of additional information and proxy materials
to shareholders; and (iv) the qualifications of Class Y Shares for sale and of
the Trust as a broker or dealer under the securities laws of such jurisdictions
as shall be selected by the Trust and Mitchell Hutchins pursuant to Paragraph
6(e) hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. EXPENSES OF MITCHELL HUTCHINS. Mitchell Hutchins shall bear all costs
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Trust and other materials used by Mitchell Hutchins in
connection with the sale of Class Y Shares under this Contract, including the
additional cost of printing copies of prospectuses, statements of additional
information, and annual and interim shareholder reports other than copies
thereof required for distribution to existing shareholders or for filing with
any federal or state securities authorities; (ii) any expenses of advertising
incurred by Mitchell Hutchins in connection with such offering; (iii) the
expenses of registration or qualification of Mitchell Hutchins as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) all compensation paid to Mitchell
Hutchins' employees and others for selling Class Y Shares, and all expenses of
Mitchell Hutchins, its employees and others who engage in or support the sale of
Class Y Shares as may be incurred in connection with their sales efforts.
9. INDEMNIFICATION.
(a) The Trust agrees to indemnify, defend and hold Mitchell
Hutchins, its officers and directors, and any person who controls Mitchell
Hutchins within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Mitchell Hutchins, its officers, directors or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
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<PAGE>
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements therein not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement; provided,
however, that this indemnity agreement shall not inure to the benefit of any
person who is also an officer or trustee of the Trust or who controls the Trust
within the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect Mitchell Hutchins against any liability to
the Trust or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Trust shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Trust in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Trust of any claim shall not relieve the Trust
from any liability which it may have to Mitchell Hutchins or any person against
whom such action is brought otherwise than on account of this indemnity
agreement. The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity agreement. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to indemnified defendants in the suit whose
approval shall not be unreasonably withheld. In the event that the Trust elects
to assume the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by them. If
the Trust does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Trust agrees to notify Mitchell
Hutchins promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance or sale of
any of its Class Y Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the
Trust, its officers and trustees, and any person who controls the Trust within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its trustees or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Trust for use in the Registration Statement, arising
out of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
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<PAGE>
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The trustees of the Trust and the shareholders of any Series shall not be liable
for any obligations of the Trust or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Trust or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
11. SERVICES PROVIDED TO THE TRUST BY EMPLOYEES OF MITCHELL HUTCHINS. Any
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, director, employee or agent or one under the
control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
12. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect financial
interest in this Contract or in any agreements related thereto (all such
Trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the Class Y Shares of such
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<PAGE>
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Trust or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
13. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
14. GOVERNING LAW. This Contract shall be construed in accordance with the
laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
15. NOTICE. Any notice required or permitted to be given by either party
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
-------------------- By:
--------------------------------
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
-------------------- By:
--------------------------------
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Exhibit (5)(e)
EXCLUSIVE DEALER AGREEMENT
CLASS A SHARES OF MITCHELL HUTCHINS SECURITIES TRUST
AGREEMENT made as of __________, 2000, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Securities Trust ("Trust") is a Delaware
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Trust currently has two distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class A shares ("Class A Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class A
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class A Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Trust ("Distribution Contract") pursuant to which Mitchell Hutchins serves
as principal distributor in connection with the offering and sale of the Class A
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its
exclusive agent in connection with the offering and sale of the Class A Shares
of each Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Trust under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class A Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class A Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Trust under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class A Shares directly through the Trust's transfer agent in
<PAGE>
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Trust, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class A Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class A Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class A Shares and will accept such orders on
behalf of Mitchell Hutchins and the Trust as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Trust's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class A Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Trust.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at PaineWebber's principal office, plus the applicable initial sales
charge, if any, as set forth in the Registration Statement. Mitchell Hutchins
shall promptly furnish or arrange for the furnishing to PaineWebber of a
statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Trust to repurchase Class A Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
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<PAGE>
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Conduct Rules of the NASD;
(ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class A Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf
of Mitchell Hutchins or the Trust. PaineWebber shall bear all costs that it
incurs in selling the Class A Shares and in complying with the terms and
conditions of this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class A Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class A Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class A Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Trust, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class A Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class A Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class A Shares, PaineWebber shall retain that
portion of the offering price constituting the Discount to Selected Dealers
("Discount"), if any, set forth in the Registration Statement for Class A shares
sold with an initial sales charge under this Agreement. PaineWebber is
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<PAGE>
authorized to collect the gross proceeds derived from the sale of such Class A
Shares; remit the net asset value thereof to the Trust's Transfer Agent; remit
to Mitchell Hutchins the difference between the offering price of the Class A
Shares and the applicable Discount; and retain said Discount. Whether the
offering price of the Class A Shares includes any initial sales charge out of
which a Discount may be retained by PaineWebber shall be determined in
accordance with the Registration Statement.
(c) Mitchell Hutchins shall pay to PaineWebber such commissions and
other compensation for sales of the Class A Shares by PaineWebber employees,
correspondent firms and other dealers as Mitchell Hutchins and PaineWebber may
from time to time agree upon.
(d) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Trust or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(e) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Trust reserves the right at any time
to withdraw all offerings of Class A Shares of any or all Series by written
notice to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Trust's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class A
Shares, including, without limitation, certified copies of any financial
statements prepared for the Trust by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class A Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class A Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class A Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class A Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
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<PAGE>
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class A Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Trust or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class A Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class A Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class A Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class A Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Trust for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Trust or
to the shareholders of any Series to which PaineWebber would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Trust, its officers and trustees,
and any person who controls Mitchell Hutchins or the Trust within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Trust, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the
Trust for use in the Registration Statement; arising out of or based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or necessary to make such
information not misleading; or arising out of any agreement between PaineWebber
and a correspondent firm or any other retail dealer; or arising out of any sales
or advertising material used by PaineWebber in connection with its duties under
this Agreement.
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<PAGE>
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Agreement
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or with respect to any given Series by vote of a
majority of the outstanding voting securities of the Class A Shares of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class A Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
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<PAGE>
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class A Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
--------------------------- ---------------------------
PAINEWEBBER INCORPORATED
Attest: By:
--------------------------- ---------------------------
-8-
Exhibit (5)(f)
EXCLUSIVE DEALER AGREEMENT
CLASS B SHARES OF MITCHELL HUTCHINS SECURITIES TRUST
AGREEMENT made as of __________, 2000, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Securities Trust ("Trust") is a Delaware
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Trust currently has two distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class B shares ("Class B Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class B
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class B Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Trust ("Distribution Contract") pursuant to which Mitchell Hutchins serves
as principal distributor in connection with the offering and sale of the Class B
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its
exclusive agent in connection with the offering and sale of the Class B Shares
of each Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Trust under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class B Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class B Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Trust under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class B Shares directly through the Trust's transfer agent in
<PAGE>
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Trust, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class B Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class B Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class B Shares and will accept such orders on
behalf of Mitchell Hutchins and the Trust as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Trust's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class B Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Trust.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Trust to repurchase Class B Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
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<PAGE>
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Conduct Rules of the NASD;
(ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class B Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf
of Mitchell Hutchins or the Trust. PaineWebber shall bear all costs that it
incurs in selling the Class B Shares and in complying with the terms and
conditions of this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class B Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class B Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class B Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Trust, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class B Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class B Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class B shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
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<PAGE>
Mitchell Hutchins of any compensation from the Trust or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Trust reserves the right at any time
to withdraw all offerings of Class B Shares of any or all Series by written
notice to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Trust's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Trust by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class B Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class B Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class B Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class B Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class B Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Trust or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class B Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
040
<PAGE>
PaineWebber's Investment Executives or other employees and others for selling
Class B Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class B Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class B Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Trust for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Trust or
to the shareholders of any Series to which PaineWebber would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Trust, its officers and trustees,
and any person who controls Mitchell Hutchins or the Trust within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Trust, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the
Trust for use in the Registration Statement; arising out of or based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or necessary to make such
-5-
<PAGE>
information not misleading; or arising out of any agreement between PaineWebber
and a correspondent firm or any other retail dealer; or arising out of any sales
or advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. Duration and Termination.
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Agreement
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or with respect to any given Series by vote of a
majority of the outstanding voting securities of the Class B Shares of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class B Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
-6-
<PAGE>
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class B Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
------------------------- ---------------------------------
PAINEWEBBER INCORPORATED
Attest: By:
------------------------- ---------------------------------
-7-
Exhibit (5)(g)
EXCLUSIVE DEALER AGREEMENT
CLASS C SHARES OF MITCHELL HUTCHINS SECURITIES TRUST
AGREEMENT made as of __________, 2000, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Securities Trust ("Trust") is a Delaware
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Trust currently has two distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class C shares ("Class C Shares") and has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("Plan") with respect to the Class C
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class C Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Trust ("Distribution Contract") pursuant to which Mitchell Hutchins serves
as principal distributor in connection with the offering and sale of the Class C
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its
exclusive agent in connection with the offering and sale of the Class C Shares
of each Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Trust under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class C Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class C Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Trust under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class C Shares directly through the Trust's transfer agent in
<PAGE>
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Trust, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a) PaineWebber agrees to sell the Class C Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class C Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class C Shares and will accept such orders on
behalf of Mitchell Hutchins and the Trust as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Trust's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class C Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Trust.
(d) The offering price of the Class C Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class C Shares.
(f) To facilitate redemption of Class C Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Trust to repurchase Class C Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class C Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD") (collectively, "service activities").
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<PAGE>
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Conduct Rules of the NASD;
(ii) it is registered as a broker-dealer with the Securities and Exchange
Commission; (iii) it will maintain any filings and licenses required by federal
and state laws to conduct the business contemplated under this Agreement; and
(iv) it will comply with all federal and state laws and regulations applicable
to the offer and sale of the Class C Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf
of Mitchell Hutchins or the Trust. PaineWebber shall bear all costs that it
incurs in selling the Class C Shares and in complying with the terms and
conditions of this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class C Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class C Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class C Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Trust, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. COMPENSATION.
(a) As compensation for its service activities under this Agreement
with respect to the Class C Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class C Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of Class C Shares, Mitchell Hutchins shall pay to
PaineWebber such commissions for sales of the Class C shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
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<PAGE>
Mitchell Hutchins of any compensation from the Trust or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Trust reserves the right at any time
to withdraw all offerings of Class C Shares of any or all Series by written
notice to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Trust's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class C
Shares, including, without limitation, certified copies of any financial
statements prepared for the Trust by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class C Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class C Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class C Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class C Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class C Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Trust or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class C Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
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<PAGE>
PaineWebber's Investment Executives or other employees and others for selling
Class C Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class C Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class C Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Trust for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Trust or
to the shareholders of any Series to which PaineWebber would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Trust, its officers and trustees,
and any person who controls Mitchell Hutchins or the Trust within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Trust, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the
Trust for use in the Registration Statement; arising out of or based upon any
alleged omission to state a material fact in connection with such information
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<PAGE>
required to be stated in the Registration Statement or necessary to make such
information not misleading; or arising out of any agreement between PaineWebber
and a correspondent firm or any other retail dealer; or arising out of any sales
or advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those trustees of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such trustees collectively being referred to herein as the "Independent
Trustees") cast in person at a meeting called for the purpose of voting on such
action.
(b) Unless sooner terminated as provided herein, this Agreement
shall continue in effect for one year from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by the Board or with respect to any given Series by vote of a
majority of the outstanding voting securities of the Class C Shares of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class C Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
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<PAGE>
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class C Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
--------------------------- -------------------------------
PAINEWEBBER INCORPORATED
Attest: By:
--------------------------- -------------------------------
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Exhibit (5)(h)
EXCLUSIVE DEALER AGREEMENT
CLASS Y SHARES OF MITCHELL HUTCHINS SECURITIES TRUST
AGREEMENT made as of __________, 2000 between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS Mitchell Hutchins Securities Trust ("Trust") is a Delaware
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Trust currently has two distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of the above-referenced Series
as Class Y shares ("Class Y Shares"); and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with
the Trust ("Distribution Contract") pursuant to which Mitchell Hutchins serves
as principal distributor in connection with the offering and sale of the Class Y
Shares of the above-referenced Series and of such other Series as may hereafter
be designated by the Board and have Class Y Shares established; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its
exclusive agent in connection with the offering and sale of the Class Y Shares
of each such Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Trust under the Distribution
Contract; and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive
agent in connection with the offering and sale of such Class Y Shares and to
perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints PaineWebber as its
exclusive agent to sell and to arrange for the sale of the Class Y Shares on the
terms and for the period set forth in this Contract. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Trust under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class Y Shares directly through the Trust's transfer agent in
<PAGE>
the manner set forth in the Registration Statement. As used in this Contract,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Trust, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. SERVICES, DUTIES AND REPRESENTATIONS OF PAINEWEBBER.
(a)PaineWebber agrees to sell the Class Y Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Contract and the Registration
Statement.
(b) Upon the later of the date of this Contract or the initial
offering of Class Y Shares by a Series, PaineWebber will hold itself available
to receive orders, satisfactory to PaineWebber and Mitchell Hutchins, for the
purchase of Class Y Shares and will accept such orders on behalf of Mitchell
Hutchins and the Trust as of the time of receipt of such orders and will
promptly transmit such orders as are accepted to the Trust's transfer agent.
Purchase orders shall be deemed effective at the time and in the manner set
forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class Y Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall act
only as principal and not as agent for Mitchell Hutchins or the Trust.
(d) The offering price of the Class Y Shares of each Series shall be
the net asset value per Share as next determined by the Trust following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class Y Shares.
(f) To facilitate redemption of Class Y Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Trust to repurchase Class Y Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement.
(g) PaineWebber represents and warrants that: (i) it is a member in
good standing of the National Association of Securities Dealers, Inc. and agrees
to abide by the Conduct Rules of such Association; (ii) it is registered as a
broker-dealer with the Securities and Exchange Commission; (iii) it will
maintain any filings and licenses required by federal and state laws to conduct
the business contemplated under this Agreement; and (iv) it will comply with all
federal and state laws and regulations applicable to the offer and sale of the
Class Y Shares.
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<PAGE>
(h) PaineWebber shall not incur any debts or obligations on behalf
of Mitchell Hutchins or the Trust. PaineWebber shall bear all costs that it
incurs in selling the Class Y Shares and in complying with the terms and
conditions of this Contract as more specifically set forth in paragraph 8.
(i) PaineWebber shall not permit any employee or agent to offer or
sell Class Y Shares unless such person is duly licensed under applicable federal
and state laws and regulations.
(j) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class Y Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class Y Shares in jurisdictions in which they have not been
approved for offer and sale.
3. SERVICES NOT EXCLUSIVE. The services furnished by PaineWebber
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, trustee, officer or employee of Mitchell Hutchins or the Trust, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
or a dissimilar nature.
4. COMPENSATION.
Mitchell Hutchins shall not be obligated to pay any compensation to
PaineWebber hereunder nor to reimburse any of PaineWebber's expenses incurred
hereunder.
5. DUTIES OF MITCHELL HUTCHINS.
(a) It is understood that the Trust reserves the right at any time
to withdraw all offerings of Class Y Shares of any or all Series by written
notice to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Trust's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class Y
Shares, including, without limitation, certified copies of any financial
statements prepared for the Trust by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class Y Shares
and in the performance of PaineWebber under this Contract.
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<PAGE>
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class Y Shares.
6. ADVERTISING. Mitchell Hutchins agrees to make available such sales
and advertising materials relating to the Class Y Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class Y Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials without first receiving such approval in writing. Mitchell
Hutchins shall assist PaineWebber in obtaining any regulatory approvals of such
materials that may be required of or desired by PaineWebber.
7. RECORDS. PaineWebber agrees to maintain all records required by
applicable state and federal laws and regulations relating to the offer and sale
of the Class Y Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. EXPENSES OF PAINEWEBBER. PaineWebber shall bear all costs and
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Trust or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class Y Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in connection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's investment executives or other employees and others for selling
Class Y Shares, and all expenses of PaineWebber, its investment executives and
employees and others who engage in or support the sale of Class Y Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell Hutchins
shall advise the Board of any such agreement as to additional costs and expenses
borne by PaineWebber at their first regular meeting held after such agreement
but shall not be required to obtain prior approval for such agreements from the
Board.
9. INDEMNIFICATION.
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class Y Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
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<PAGE>
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Trust for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Trust or
to the shareholders of any Series to which PaineWebber would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Contract.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell Hutchins
and its officers and directors, the Trust, its officers and trustees, and any
person who controls Mitchell Hutchins or the Trust within the meaning of Section
15 of the 1933 Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Trust, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the
Trust for use in the Registration Statement; arising out of or based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or necessary to make such
information not misleading; or arising out of any agreement between PaineWebber
and a correspondent firm or any other retail dealer; or arising out of any sales
or advertising material used by PaineWebber in connection with its duties under
this Contract.
10. DURATION AND TERMINATION.
(a) This Contract shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of this Contract or in any agreements related thereto (all such
trustees collectively being referred to herein as the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board with respect to any given Series or by vote of a majority of the
outstanding voting securities of the Class Y Shares of such Series.
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<PAGE>
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Contract may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the Class Y Shares of such Series on 30 days' written notice to
Mitchell Hutchins and PaineWebber.
(d) Termination of this Contract with respect to any given Series shall
in no way affect the continued validity of this Contract or the performance
thereunder with respect to any other Series. This Contract will automatically
terminate in the event of its assignment or in the event that the Distribution
contract is terminated.
11. AMENDMENT OF THIS AGREEMENT. No provision of this Contract may be
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. USE OF PAINEWEBBER NAME. PaineWebber hereby authorizes Mitchell
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class Y Shares, but
only for so long as this Contract or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By:
---------------------------- -----------------------------
PAINEWEBBER INCORPORATED
Attest: By:
---------------------------- -----------------------------
Exhibit No. 7
FORM OF CUSTODIAN CONTRACT
Between
MITCHELL HUTCHINS SECURITIES TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
Mitchell Hutchins Securities Trust
TABLE OF CONTENTS
-----------------
Page
1. Employment of Custodian and Property to be Held by It.......................1
2. Duties of the Custodian with Respect to Property of the Fund Held
by the Custodian in the United States..........................................1
2.1 Holding Securities......................................................1
2.2 Delivery of Securities..................................................2
2.3 Registration of Securities..............................................4
2.4 Bank Accounts...........................................................4
2.5 Availability of Federal Funds...........................................4
2.6 Collection of Income....................................................4
2.7 Payment of Fund Monies..................................................5
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased...................................................................6
2.9 Appointment of Agents...................................................6
2.10 Deposit of Fund Assets in U. S. Securities Systems.....................6
2.11 Fund Assets Held in the Custodian's Direct Paper System................7
2.12 Segregated Account.....................................................8
2.13 Ownership Certificates for Tax Purposes................................8
2.14 Proxies................................................................8
2.15 Communications Relating to Portfolio Securities........................8
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States...................................................9
3.1 Appointment of Foreign Sub-Custodians...................................9
3.2 Assets to be Held.......................................................9
3.3 Foreign Securities Systems..............................................9
3.4 Holding Securities......................................................9
3.5 Agreements with Foreign Banking Institutions...........................10
3.6 Access of Independent Accountants of the Fund..........................10
3.7 Reports by Custodian...................................................10
3.8 Transactions in Foreign Custody Account................................10
3.9 Liability of Foreign Sub-Custodians....................................11
3.10 Liability of Custodian................................................11
3.11 Reimbursement for Advances............................................11
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Mitchell Hutchins Securities Trust
3.12 Monitoring Responsibilities...........................................11
3.13 Branches of U.S. Banks................................................12
3.14 Tax Law...............................................................12
4. Payments for Sales or Repurchases or Redemptions of Shares of the
Fund..........................................................................12
5. Proper Instructions........................................................13
6. Actions Permitted Without Express Authority................................13
7. Evidence of Authority......................................................13
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.................................14
9. Records....................................................................14
10. Opinion of Fund's Independent Accountants.................................14
11. Reports to Fund by Independent Public Accountants.........................14
12. Compensation of Custodian.................................................15
13. Responsibility of Custodian...............................................15
14. Effective Period, Termination and Amendment...............................16
15. Successor Custodian.......................................................16
16. Interpretive and Additional Provisions....................................17
17. Additional Funds..........................................................17
18. Massachusetts Law to Apply................................................17
19. Prior Contracts...........................................................18
20. Reproduction of Documents.................................................18
21. Shareholder Communications Election.......................................18
22. Limitation of Liability...................................................18
<PAGE>
FORM OF CUSTODIAN CONTRACT
--------------------------
This Contract between Mitchell Hutchins Securities Trust, a business
trust organized and existing under the laws of Delaware, having its principal
place of business at 51 West 52nd Street, New York, New York 10019-6114
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of' business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series,
PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund
(such series together with all other series subsequently established by the
Fund and made subject to this Contract in accordance with paragraph 17, being
herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside
the United States ("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to
deliver to the Custodian all securities and cash of the Portfolios, and all
payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Portfolio(s) from time to
time, and the cash consideration received by it for such new or treasury
shares of beneficial interest of the Fund representing interests in the
Portfolios, ("Shares") as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s)
the foreign banking institutions and foreign securities depositories
designated in Schedule A hereto but only in accordance with the provisions of
Article 3.
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Mitchell Hutchins Securities Trust
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
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2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a "U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by a Portfolio field by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; PROVIDED that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of' the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may anise from the Custodian's own
negligence or willful misconduct;
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Mitchell Hutchins Securities Trust
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, BUT ONLY against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
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Mitchell Hutchins Securities Trust
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; PROVIDED, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of' Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
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Mitchell Hutchins Securities Trust
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options
on futures contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a U.S. Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank, pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
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Mitchell Hutchins Securities Trust
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated other-wise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, HOWEVER, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF FUND ASSETS IN U. S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a CLEARING
AGENCY registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon (i) receipt of advice
from the U.S. Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
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Mitchell Hutchins Securities Trust
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Portfolio. Copies of all
advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and
be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the U.S. Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
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Mitchell Hutchins Securities Trust
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonable request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, BUT ONLY, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such
securities.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
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Mitchell Hutchins Securities Trust
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
----------------------------
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 HOLDING SECURITIES. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, PROVIDED
HOWEVER, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
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Mitchell Hutchins Securities Trust
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration, (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration, (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio, (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian, and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, MUTATIS MUTANDIS to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
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Mitchell Hutchins Securities Trust
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
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Mitchell Hutchins Securities Trust
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 TAX LAW. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt
of instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon
receipt of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. PROPER INSTRUCTIONS
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth
the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian
reasonably believes them to have been given by a person authorized to give
such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Trustees
and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
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Mitchell Hutchins Securities Trust
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, PROVIDED that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Portfolio
except as otherwise directed by the Board of Trustees of the
Fund.
7. EVIDENCE OF AUTHORITY
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed
by it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the Declaration of Trust
as described in such vote, and such vote may be considered as in full force
and effect until receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
---------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing
to do so by the Fund on behalf of the Portfolio, shall itself keep such books
of account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such
Portfolio and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division
of such net income among its various components. The calculations of the net
asset value per share and the daily income of each Portfolio shall be made at
the time or times described from time to time in the Fund's currently
effective prospectus related to such Portfolio.
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Mitchell Hutchins Securities Trust
9. RECORDS
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of
the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with
a tabulation of securities owned by each Portfolio and held by the Custodian
and shall, when requested to do so by the Fund and for such compensation as
shall be agreed upon between the Fund and the Custodian, include certificate
numbers in such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from
year to year favorable opinions from the Fund's independent accountants with
respect to its activities hereunder in connection with the preparation of the
Fund's Form N-1A, and Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other requirements of such
Commission.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or
maintained in a Securities System, relating to the services provided by the
Custodian under this Contract; such reports, shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the reports shall
so state.
12. COMPENSATION OF CUSTODIAN
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. RESPONSIBILITY OF CUSTODIAN
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper party
or parties, including any futures commission merchant acting pursuant to the
terms of a three-party futures or options agreement. The Custodian shall be
held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without
liability to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for the Fund) on all matters, and shall be
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Mitchell Hutchins Securities Trust
without liability for any action reasonably taken or omitted pursuant to such
advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or
agent, the Custodian shall be without liability to the Fund for any loss,
liability, claim or expense resulting from or caused by: (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or expropriation,
imposition of currency controls or restrictions, the interruption, suspension
or restriction of trading on or the closure of any securities market. power
or other mechanical or technological failures or interruptions, computer
viruses or communications disruptions, acts of war or terrorism, riots,
revolutions, work stoppages, natural disasters or other similar events or
acts; (ii) errors by the Fund or the Investment Advisor in their instructions
to the Custodian provided such instructions have been in accordance with this
Contract; (iii) the insolvency of or acts or omissions by a Securities
System; (iv) any delay or failure of any broker, agent or intermediary,
central bank, or other commercially prevalent payment or clearing system to
deliver to the Custodian's sub-custodian or agent securities purchased or in
the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the
Fund, the Custodian's sub-custodians, nominees or agents or any consequential
losses arising out of such delay or failure to transfer such securities
including non-receipt of bonus, dividends and rights and other accretions or
benefits; (vi) delays or inability to perform its duties due to any disorder
in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of
competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money
or which action may, in the opinion of the Custodian, result in the Custodian
or its nominee assigned to the Fund or the Portfolio being liable for the
payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of this Contract, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct, any property at any time held for the account of the
applicable Portfolio shall be security therefor and should the Fund fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
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Mitchell Hutchins Securities Trust
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such delivery or mailing;
PROVIDED, however that the Custodian shall not with respect to a Portfolio
act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees of the Fund has approved the initial use of a particular Securities
System by such Portfolio, as required by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect
to a Portfolio act under Section 2.11 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board
of Trustees has approved the initial use of the Direct Paper System by such
Portfolio; PROVIDED FURTHER, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller
of the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of
the date of such termination and shall likewise reimburse the Custodian for
its costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of each such
Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable
Portfolio and to transfer to an account of such successor custodian all of
the securities of each such Portfolio held in any Securities System.
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Mitchell Hutchins Securities Trust
Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional provisions shall be in
a writing signed by both parties and shall be annexed hereto, PROVIDED that
no such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of
the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
----------------
In the event that the Fund establishes one or more series of Shares in
addition to PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund with respect to which it desires to have the Custodian render
services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
18. MASSACHUSETTS LAW TO APPLY
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. PRIOR CONTRACTS
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. REPRODUCTION OF DOCUMENTS
-------------------------
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
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Mitchell Hutchins Securities Trust
21. SHAREHOLDER COMMUNICATIONS ELECTION
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to
requesting companies whose securities the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund
as consenting to disclosure of this information for all securities owned by
the Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's
name and address for any purpose other than corporate communications. Please
indicate below whether the Fund consents or objects by checking one of the
alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
22. LIMITATION OF LIABILITY
-----------------------
The Custodian agrees that the Contract may only be enforced against the
assets of the Fund or the particular Portfolio of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
he executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the ___ day of March, 2000.
ATTEST MITCHELL HUTCHINS SECURITIES TRUST
________________________ _______________________
Name: Name:
Title: Title:
ATTEST STATE STREET BANK AND TRUST COMPANY
_________________________ ________________________
18
<PAGE>
Mitchell Hutchins Securities Trust
Schedule A
17f-5 Approval
The Board of Trustees of MITCHELL HUTCHINS SECURITIES TRUST has
approved certain foreign banking institutions and foreign securities
depositories within State Street's Global Custody Network for use as
subcustodians for the Fund's securities, cash and cash equivalents held
outside of the United States. Board approval is as indicated by the Fund's
Authorized Officer:
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
_______ STATE STREET'S ENTIRE GLOBAL CUSTODY NETWORK LISTED BELOW
_______ Argentina Citibank, N.A. Caja de Valores S.A.
_______ Australia Westpac Banking Corporation Austraclear Limited; Reserve
Bank Information and Transfer
System (RITS)
_______ Austria Erste Bank der Oesterreichischen Oesterreichische Kontrollbank
Sparkasen AG AG (Wertpapiersammelbank
Division)
_______ Bahrain The British Bank of the Middle None
East (as delegate of the Hongkong
and Shanghai Banking Corporation
Limited)
_______ Bangladesh Standard Chartered Bank None
_______ Belgium Generale Bank Caisse Interprofessionnelle de
et de Depots Virements de
Titres S.A. (CIK);
Banque Nationale de Belgique
_______ Bermuda The Bank of Bermuda Limited None
_______ Botswana Barclays Bank of Botswana Limited None
_______ Brazil Citibank, N.A. C>mera de Liquidao de Sao
Paula;
Banco Central do Brasil,
Systema Especial de
Liquidaca e
Custodia (SELIC)
_______ Bulgaria ING Bank N.V. Central Depository AD
_______ Canada Canada Trustco Mortgage Company The Canadian Depository for
Securities Limited (CDS)
_______ Chile Citibank, N.A. None
_______ People's Banking Corporation Limited, The Hongkong and Shanghai,
Republic of Shanghai and Shenzhen branches Shanghai Registration
China Corporation (SSCCRC);
Shenzhen Securities Central
Clearing
_______ Colombia Cititrust Colombia S.A. Sociedad None
Fiduciaria
_______ Croatia Privredna Banka Zagreb d.d. Ministry of Finance
</TABLE>
<PAGE>
Mitchell Hutchins Securities Trust
<TABLE>
<CAPTION>
<S> <C> <C> <C>
_______ Cyprus Barclays Bank PLC None
Cyprus Offshore Banking Unit
_______ Czech Republic Ceskoslovenska Obchodni Stredisko cennych
Banka A.S. papi ru (SCP);
Czech National Bank (CNB)
_______ Denmark Den Danske Bank Verdipapircentralen - The
Danish Securities Center (VP)
_______ Ecuador Citibank, N.A. None
_______ Egypt National Bank of Egypt Misr Company for Clearing,
Settlement, and Central
Depository (MCSD)
_______ Finland Merita Bank Ltd. The Finnish Central Securities
Depository (CSD)
_______ France Banque Paribas Socie te
Interprofessionnelle pour la
Compensation des Valeurs
Mobilieres (SICOVAM);
Banque de France, Saturne
System
_______ Germany Dresdner Bank AG The Deutscher Kassenverein AG
_______ Ghana Barclays Bank of Ghana Limited None
_______ Greece National Bank of Greece S.A The Central Securities
Depository
(Apothetirion Titlon A.E.);
Bank of Greece
_______ Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS);
The Central Money Markets Unit
(CMU)
_______ Hungary Citibank Rt., Budapest The Central Depository and
Clearing House (Budapest) Ltd.
(KELER Ltd.)
_______ India Deutsche Bank AG The National Securities
Depository Limited
_______ The Hongkong and Shanghai Banking The National Securities
Corporation Limited Depository Limited
_______ Indonesia Standard Chartered Bank None
_______ Ireland Bank of Ireland None;
The Central Bank of Ireland,
The Gilt Settlement Office
(GSO)
_______ Israel Bank Hapoalim B.M. The Clearing House of the Tel
Aviv Stock Exchange;
Bank of Israel
_______ Italy Banque Paribas Monte Titoli S.p.A.;
Banca d'Italia
_______ Ivory Coast Socie te None
Generale de Banques en
Ce te d'lvoire
_______ Japan The Daiwa Bank, Limited Japan Securities Depository
Center (JASDEC);
<PAGE>
Mitchell Hutchins Securities Trust
Bank of Japan Net System
_______ The Fuji Bank, Limited Japan Securities Depository
Center (JASDEC);
Bank of Japan Net System
_______ The Sumitomo Trust & Banking Co., Japan Securities Depository
Ltd Center (JASDEC);
Bank of Japan Net System
_______ Jordan The British Bank of the Middle None
East (as delegate of the Hongkong
and Shanghai Banking Corporation
Limited)
_______ Kenya Barclays Bank of Kenya Limited None
_______ Republic of SEOULBANK Korea Securities Depository
Korea (KSD)
_______ Lebanon The British Bank of the Middle Custodian and Clearing Center
East (as delegate of the Hongkong of Financial Instruments for
and Shanghai Banking Corporation Lebanon (MIDCLEAR) S.A.L.;
Ltd. )
The Central Bank of Lebanon
_______ Malaysia Standard Chartered Bank Malaysian Central Depository
Malaysia Berhad Sdn. Bhd. (MCD);
Bank Negara Malaysia,
Scripless Securities Trading
and
_______ Mauritius The Hongkong and Shanghai The Central Depository &
Settlement
_______ Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el
Depo sito de Valores)
_______ Morocco Banque Commerciale du Maroc None
_______ The MeesPierson N.V. Nederlands Centraal Instituut
Netherlands voor Giraal Effectenverkeer
B.V. (NECIGEF);
_______ New Zealand ANZ Banking Group (New Zealand) New Zealand Central Securities
Limited Depository Limited (NZCSD)
_______ Norway Christiania Bank og Verdipapirsentralen - The
Norwegian
_______ Oman The British Bank of the Middle Muscat Securities Market (MSM)
East (as delegate of the Hongkong
and Shanghai Banking Corporation
Limited
_______ Pakistan Deutsche Bank AG Central Depository Company of
Pakistan Ltd.
_______ Peru Citibank, N.A. Caja de Valores y
Liquidaciones (CAVALI, S.A.)
_______ Philippines Standard Chartered Bank The Philippines Central
Depository Inc. (PCD);
The Book- Entry- System (BES)
of Bangko
</TABLE>
<PAGE>
Mitchell Hutchins Securities Trust
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sentral ng Pilipinas; The
Registry of Scripless
Securities (ROSS) of the
Bureau of Treasury
_______ Poland Citibank Poland S.A. The National Depository of
Securities (Krajowy Depozyt
Papierow
Wartosciowych);
National Bank of Poland
_______ Portugal Banco Comercial Portugues Central de Valores
Mobiliarios (Central)
_______ Romainia ING Bank N.V. - Bucharest National Securities Clearing,
Settlement and Depository
Company
_______ Russia Credit Suisse First Boston, None
Zurich via Credit Suisse First
Boston Limited, Moscow
_______ Singapore The Development Bank of Singapore The Central Depository (Pte)
Ltd. Limited (CDP)
_______ Slovak Ceskoslovenska Obchodna Stredisko Cennych
Republic Banka A.S. Papierov (SCP);
National Bank of Slovakia
_______ Slovenia Banka Creditanstalt d.d. Klirinsko Depotna Bruzba
_______ South Africa Standard Bank of South Africa The Central Depository Limited
Limited
_______ Spain Banco Santander, S.A. Servicio de Compensacio
y Liquidacion de Valores,
S.A. (SCLV);
Banco de Espana,
Anotaciones en Cuenta
_______ Sri Lanka The Hongkong and Shanghai Banking Central Depository System
Corporation Limited (Pvt) Limited
_______ Swaziland Barclays Bank of Swaziland Limited None
_______ Sweden Skandinaviska Enskilda Banken Verdepapperscentralen VPC
AB - The Swedish Central
Securities Depository
_______ Switzerland Union Bank of Switzerland Schweizerische Effekten - Giro
AG (SEGA); INTERSETTLE
_______ Taiwan - Central Trust of China The Taiwan Securities Central
R.O.C. OR Depository Company, Ltd. (TSCD)
----------------------------------
(Client Designated Subcustodian)
_______ Thailand Standard Chartered Bank Thailand Securities Depository
Company Limited (TSD)
_______ Turkey Citibank, N.A. Takas ve Saklama Bankasi A.S.
(TAKASBANK);
Central Bank of Turkey
_______ United State Street Bank and Trust None;
Kingdom Company The Bank of England,
The Central Gilts Office (CGO);
</TABLE>
<PAGE>
Mitchell Hutchins Securities Trust
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The Central Moneymarkets
Office (CMO);
_______ Uruguay Citibank, N.A. None
_______ Venezuela Citibank, N.A. None
_______ Zambia Barclays Bank of Zambia Limited Lusaka Central Depository (LCD)
_______ Zimbabwe Barclays Bank of Zimbabwe Limited None
_______ Euroclear (The Euroclear System)/State Street London Limited
_______ Cedel (Cedel Bank, societe anonyme)/State Street London Limited
</TABLE>
CERTIFIED BY:
_____________________________ ________________
Fund's Authorized Officer Date
Exhibit (8)
FORM OF TRANSFER AGENCY AND RELATED SERVICES AGREEMENT
THIS AGREEMENT is made as of __________, 2000 by and between PFPC INC.,
a Delaware corporation ("PFPC"), and MITCHELL HUTCHINS SECURITIES TRUST, a
Delaware business trust (the "Trust").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and WHEREAS, the Trust wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to the Trust's
Portfolio (as hereinafter defined) and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACt" means the Securities Exchange Act of 1934, as
amended.
(c) "AUTHORIZED PERSON" means any officer of the Trust and any other
person duly authorized by the Trust's Board of Directors or Trustees ("Board")
to give Oral Instructions and Written Instructions on behalf of the Trust and
listed on the Authorized Persons Appendix attached hereto and made a part hereof
or any amendment thereto as may be received by PFPC. An Authorized Person's
scope of authority may be limited by the Trust by setting forth such limitation
in the Authorized Persons Appendix.
<PAGE>
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from
an Authorized Person.
(f) "PORTFOLIO" means a series or investment portfolio of the Trust
identified on Annex A hereto, as the same may from time to time be amended, if
the Trust consists of more than one series or investment portfolio; however, if
the Trust does not have separate series or investment portfolios, then this term
shall be deemed to refer to the Trust itself.
(g) "SEC" means the Securities and Exchange Commission.
(h) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(i) "SHARES" mean the shares of common stock or beneficial interest
of any series or class of the Trust.
(j) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Trust hereby appoints PFPC to serve as transfer
agent, registrar, dividend disbursing agent and related services agent to the
Trust, and should the Trust have separate Portfolios, those Portfolios which are
listed on Annex A hereto, in accordance with the terms set forth in this
Agreement. PFPC accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Trust (or a particular Portfolio, as
appropriate) has provided or, where applicable, will provide PFPC with the
following:
2
<PAGE>
(a) Certified or authenticated copies of the resolutions of the
Trust's Board approving the appointment of PFPC to provide
services to the Trust and approving this Agreement;
(b) A copy of each executed broker-dealer agreement with respect to
each Trust; and
(c) Copies (certified or authenticated if requested by PFPC) of any
post-effective amendment to the Trust's registration statement,
advisory agreement, distribution agreement, shareholder
servicing agreement and all amendments or supplements to the
foregoing upon request.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Trust or any
of its Portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or of any vote, resolution or proceeding of the Trust's
Board or of the Trust's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Trust agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by the close of
business on the next day after such Oral Instructions are received. The fact
that such confirming Written Instructions are not received by PFPC shall in no
3
<PAGE>
way invalidate the transactions or enforceability of the transactions authorized
by the Oral Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Trust in acting upon such Oral Instructions or Written
Instructions provided that PFPC's actions comply with the other provisions of
this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE TRUST. If PFPC is in doubt as to any action it should
or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Trust.
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Trust, the Trust's investment adviser or PFPC, at the option of PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from the
Trust, and the advice it receives from counsel, PFPC may rely upon and follow
the advice of counsel. In the event PFPC so relies on the advice of counsel,
PFPC remains liable for any action or omission on the part of PFPC which
constitutes willful misfeasance, bad faith, negligence or reckless disregard by
PFPC of any duties, obligations or responsibilities set forth in this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Trust or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be construed
4
<PAGE>
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to each
Portfolio, including (a) all those records required to be prepared and
maintained by the Trust under the 1940 Act, by other applicable Securities Laws,
rules and regulations and by state laws and (b) such books and records as are
necessary for PFPC to perform all of the services it agrees to provide in this
Agreement and the appendices attached hereto, including but not limited to the
books and records necessary to effect the conversion of Class B shares, the
calculation of any contingent deferred sales charges and the calculation of
front-end sales charges. The books and records pertaining to the Trust, which
are in the possession or under the control of PFPC, shall be the property of the
Trust. The Trust and Authorized Persons shall have access to such books and
records in the possession or under the control of PFPC at all times during
PFPC's normal business hours. Upon the reasonable request of the Trust, copies
of any such books and records in the possession or under the control of PFPC
shall be provided by PFPC to the Trust or to an Authorized Person. Upon
reasonable notice by the Trust, PFPC shall make available during regular
business hours its facilities and premises employed in connection with its
5
<PAGE>
performance of this Agreement for reasonable visits by the Trust, any agent or
person designated by the Trust or any regulatory agency having authority over
the Trust.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Trust and information relating to the Trust and its shareholders (past, present
and future), its investment adviser and its principal underwriter, unless the
release of such records or information is otherwise consented to, in writing, by
the Trust prior to its release. The Trust agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Trust's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Trust.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for periodic backup of computer files and data with respect to the
Trust and emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Trust, take
reasonable steps to minimize service interruptions. PFPC shall have no liability
with respect to the loss of data or service interruptions caused by equipment
failure, provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations under this Agreement and provided further that PFPC has complied
with the provisions of this paragraph 10.
6
<PAGE>
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Trust will pay to PFPC a fee or fees as may be
agreed to from time to time in writing by the Trust and PFPC.
12. INDEMNIFICATION.
(a) The Trust agrees to indemnify and hold harmless PFPC and its
affiliates from all taxes, charges, expenses, assessments, penalties, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from (i) any
action or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Trust or (b) upon Oral
Instructions or Written Instructions or (ii) the acceptance, processing and/or
negotiation of checks or other methods utilized for the purchase of Shares.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement. The Trust's
liability to PFPC for PFPC's acceptance, processing and/or negotiation of checks
or other methods utilized for the purchase of Shares shall be limited to the
extent of the Trust's policy(ies) of insurance that provide for coverage of such
liability, and the Trust's insurance coverage shall take precedence.
(b) PFPC agrees to indemnify and hold harmless the Trust from all
taxes, charges, expenses, assessments, penalties, claims and liabilities arising
from PFPC's obligations pursuant to this Agreement (including, without
limitation, liabilities arising under the Securities Laws, and any state and
foreign securities and blue sky laws, and amendments thereto) and expenses,
7
<PAGE>
including (without limitation) reasonable attorneys' fees and disbursements
arising directly or indirectly out of PFPC's or its nominee's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
(d) The members of the Board of the Trust, its officers and
Shareholders, or of any Portfolio thereof, shall not be liable for any
obligations of the Trust, or any such Portfolio, under this Agreement, and PFPC
agrees that in asserting any rights or claims under this Agreement, it shall
look only to the assets and property of the Trust or the particular Portfolio in
settlement of such rights or claims and not to such members of the Board, its
officers or Shareholders. PFPC further agrees that it will look only to the
assets and property of a particular Portfolio of the Trust, should the Trust
have established separate series, in asserting any rights or claims under this
Agreement with respect to services rendered with respect to that Portfolio and
will not seek to obtain settlement of such rights or claims from the assets of
any other Portfolio of the Trust.
13. INSURANCE. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of insurance
may provide for coverage of claims for liability or indemnity by the parties set
forth in this Agreement, the contracts of insurance shall take precedence, and
8
<PAGE>
no provision of this Agreement shall be construed to relieve an insurer of any
obligation to pay claims to the Trust, PFPC or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
14. SECURITY.
(a) PFPC represents and warrants that, to the best of its knowledge,
the various procedures and systems which PFPC has implemented with regard to the
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access) of the
Trust's blank checks, certificates, records and other data and PFPC's equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate, and that it will make such changes therein from time to
time as in its judgment are required for the secure performance of its
obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis, and the Trust shall have reasonable access to review these
systems and procedures.
(b) PFPC further represents and warrants that any and all electronic
data processing systems and programs that it uses or retains in connection with
the provision of services hereunder on or before January 1, 1999 will be year
2000 compliant.
15. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Trust except as specifically set forth herein or as may be specifically agreed
to by PFPC in writing. PFPC shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good faith and to use its
best efforts in performing services provided for under this Agreement. PFPC
shall be liable for any damages arising out of PFPC's failure to perform its
duties under this Agreement to the extent such damages arise out of PFPC's
9
<PAGE>
willful misfeasance, bad faith, negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Trust for any consequential,
special or indirect losses or damages which the Trust may incur or suffer by or
as a consequence of PFPC's or its affiliates' performance of the services
provided hereunder, whether or not the likelihood of such losses or damages was
known by PFPC or its affiliates.
(d) Notwithstanding anything in this Agreement to the contrary, the
Trust shall not be liable to PFPC nor its affiliates for any consequential,
special or indirect losses or damages which PFPC or its affiliates may incur or
suffer by or as a consequence of PFPC's performance of the services provided
hereunder, whether or not the likelihood of such losses or damages was known by
the Trust.
10
<PAGE>
16. DESCRIPTION OF SERVICES.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Calculate 12b-1 payments to financial intermediaries,
including brokers, and financial intermediary trail
commissions;
(ii) Develop, monitor and maintain, in consultation with the
Trust, all systems necessary to implement and operate the
four-tier distribution system, including Class B conversion
feature, as described in the registration statement and
related documents of the Trust, as they may be amended from
time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Trust shares and deduct such amounts from
redemption proceeds;
(iv) Calculate front-end sales load amounts at time of purchase
of shares;
(v) Determine dates of Class B conversion and effect the same;
(vi) Establish and maintain proper shareholder registrations;
(vii) Review new applications and correspond with shareholders to
complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with
proxy solicitations;
(x) Prepare and mail to shareholders confirmation of activity;
(xi) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(xii) Send duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly with PFPC;
(xiii) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Trust;
(xiv) Provide detailed data for underwriter/broker confirmations;
11
<PAGE>
(xv) Prepare and mail required calendar and taxable year-end tax
and statement information (including forms 1099-DIV and
1099-B and accompanying statements);
(xvi) Notify on a daily basis the investment adviser, accounting
agent, and custodian of activity in the Trust;
(xvii) Perform, itself or through a delegate, all of the services,
whether or not included within the scope of another
paragraph of this Paragraph 16(a), specified on Annex B
hereto; and
(xviii)Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN
INSTRUCTIONS.
(i) Accept and post daily Trust and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Cancel certificates.
(c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an
investor, in the manner described in the Trust's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
(iii) Confirmation of receipt or crediting of funds for such order
to the Trust's custodian.
(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that
function is properly authorized by the Trust's organizational documents or
resolutions of the Trust's Board. Shares shall be redeemed and payment therefor
shall be made in accordance with the Trust's or Portfolio's prospectus.
12
<PAGE>
(i) BROKER-DEALER ACCOUNTS.
When a broker-dealer notifies PFPC of a redemption desired
by a customer, and the Trust's or Portfolio's custodian (the
"Custodian") has provided PFPC with funds, PFPC shall (a)
transfer by Fedwire or other agreed upon electronic means
such redemption payment to the broker-dealer for the credit
to, and for the benefit of, the customer's account or (b)
shall prepare and send a redemption check to the
broker-dealer, made payable to the broker-dealer on behalf
of its customer.
(ii) FUND-ONLY ACCOUNTS.
If Shares (or appropriate instructions) are received in
proper form, at the Trust's request Shares may be redeemed
before the funds are provided to PFPC from the Custodian. If
the recordholder has not directed that redemption proceeds
be wired, when the Custodian provides PFPC with funds, the
redemption check shall be sent to and made payable to the
recordholder, unless:
(a) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed
by the recordholder; or
(b) transfer authorizations are signed by the recordholder
when Shares are held in book-entry form.
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the
Trust's Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the
Trust in Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if provided for in the appropriate Trust's or Portfolio's
prospectus. Such issuance or payment, as well as payments upon redemption as
described above, shall be made after deduction and payment of the required
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<PAGE>
amount of funds to be withheld in accordance with any applicable tax law or
other laws, rules or regulations. PFPC shall mail to the Trust's shareholders
and the IRS and other appropriate taxing authorities such tax forms, or
permissible substitute forms, and other information relating to dividends and
distributions paid by the Trust (including designations of the portions of
distributions of net capital gain that are 20% rate gain distributions and 28%
rate gain distributions pursuant to IRS Notice 97-64) as are required to be
filed and mailed by applicable law, rule or regulation within the time required
thereby. PFPC shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Trust to its shareholders as required by tax or
other law, rule or regulation.
(f) SHAREHOLDER ACCOUNT SERVICES.
(i) PFPC will arrange, in accordance with the appropriate Trust's
or Portfolio's prospectus, for issuance of Shares obtained
through:
- The transfer of funds from shareholders' accounts at
financial institutions, provided PFPC receives advance Oral
or Written Instruction of such transfer;
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC will arrange, in accordance with the appropriate Trust's
or Portfolio's prospectus, for a shareholder's:
- Exchange of Shares for shares of another fund with which
the Trust has exchange privileges;
Automatic redemption from an account where that shareholder
participates in a systematic withdrawal plan; and/or
- Redemption of Shares from an account with a checkwriting
privilege.
14
<PAGE>
(g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written Instructions,
PFPC shall mail all communications by the Trust to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Trust shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax forms (including substitute forms) and accompanying
information containing the information required by
paragraph 16(e).
If requested by the Trust, PFPC will receive and tabulate the proxy
cards for the meetings of the Trust's shareholders and supply personnel to serve
as inspectors of election.
(h) RECORDS. PFPC shall maintain those records required by the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC hereunder
with respect to shareholder accounts or by transfer agents generally, including
records of the accounts for each shareholder showing the following information:
(i) Name, address and United States Taxpayer Identification
or Social Security number;
(ii) Number and class of Shares held and number and class of
Shares for which certificates, if any, have been
issued, including certificate numbers and
denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions
paid, their character (e.g. ordinary income, net
capital gain (including 20% rate gain and 28% rate
gain), exempt-interest, foreign tax-credit and
dividends received deduction eligible) for federal
income tax purposes and the date and price for all
transactions on a shareholder's account;
15
<PAGE>
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current maintenance
of a shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer
agent to perform any calculations contemplated or
required by this Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice against
any certificate reported to be lost or stolen and comply with all applicable
federal regulatory requirements for reporting such loss or alleged
misappropriation. The lost or stolen certificate will be canceled and
uncertificated Shares will be issued to a shareholder's account only upon:
(i) The shareholder's pledge of a lost instrument bond or
such other appropriate indemnity bond issued by a
surety company approved by PFPC; and
(ii) Completion of a release and indemnification agreement
signed by the shareholder to protect PFPC and its
affiliates.
(j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any
Trust shareholder to inspect stock records, PFPC will notify the Trust, and the
Trust will issue instructions granting or denying each such request. Unless PFPC
has acted contrary to the Trust's instructions, the Trust agrees and does hereby
release PFPC from any liability for refusal of permission for a particular
shareholder to inspect the Trust's shareholder records.
(k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES. Upon receipt
of Written Instructions, PFPC shall cancel outstanding certificates surrendered
by the Trust to reduce the total amount of outstanding shares by the number of
shares surrendered by the Trust.
16
<PAGE>
17. DURATION AND TERMINATION.
(a) This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the "Initial Term"). Upon
the expiration of the Initial Term, this Agreement shall automatically renew for
successive terms of one (1) year ("Renewal Terms") each provided that it may be
terminated by either party during a Renewal Term upon written notice given at
least ninety (90) days prior to termination. During either the Initial Term or
the Renewal Terms, this Agreement may also be terminated on an earlier date by
either party for cause.
(b) With respect to the Trust, cause includes, but is not limited to,
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute "cause" under this Paragraph, PFPC must receive written notice from
the Trust specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of the Securities Laws or other applicable laws related to
its business of performing transfer agency services;
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Trust to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
17
<PAGE>
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c ) of this Paragraph by the Trust shall be
effective thirty (30) days from the date of any such notice. Any notice of
termination for cause by PFPC shall be effective 90 days from the date of such
notice.
(e) Upon the termination hereof, the Trust shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Trust designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Trust,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including, a certified list of the
shareholders of the Trust or any Portfolio thereof with name, address, and if
provided, taxpayer identification or Social Security number, and a complete
record of the account of each shareholder. To the extent that PFPC incurs
expenses related to a transfer of responsibilities to a successor, other than
expenses involved in PFPC's providing the Trust's books and records described in
the preceding sentence to the successors, PFPC shall be entitled to be
reimbursed for such extraordinary expenses, including any out-of-pocket expenses
reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Trust or any Portfolio thereof upon the liquidation, merger, or
other dissolution of the Trust or Portfolio or upon the Trust's ceasing to be a
registered investment company.
18. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is
currently registered with the appropriate federal agency for the registration of
18
<PAGE>
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered or able to so
conduct such activities for the duration of this Agreement. PFPC agrees that it
will promptly notify the Trust in the event of any material change in its status
as a registered transfer agent. Should PFPC fail to be registered with the SEC
as a transfer agent at any time during this Agreement, and such failure to
register does not permit PFPC to lawfully conduct its activities, the Trust may,
on written notice to PFPC, terminate this Agreement upon five days written
notice to PFPC.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Trust, at the
address of the Trust or (c) if to neither of the foregoing, at such other
address as shall have been given by like notice to the sender of any such notice
or other communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device during regular business
hours, it shall be deemed to have been given immediately; if sent at a time
other than regular business hours, such notice shall be deemed to have been
given at the opening of the next business day. If notice is sent by first-class
mail, it shall be deemed to have been given three days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered. All postage, cable, telegram, telex and facsimile sending
device charges arising from the sending of a notice hereunder shall be paid by
the sender.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
<PAGE>
21. ADDITIONAL PORTFOLIOS. In the event that the Trust establishes one
or more investment series in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and related services agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment series shall become a Portfolio hereunder, subject
to such additional terms, fees and conditions as are agreed to by the parties.
22. DELEGATION; ASSIGNMENT.
(a) PFPC may, at its own expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Trust
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Trust to comply with all relevant provisions of the Securities
Laws; and (iii) PFPC and such delegate (or assignee) promptly provide such
information as the Trust may request, and respond to such questions as the Trust
may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee). The assignment and
delegation of any of PFPC's duties under this subparagraph (a) shall not relieve
PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to
perform the services described on Annex B hereto. In addition, PFPC may assign
its rights and delegate its other duties hereunder to PaineWebber Incorporated
or Mitchell Hutchins Asset Management Inc. or an affiliated person of either,
provided that (I) PFPC gives the Trust thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PFPC and the Trust to comply with
all relevant provisions of the Securities Laws; and (iii) PFPC and such delegate
20
<PAGE>
(or assignee) promptly provide such information as the Trust may request, and
respond to such questions as the Trust may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee). In assigning its rights and delegating its duties under this
paragraph, PFPC may impose such conditions or limitations as it determines
appropriate including the condition that PFPC be retained as a sub-transfer
agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to services to be performed and fees payable under this Agreement.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
21
<PAGE>
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made
in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
----------------------------------------
Title:
MITCHELL HUTCHINS SECURITIES TRUST
By:
----------------------------------------
Title:
22
<PAGE>
ANNEX A
Portfolios
PaineWebber Enhanced S&P 500 Fund
PaineWebber Enhanced Nasdaq-100 Fund
23
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ----------------------- -----------------------------
- ----------------------- -----------------------------
- ----------------------- -----------------------------
- ----------------------- -----------------------------
- ----------------------- -----------------------------
- ----------------------- -----------------------------
- ----------------------- -----------------------------
24
<PAGE>
ANNEX B
a. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all shareholder
inquiries received by telephone, mail or in-person regarding the Funds
and their accounts
b. Provide timely execution of redemptions, exchanges and non-financial
transactions directed to investment executives and specifically
requested by Trust shareholders
c. Issue checks from proceeds of Trust share redemptions to shareholders
as directed by the shareholders or their agents
d. Process and maintain shareholder account registration information
e. With respect to customer accounts maintained through PaineWebber
Incorporated ("PaineWebber"), review new applications and correspond
with shareholders to complete or correct information
f. Prepare and mail monthly or quarterly consolidated account statements
that reflect PaineWebber Mutual Fund balances and transactions (such
information to be combined with other activity and holdings in
investors' brokerage accounts if this responsibility is delegated to
PaineWebber)
g. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all branch
inquiries regarding operational issues and performance
h. Capture, process and mail required tax information to shareholders and
report this information to the Internal Revenue Service
i. Provide the capability to margin PaineWebber Mutual Funds held within
the client's brokerage account (if this responsibility is delegated to
PaineWebber)
j. Prepare and provide shareholder registrations for mailing of proxies,
reports and other communications to shareholders
k. Develop, maintain and issue checks from the PaineWebber systematic
withdrawal plan offered within the client's brokerage account (if this
responsibility is delegated to PaineWebber)
l. Maintain duplicate shareholder records and reconcile those records with
those at the transfer agent (if this responsibility is delegated to
PaineWebber)
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<PAGE>
m. Process and mail duplicate PaineWebber monthly or quarterly statements
to PaineWebber Investment Executives
n. Establish and maintain shareholder distribution options (i.e., election
to have dividends paid in cash, rather than reinvested in Trust shares)
o. Process and mail purchase, redemption and exchange confirmations to
Trust shareholders and PaineWebber Investment Executives
p. Issue dividend checks to shareholders that select cash distributions to
their brokerage account (if this responsibility is delegated to
PaineWebber)
q. Develop and maintain the automatic investment plan offered within the
client's brokerage account (if this responsibility is delegated to
PaineWebber)
r. Provide bank-to-bank wire transfer capabilities related to transactions
in Trust shares
25A
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
FACSIMILE 202-778-9100
WWW.KL.COM
March 7, 2000
Mitchell Hutchins Securities Trust
51 West 52nd Street
New York, New York 10019-6114
Ladies and Gentlemen:
You have requested our opinion, as counsel to Mitchell Hutchins Securities
Trust ("Trust"), as to certain matters regarding the issuance of certain Shares
of the Trust. As used in this letter, the term "Shares" means the Class A, Class
B, Class C and Class Y shares of beneficial interest of the series of the Trust
listed below that may be issued during the time that Pre-Effective Amendment No.
3 to the Trust's Registration Statement on Form N-1A ("PEA") is effective and
has not been superseded by a post-effective amendment. The series of the Trust
are PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq- 100 Fund.
As such counsel, we have examined certified or other copies, believed by
us to be genuine, of the Trust's Trust Instrument and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) of the State of Delaware that in
our experience are normally applicable to the issuance of shares by investment
companies organized as business trusts in that State and to the Securities Act
of 1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
------------------------------
KIRKPATRICK & LOCKHART LLP
26
Exhibit No. 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Auditors" and to the
use of our report on PaineWebber Enhanced S&P 500 Fund and PaineWebber Enhanced
Nasdaq-100 Fund dated March 1, 2000, in this Registration Statement (Form N-1A
No. 333-94065) of Mitchell Hutchins Securities Trust.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
New York, New York
March 1, 2000
Exhibit No. 12
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
March 7, 2000
Mitchell Hutchins Securities Trust
51 West 52nd Street
New York, New York 10019-6114
Ladies and Gentlemen:
We are writing in connection with the 1,250 Class A, 1,250 Class B, 1,250
Class C and 1,250 Class Y shares of beneficial interest of each of PaineWebber
Enhanced S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund that we have
purchased from you at a price of $10.00 per share. This is to advise you that
these shares were purchased for investment only with no present intention of
selling these shares, and we do not how have any intention of selling the
shares.
Sincerely yours,
/s/ Dianne E. O'Donnell
Dianne E. O'Donnell
Senior Vice President and
Deputy General Counsel
Exhibit (13)(a)
MITCHELL HUTCHINS SECURITIES TRUST -- CLASS A SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, Mitchell Hutchins Securities Trust ("Trust") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end management investment company, and currently has two distinct series of
shares of beneficial interest ("Series"), which correspond to distinct
portfolios and have been designated as PaineWebber Enhanced S&P 500 Fund and
PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class A shares
established; and
WHEREAS, the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class A shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class A shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
A shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series' Class A shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Any Series may pay a service fee to Mitchell Hutchins at a lesser
rate than the fee specified in Paragraph 1A of this Plan, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in Paragraph
4 of this Plan.
2. As Distributor of the Class A shares of each Series, Mitchell Hutchins
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Class A shares of the Series or
the servicing and maintenance of shareholder accounts, including, but not
limited to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials.
<PAGE>
3. If adopted with respect to Class A shares of a Series after any public
offering of those shares, this Plan shall not take effect with respect to those
shares unless it has first been approved by a vote of a majority of the voting
securities of the Class A shares of that Series. This provision does not apply
to adoption as an amended Plan of Distribution where the prior Plan of
Distribution either was approved by a vote of a majority of the voting
securities of the Class A shares of the applicable Series or such approval was
not required under Rule 12b-1.
4. This Plan shall not take effect with respect to the Class A shares of
any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Board
members of the Trust who are not "interested persons" of the Trust and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related thereto ("Independent Board members"), cast in person at a
meeting (or meetings) called for the purpose of voting on such approval; and
until the Board members who approve the Plan's taking effect with respect to
such Series' Class A shares have reached the conclusion required by Rule
12b-1(e) under the 1940 Act.
5. After approval as set forth in Paragraph 3 (if applicable) and
Paragraph 4, this Plan shall take effect and continue in full force and effect
for so long as such continuance is specifically approved at least annually in
the manner provided for approval of this Plan in Paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class A shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"service activities," as defined in this Paragraph 6, to the Board in support of
the service fee payable hereunder.
For purposes of this Plan, "service activities" shall mean
activities in connection with the provision by Mitchell Hutchins or PaineWebber
of personal, continuing services to investors in the Class A shares of the
Series; provided, however, that if the National Association of Securities
Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of
Section 2830(b)(9) of the NASD Conduct Rules that differs from the definition of
"service activities" hereunder, or if the NASD adopts a related definition
intended to define the same concept, the definition of "service activities" in
this Paragraph shall be automatically amended, without further action of the
parties, to conform to such NASD definition. Overhead and other expenses of
Mitchell Hutchins and PaineWebber related to their "service activities,"
including telephone and other communications expenses, may be included in the
information regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class A shares of any
Series at any time by vote of the Board, by vote of a majority of the
Independent Board members, or by vote of a majority of the outstanding voting
securities of the Class A shares of that Series.
8. This Plan may not be amended to increase materially the amount of
service fees provided for in Paragraph 1A hereof unless such amendment is
approved by a majority of the outstanding voting securities of the Class A
-2-
<PAGE>
shares of each Series, and no material amendment to the Plan shall be made
unless approved in the manner provided for initial approval in Paragraph 4
hereof.
9. The amount of the service fees payable by any Series to Mitchell
Hutchins under Paragraph 1A hereof and the Contract is not related directly to
expenses incurred by Mitchell Hutchins on behalf of such Series in serving as
Distributor of the Class A shares, and Paragraph 2 hereof and the Contract do
not obligate the Series to reimburse Mitchell Hutchins for such expenses. The
service fees set forth in Paragraph 1A hereof will be paid by the Series to
Mitchell Hutchins until either the Plan or the Contract is terminated or not
renewed. If either the Plan or the Contract is terminated or not renewed with
respect to the Class A shares of any Series, any service-related expenses
incurred by Mitchell Hutchins on behalf of the Class A shares of the Series in
excess of payments of the service fees specified in Paragraph 1A hereof and the
Contract which Mitchell Hutchins has received or accrued through the termination
date are the sole responsibility and liability of Mitchell Hutchins, and are not
obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Board members who are not interested persons of the Trust shall be committed to
the discretion of the Board members who are not interested persons of the Trust.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Trust shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to Paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
13. The Board members of the Trust and the shareholders of each Series
shall not be liable for any obligations of the Trust or any Series under this
Plan, and Mitchell Hutchins or any other person, in asserting any rights or
claims under this Plan, shall look only to the assets and property of the Trust
or such Series in settlement of such right or claim, and not to such Board
members or shareholders.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution on
the day and year set forth below in New York, New York.
Date: __________, 2000
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
-------------------- By:
--------------------------------
-3-
Exhibit (13)(b)
MITCHELL HUTCHINS SECURITIES TRUST -- CLASS B SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, Mitchell Hutchins Securities Trust ("Trust") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end management investment company, and currently has two distinct series of
shares of beneficial interest ("Series"), which correspond to distinct
portfolios and have been designated as PaineWebber Enhanced S&P 500 Fund and
PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class B shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class B shares
established; and
WHEREAS the Trust has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class B shares
of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class B shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. PaineWebber Enhanced S&P 500 Fund is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class B shares, distribution fees at the rate of 0.40%, on an annualized
basis, of the average daily net assets of the Series' Class B shares. Such fees
shall be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
B. Each other Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, distribution fees at the rate of 0.75%, on an annualized basis, of the
average daily net assets of the Series' Class B shares or such other rate as may
be agreed upon in a written distribution fee addendum to this Plan
("Distribution Fee Addendum") executed by the Trust on behalf of such Series.
All such Distribution Fee Addenda shall provide that they are subject to all
terms and conditions of this Plan. Such fees shall be calculated and accrued
daily and paid monthly or at such other intervals as the Board shall determine.
C. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, a service fee at the rate of 0.25%, on an annualized basis, of the
average daily net assets of the Series' Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
<PAGE>
D. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified above, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in Paragraph
4 of this Plan.
2. As Distributor of the Class B shares of each Series, Mitchell Hutchins
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Class B shares of the Series or
the servicing and maintenance of shareholder accounts, including, but not
limited to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials.
3. If adopted with respect to Class B shares of a Series after any public
offering of those shares, this Plan shall not take effect with respect to those
shares unless it has first been approved by a majority of the voting securities
of the Class B shares of that Series. This provision does not apply to adoption
as an amended Plan of Distribution where the prior Plan of Distribution either
was approved by a majority of the voting securities of the Class B shares of the
applicable Series or such approval was not required under Rule 12b-1.
4. This Plan shall not take effect with respect to the Class B shares of
any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Board
members of the Trust who are not "interested persons" of the Trust and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related thereto ("Independent Board members"), cast in person at a
meeting (or meetings) called for the purpose of voting on such approval; and
until the Board members who approve the Plan's taking effect with respect to
such Series' Class B shares have reached the conclusion required by Rule
12b-1(e) under the 1940 Act.
5. After approval as set forth in Paragraph 3 (if applicable) and
Paragraph 4, this Plan shall take effect and continue in full force and effect
for so long as such continuance is specifically approved at least annually in
the manner provided for approval of this Plan in Paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class B shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts expended for "service activities," as defined in
this Paragraph 6, to the Board in support of the service fee payable hereunder.
-2-
<PAGE>
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "service activities."
"Service activities" shall mean activities in connection with the provision by
Mitchell Hutchins or PaineWebber of personal, continuing services to investors
in the Class B shares of the Series; provided, however, that if the National
Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service
fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs
from the definition of "service activities" hereunder, or if the NASD adopts a
related definition intended to define the same concept, the definition of
"service activities" in this Paragraph shall be automatically amended, without
further action of the parties, to conform to such NASD definition. Overhead and
other expenses of Mitchell Hutchins and PaineWebber related to their
"distribution activities" or "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such activities.
7. This Plan may be terminated with respect to the Class B shares of any
Series at any time by vote of the Board, by vote of a majority of the
Independent Board members, or by vote of a majority of the outstanding voting
securities of the Class B shares of that Series.
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraphs 1A or 1B or the amount of service
fees provided for in Paragraph 1C hereof unless such amendment is approved by a
majority of the outstanding voting securities of the Class B shares of the
affected Series and no material amendment to the Plan shall be made unless
approved in the manner provided for initial approval in Paragraph 4 hereof.
9. The amount of the distribution and service fees payable by any Series
to Mitchell Hutchins under Paragraphs 1A, 1B and 1C hereof and the Contract is
not related directly to expenses incurred by Mitchell Hutchins on behalf of such
Series in serving as Distributor of the Class B shares, and Paragraph 2 hereof
and the Contract do not obligate the Series to reimburse Mitchell Hutchins for
such expenses. The distribution and service fees set forth in Paragraphs 1A, 1B
and 1C hereof will be paid by the Series to Mitchell Hutchins until either the
Plan or the Contract is terminated or not renewed. If either the Plan or the
Contract is terminated or not renewed with respect to the Class B shares of any
Series, any distribution expenses incurred by Mitchell Hutchins on behalf of the
Class B shares of the Series in excess of payments of the distribution and
service fees specified in Paragraphs 1A, 1B and 1C hereof and the Contract which
Mitchell Hutchins has received or accrued through the termination date are the
sole responsibility and liability of Mitchell Hutchins, and are not obligations
of the Series.
10. While this Plan is in effect, the selection and nomination of the
Board members who are not interested persons of the Trust shall be committed to
the discretion of the Board members who are not interested persons of the Trust.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
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<PAGE>
12. The Trust shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to Paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
13. The Board members of the Trust and the shareholders of each Series
shall not be liable for any obligations of the Trust or any Series under this
Plan, and Mitchell Hutchins or any other person, in asserting any rights or
claims under this Plan, shall look only to the assets and property of the Trust
or such Series in settlement of such right or claim, and not to such Board
members or shareholders.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
on the day and year set forth below in New York, New York.
Date: _______________, 2000
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
-------------------- By:
--------------------------------
-4-
Exhibit (13)(c)
MITCHELL HUTCHINS SECURITIES TRUST -- CLASS C SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, Mitchell Hutchins Securities Trust ("Trust") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end management investment company, and currently has two distinct series of
shares of beneficial interest ("Series"), which correspond to distinct
portfolios and have been designated as PaineWebber Enhanced S&P 500 Fund and
PaineWebber Enhanced Nasdaq-100 Fund; and
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class C shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Trust's board of trustees ("Board") and have Class C shares
established; and
WHEREAS, the Trust has entered into a Distribution Contract
("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
pursuant to which Mitchell Hutchins has agreed to serve as Distributor of the
Class C shares of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class C shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
I. A. Each Series listed below is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class C shares, distribution fees at the rates (on an annualized basis)
set forth below of the average daily net assets of the Series' Class C shares.
Such fees shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine:
PaineWebber Enhanced S&P 500 Fund 0.40%
PaineWebber Enhanced Nasdaq-100 Fund 0.75%
B. Any Series hereafter established is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series Class C shares, a distribution fee in the amount to be agreed upon in a
written distribution fee addendum to this Plan ("Distribution Fee Addendum")
executed by the Fund on behalf of such Series. All such Distribution Fee Addenda
shall provide that they are subject to all terms and conditions of this Plan.
C. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
C shares, a service fee at the rate of 0.25%, on an annualized basis, of the
average daily net assets of the Series' Class C shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
<PAGE>
D. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified above, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in Paragraph
4 of this Plan.
1. As Distributor of the Class C shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Class C shares of the
Series or the servicing and maintenance of shareholder accounts, including, but
not limited to, compensation to employees of Mitchell Hutchins; compensation to
and expenses, including overhead and telephone and other communication expenses,
of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other
selected dealers who engage in or support the distribution of shares or who
service shareholder accounts; the printing of prospectuses, statements of
additional information, and reports for other than existing shareholders; and
the preparation, printing and distribution of sales literature and advertising
materials.
2. If adopted with respect to Class C shares of a Series after any
public offering of those shares, this Plan shall not take effect with respect to
those shares unless it has first been approved by a majority of the voting
securities of the Class C shares of that Series. This provision does not apply
to adoption as an amended Plan of Distribution where the prior Plan of
Distribution either was approved by a vote of a majority of the voting
securities of the Class C shares of the applicable Series or such approval was
not required under Rule 12b-1.
3. This Plan shall not take effect with respect to the Class C shares
of any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Board
members of the Trust who are not "interested persons" of the Trust and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related thereto ("Independent Board members"), cast in person at a
meeting (or meetings) called for the purpose of voting on such approval; and
until the Board members who approve the Plan's taking effect with respect to
such Series' Class C shares have reached the conclusion required by Rule
12b-1(e) under the 1940 Act.
4. After approval as set forth in Paragraph 3 (if applicable) and
Paragraph 4, this Plan shall take effect and continue in full force and effect
for so long as such continuance is specifically approved at least annually in
the manner provided for approval of this Plan in Paragraph 4.
5. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class C shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts expended for "service activities," as defined in
this Paragraph 6, to the Board in support of the service fee payable hereunder.
-2-
<PAGE>
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "service activities."
"Service activities" shall mean activities in connection with the provision by
Mitchell Hutchins or PaineWebber of personal, continuing services to investors
in the Class C shares of the Series; provided, however, that if the National
Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service
fee" for purposes of Section 2830(b)(9) of the NASD Conduct Rules that differs
from the definition of "service activities" hereunder, or if the NASD adopts a
related definition intended to define the same concept, the definition of
"service activities" in this Paragraph shall be automatically amended, without
further action of the parties, to conform to such NASD definition. Overhead and
other expenses of Mitchell Hutchins and PaineWebber related to their
"distribution activities" or "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such activities.
6. This Plan may be terminated with respect to the Class C shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Board members, or by vote of a majority of the outstanding voting
securities of the Class C shares of that Series.
7. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraph 1A or Paragraph 1B hereof or the
amount of service fees provided for in Paragraph 1C hereof unless such amendment
is approved by a majority of the outstanding voting securities of the Class C
shares of the affected Series and no material amendment to the Plan shall be
made unless approved in the manner provided for initial approval in Paragraph 4
hereof.
8. The amount of the distribution and service fees payable by the
Series to Mitchell Hutchins under Paragraphs 1A, 1B and 1C hereof and the
Contract is not related directly to expenses incurred by Mitchell Hutchins on
behalf of such Series in serving as Distributor of the Class C shares, and
Paragraph 2 hereof and the Contract do not obligate the Series to reimburse
Mitchell Hutchins for such expenses. The distribution and service fees set forth
in Paragraphs 1A, 1B and 1C hereof will be paid by the Series to Mitchell
Hutchins until either the Plan or the Contract is terminated or not renewed. If
either the Plan or the Contract is terminated or not renewed with respect to the
Class C shares of any Series, any distribution expenses incurred by Mitchell
Hutchins on behalf of the Class C shares of the Series in excess of payments of
the distribution and service fees specified in Paragraphs 1A, 1B and 1C hereof
and the Contract which Mitchell Hutchins has received or accrued through the
termination date are the sole responsibility and liability of Mitchell Hutchins,
and are not obligations of the Series.
9. While this Plan is in effect, the selection and nomination of the
Board members who are not interested persons of the Trust shall be committed to
the discretion of the Board members who are not interested persons of the Trust.
10. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
-3-
<PAGE>
11. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
12. The Board members of the Trust and the shareholders of each Series
shall not be liable for any obligations of the Trust or any Series under this
Plan, and Mitchell Hutchins or any other person, in asserting any rights or
claims under this Plan, shall look only to the assets and property of the Trust
or such Series in settlement of such right or claim, and not to such Board
members or shareholders.
IN WITNESS WHEREOF, the Trust has caused this Plan of Distribution to
be executed on the day and year set forth below in New York, New York.
Date: __________, 2000
ATTEST: MITCHELL HUTCHINS SECURITIES TRUST
By:
- --------------------------- ---------------------------------
EXHIBIT (15)
MITCHELL HUTCHINS SECURITIES TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
Mitchell Hutchins Securities Trust hereby adopts this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
("1940 Act") on behalf of its current two distinct series, PaineWebber Enhanced
S&P 500 Fund and PaineWebber Enhanced Nasdaq-100 Fund, and any series that may
be established in the future (referred to hereinafter collectively as the
"Funds" and individually as a "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
1. CLASS A SHARES. Class A shares of each Fund are sold to the general
public subject to an initial sales charge. The initial sales charge for each
Fund is waived for certain eligible purchasers and reduced or waived for certain
large volume purchases.
The maximum sales charge for PaineWebber Enhanced S&P 500 Fund is 3% of
the public offering price for Class A shares of the Fund.
The maximum sales charge for Class A shares of any other Fund that invests
primarily in equity securities or in a combination of equity and debt securities
is 4.5% of the public offering price.
The maximum sales charge for Class A shares of a Fund that invests
primarily in debt securities is 4% of the public offering price.
Class A shares of each Fund are subject to an annual service fee of 0.25%
of the average daily net assets of the Class A shares of the Fund paid pursuant
to a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class A shares of each Fund are subject to a contingent deferred sales
charge ("CDSC") on redemptions of shares (i) purchased without an initial sales
charge due to a sales charge waiver for purchases of $1 million or more and (ii)
held less than one year. The Class A CDSC is equal to 1% (0.50% for PaineWebber
Enhanced S&P 500 Fund) of the lower of: (i) the net asset value of the shares at
the time of purchase or (ii) the net asset value of the shares at the time of
redemption. Class A shares of each Fund held one year or longer and Class A
shares of each Fund acquired through reinvestment of dividends or capital gains
distributions on shares otherwise subject to a Class A CDSC are not subject to
the CDSC. The CDSC for Class A shares of each Fund will be waived under certain
circumstances.
2. CLASS B SHARES. Class B shares of each Fund are sold to the general
public subject to a CDSC, but without imposition of an initial sales charge.
The maximum CDSC for Class B shares of PaineWebber Enhanced S&P 500 Fund
is equal to 3% of the lower of: (i) the net asset value of the shares at the
time of purchase or (ii) the net asset value of the shares at the time of
<PAGE>
redemption. The higher CDSC applies if the shares being redeemed were acquired
through an exchange with a fund that has a higher CDSC.
The maximum CDSC for Class B shares of each other Fund is equal to 5% of
the lower of: (i) the net asset value of the shares at the time of purchase or
(ii) the net asset value of the shares at the time of redemption.
Class B shares of each Fund held six years or longer and Class B shares of
each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC.
Class B shares of each Fund are subject to an annual service fee of 0.25%
of average daily net assets. Class B shares of PaineWebber Enhanced S&P 500 Fund
are subject to an annual distribution fee of 0.40% of average daily net assets
of the Class B shares and the Class B shares of each other Fund are subject to
an annual distribution fee of 0.75% of average daily net assets of the Class B
shares. These service and distribution fees are paid pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act.
Class B shares of each Fund convert to Class A shares approximately six
years after issuance at relative net asset value.
3. CLASS C SHARES. Class C shares of each Fund are sold to the general
public without imposition of an initial sales charge.
Class C shares of each Fund are subject to an annual service fee of 0.25%
of average daily net assets. Class C shares of PaineWebber Enhanced S&P 500 Fund
are subject to an annual distribution fee of 0.40% of average daily net assets
of Class C shares and the Class C shares of each other Fund are subject to an
annual distribution fee of 0.75% of average daily net assets of the Class C
shares. These service and distribution fees are paid pursuant to a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act. Class C shares
of PaineWebber Enhanced S&P 500 Fund are subject to a CDSC on redemptions of
Class C shares held less than one year equal to .65% of the lower of: (i) the
net asset value of the shares at the time of purchase or (ii) the net asset
value of the shares at the time of redemption. Class C shares of each other Fund
are subject to a CDSC on redemptions of Class C shares held less than one year
equal to 1% of the lower of: (i) the net asset value of the shares at the time
of purchase or (ii) the net asset value of the shares at the time of redemption.
Class C shares of each Fund held one year or longer and Class C shares of
each Fund acquired through reinvestment of dividends or capital gains
distributions are not subject to the CDSC. The CDSC for Class C shares of each
Fund will be waived under certain circumstances.
4. CLASS Y SHARES. Class Y shares are sold without imposition of an
initial sales charge or CDSC and are not subject to any service or distribution
fees.
Class Y shares of each Fund are available for purchase only by: (i)
employee benefit and retirement plans, other than individual retirement accounts
and self-employed retirement plans, of Paine Webber Group Inc. and its
2
<PAGE>
affiliates; (ii) certain unit investment trusts sponsored by PaineWebber
Incorporated ("PaineWebber"); (iii) participants in certain investment programs
that are currently, or will in the future be, sponsored by PaineWebber or its
affiliates and that charge a separate fee for program services, provided that
shares are purchased through or in connection with such programs; (iv) investors
purchasing $10,000,000 or more at one time in any combination of PaineWebber
proprietary funds in the Flexible Pricing System; (v) an employee benefit plan
qualified under section 401 (including a salary reduction plan qualified under
section 401(k)) or section 403(b) of the Internal Revenue Code (each an
"employee benefit plan"), provided that such employee benefit plan has 5,000 or
more eligible employees; (vi) an employee benefit plan with assets of
$50,000,000 or more; and (vii) any investment company advised by PaineWebber or
its affiliates.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
Certain expenses may be attributable to a particular Class of shares of
each Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a
specific Class;
(2) Blue Sky fees incurred by a specific Class of shares;
(3) SEC registration fees incurred by a specific Class of shares;
(4) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(5) Trustees' fees incurred as a result of issues relating to a
specific Class of shares;
(6) litigation expenses or other legal expenses relating to a
specific Class of shares; and
(7) transfer agent fees identified as being attributable to a
specific Class.
C. EXCHANGE PRIVILEGES:
Class A, Class B and Class C shares of each Fund may be exchanged for
shares of the corresponding Class of other PaineWebber mutual funds or may be
acquired through an exchange of shares of the corresponding Class of those
funds. Class Y shares of the Funds are not exchangeable.
3
<PAGE>
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
D. CLASS DESIGNATION:
Subject to approval by the Board of Trustees of Mitchell Hutchins
Portfolios, a Fund may alter the nomenclature for the designations of one or
more of its classes of shares.
E. ADDITIONAL INFORMATION:
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for the applicable Classes; provided, however, that none
of the terms set forth in any such prospectus shall be inconsistent with the
terms of the Classes contained in this Plan. The prospectus for each Fund
contains additional information about the Classes and each Fund's multiple class
structure.
F. DATE OF EFFECTIVENESS:
This Multiple Class Plan is effective as of the date hereof, provided that
this Plan shall not become effective with respect to any Fund unless such action
has first been approved by the vote of a majority of the Board and by vote of a
majority of those trustees of the Fund who are not interested persons of
Mitchell Hutchins Securities Trust.
___________, 2000
4
