<PAGE>
As filed with the Securities and Exchange Commission on May 8, 1995
1933 Act Registration No. 2-78626
1940 Act Registration No. 811-3502
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 33 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 31
(Check appropriate box or boxes.)
PAINEWEBBER AMERICA FUND
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
GREGORY K. TODD, 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:
ROBERT A. WITTIE, Esq.
DANIEL E. BURTON, Esq.
Kirkpatrick & Lockhart
South Lobby - 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
Telephone (202) 778-9000
It is proposed that this filing will become effective:
____ Immediately upon filing pursuant to Rule 485(b)
____ On _________________ pursuant to Rule 485(b)
_X__ 60 days after filing pursuant to Rule 485(a)(i)
____ On _________________ pursuant to Rule 485(a)(i)
____ 75 days after filing pursuant to Rule 485(a)(ii)
____ On _________________ pursuant to Rule 485(a)(ii)
<PAGE>
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the notice required by such Rule
for its most recent fiscal year on October 28, 1994.
PaineWebber America Fund
Contents of Registration Statement
This registration statement consists of the following papers and
documents:
. Cover Sheet
. Contents of Registration Statement
. Cross Reference Sheets
. PaineWebber Growth and Income Fund - Class A, B and D Shares
Part A - Prospectus
Part B - Statement of Additional Information
. PaineWebber Growth and Income Fund - Class C Shares
Part A - Prospectus
Part B - Statement of Additional Information
. Part C - Other Information
. Signature Page
. Exhibits
<PAGE>
PaineWebber Growth and Income Fund
Class A, B and D Shares
Form N-lA Cross Reference Sheet
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
1. Cover Page.............. Cover Page
2. Synopsis................ Prospectus Summary
3. Condensed Financial Financial Highlights;
Information............. Performance Information
4. General Description of Prospectus Summary;
Registrant.............. Investment Objective and
Policies; General Information
5. Management of the Fund.. Management; General Information
6. Capital Stock and Cover Page; Conversion of
Other Securities........ Class B Shares; Dividends and
Taxes; General Information
7. Purchase of Securities Purchases; Exchanges; Valuation
Being Offered........... of Shares; Other Services and
Information; Management
8. Redemption or Redemptions; Other Services and
Repurchase.............. Information
9. Pending Legal
Proceedings............. Not Applicable
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover page.............. Cover Page
11. Table of Contents....... Table of Contents
12. General Information
and History............. Other Information
13. Investment Objective and Investment Policies and
Policies................ and Restrictions; Hedging
Strategies; Portfolio
Transactions
14. Management of the Fund.. Trustees and Officers
15. Control Persons and
Principal Holders of
Securities.............. Trustees and Officers
16. Investment Advisory and Investment Advisory and
Other Services.......... Distribution Arrangements;
Other Information
17. Brokerage Allocation.... Portfolio Transactions
18. Capital Stock and Other Conversion of Class B Shares;
Securities.............. Other Information
19. Purchase, Redemption Reduced Sales Charges, Addi-
and Pricing of Securi- tional Exchange and Redemption
ties Being Offered...... Information and Other Services;
Valuation of Shares
20. Tax Status.............. Taxes
21. Underwriters............ Investment Advisory and
Distribution Arrangements
22. Calculation of Performance
Data.................... Performance Information
23. Financial Statements.... Financial Statements
- 1 -
<PAGE>
PaineWebber Growth and Income Fund
Class C Shares
Form N-lA Cross Reference Sheet
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
1. Cover Page.............. Cover Page
2. Synopsis................ Fund Expenses
3. Condensed Financial Financial Highlights;
Information............. Performance Information
4. General Description of Investment Objectives and
Registrant.............. Policies; General Information
5. Management of the Fund.. Management; General Information
6. Capital Stock and Cover Page; Dividends and
Other Securities........ Taxes; General Information
7. Purchase of Securities Purchases and Redemptions;
Being Offered........... Valuation of Shares; Management
8. Redemption or
Repurchase.............. Purchases and Redemptions
9. Pending Legal
Proceedings............. Not Applicable
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover page.............. Cover Page
11. Table of Contents....... Table of Contents
12. General Information
and History............. Other Information
13. Investment Objective and Investment Policies and
Policies................ and Restrictions; Hedging
Strategies; Portfolio
Transactions
14. Management of the Fund.. Trustees and Officers
15. Control Persons and
Principal Holders of
Securities.............. Trustees and Officers
16. Investment Advisory and Investment Advisory and
Other Services.......... Distribution Arrangements;
Other Information
17. Brokerage Allocation.... Portfolio Transactions
18. Capital Stock and Other
Securities.............. Other Information
19. Purchase, Redemption
and Pricing of Securi-
ties Being Offered...... Valuation of Shares
20. Tax Status.............. Taxes
21. Underwriters............ Investment Advisory and
Distribution Arrangements
22. Calculation of Performance
Data.................... Performance Information
23. Financial Statements.... Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
- 2 -
<PAGE>
----------------------------
PaineWebber Growth and Income Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- May , 1995
- --------------------------------------------------------------------------------
The Fund is a series of PaineWebber America Fund ("Trust"). This Prospectus
concisely sets forth information about the Fund a prospective investor should
know before investing. Please retain this Prospectus for future reference. A
Statement of Additional Information dated May , 1995 (which is incorporated by
reference herein) has been filed with the Securities and Exchange Commission.
The Statement of Additional Information can be obtained without charge, and
further inquiries can be made, by contacting the Fund, your PaineWebber
investment executive or PaineWebber's correspondent firms or by calling toll-
free 1-800-647-1568.
. Professional Management
. Portfolio Diversification
. Dividend and Capital Gain Reinvestment
. Flexible Pricingsm
. Low Minimum Investment
. Automatic Investment Plan
. Systematic Withdrawal Plan
. Exchange Privileges
. Suitable For Retirement Plans
------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE WISCONSIN INVESTORS SHOULD NOTE THAT THE FUND MAY INVEST UP TO 10%
OF ITS NET ASSETS IN RESTRICTED SECURITIES (OTHER THAN RULE 144A SECURITIES
DETERMINED TO BE LIQUID BY THE TRUST'S BOARD OF TRUSTEES). INVESTMENT IN
RESTRICTED SECURITIES (OTHER THAN SUCH RULE 144A SECURITIES) IN EXCESS OF 5% OF
THE FUND'S TOTAL ASSETS MAY BE CONSIDERED A SPECULATIVE ACTIVITY AND MAY RESULT
IN GREATER RISK AND INCREASED FUND EXPENSES.
------------
Prospectus Page 1
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Table of Contents
- --------------------------------------------------------------------------------
-------------
Prospectus Page 2
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Financial Highlights....................................................... 7
Flexible Pricing System.................................................... 9
Investment Objective and Policies.......................................... 10
Purchases.................................................................. 13
Exchanges.................................................................. 16
Redemptions................................................................ 17
Conversion of Class B Shares............................................... 18
Other Services and Information............................................. 18
Dividends and Taxes........................................................ 19
Valuation of Shares........................................................ 20
Management................................................................. 21
Performance Information.................................................... 22
General Information........................................................ 23
Appendix................................................................... 24
</TABLE>
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Prospectus Summary
- --------------------------------------------------------------------------------
See the body of the Prospectus for more information on the topics discussed in
this summary.
The Fund: PaineWebber Growth and Income Fund ("Fund") is a di-
versified series of an open-end management investment
company.
Investment Objective To provide current income and capital growth; invests
and Policies: primarily in dividend-paying equity securities be-
lieved by Mitchell Hutchins to have the potential for
rapid earnings growth; stocks are selected through a
disciplined methodology that utilizes quantitative
measures of value, earnings and price momentum, as
well as fundamental analysis.
Total Net Assets: $464.9 million at March 31, 1995.
Investment Adviser Mitchell Hutchins Asset Management Inc. ("Mitchell
and Administrator: Hutchins"), an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber" or "PW"), man-
ages approximately $41.7 billion in assets. See "Man-
agement."
Purchases: Shares of beneficial interest are available exclu-
sively through PaineWebber and its correspondent firms
for investors who are clients of PaineWebber or those
firms ("PaineWebber clients") and, for other invest-
ors, through PFPC Inc., the Fund's transfer agent
("Transfer Agent").
Flexible Pricing Investors may select Class A, Class B or Class D
System: shares, each with a public offering price that re-
flects different sales charges and expense levels. See
"Flexible Pricing System," "Purchases," "Redemptions"
and "Conversion of Class B Shares."
Class A Shares Offered at net asset value plus any applicable sales
charge (maximum is 4.5% of public offering price).
Class B Shares Offered at net asset value (a maximum contingent de-
ferred sales charge of 5% of redemption proceeds is
imposed on certain redemptions made within six years
of date of purchase). Class B shares automatically
convert into Class A shares (which pay lower ongoing
expenses) approximately six years after purchase.
Class D Shares Offered at net asset value without an initial or con-
tingent deferred sales charge. Class D shares pay
higher ongoing expenses than Class A shares and do not
convert into another Class.
Exchanges: Shares may be exchanged for shares of the correspond-
ing Class of most PaineWebber and Mitchell
Hutchins/Kidder, Peabody ("MH/KP") mutual funds.
Redemptions: PaineWebber clients may redeem through PaineWebber;
other shareholders must redeem through the Transfer
Agent.
Dividends: Declared and paid semi-annually; net capital gain is
distributed annually. See "Dividends and Taxes."
Reinvestment: All dividends and capital gain distributions are paid
in Fund shares of the same Class at net asset value
unless the shareholder has requested cash.
Minimum Purchase: $1,000 for the first purchase; $100 for subsequent
purchases.
-------------
Prospectus Page 3
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
Other Features:
Class A Shares Automatic investment plan Quantity discounts on initial
Systematic withdrawal plan sales charge
Rights of accumulation 365-day reinstatement privilege
Class B Shares Automatic investment plan Systematic withdrawal plan
Class D Shares Automatic investment plan Systematic withdrawal plan
---------------
WHO SHOULD INVEST. The Fund is designed for investors seeking current income
and capital growth. The Fund invests primarily in dividend-paying common stocks
of medium to large capitalization companies that have relatively low price-to-
earnings ratios, based on anticipated earnings for the next twelve months, and
have reported earnings in excess of general market expectations. While the Fund
is not intended to provide a complete or balanced investment program, it can
serve as one component of an investor's long-term program to accumulate assets
for retirement, college tuition or other major goals.
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Certain investment grade debt
securities in which the Fund may invest have speculative characteristics. The
Fund's ability to invest in U.S. dollar-denominated foreign securities and in
convertible securities that are rated below investment grade, and its use of
options and futures contracts involve special risks.
-------------
Prospectus Page 4
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
EXPENSES OF INVESTING IN THE FUND. The following tables are intended to assist
investors in understanding the expenses associated with investing in the Fund.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
Maximum sales charge on purchases of shares (as a
percentage of public offering price)................. 4.5% None None
Sales charge on reinvested dividends.................. None None None
Exchange fee.......................................... $5.00 $5.00 $5.00
Maximum contingent deferred sales charge (as a
percentage of redemption proceeds)................... None 5% None
Annual Fund Operating Expenses(2)
(as a percentage of average net assets)
Management fees....................................... 0.70% 0.70% 0.70%
12b-1 fees(3)......................................... 0.23 1.00 1.00
Other expenses........................................ 0.27 0.27 0.24
----- ----- -----
Total operating expenses.............................. 1.20% 1.97% 1.94%
===== ===== =====
</TABLE>
Example of Effect of Fund Expenses
An investor would directly or indirectly pay the following expenses on a $1,000
investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares(4).................... $57 $81 $108 $184
Class B Shares:
Assuming a complete redemption at
end of period(5)(6)............... $70 $92 $126 $191
Assuming no redemption(6).......... $20 $62 $106 $191
Class D Shares....................... $20 $61 $105 $226
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the Securities and Exchange Commission ("SEC") applicable to all mutual funds;
the assumed 5% annual return is not a prediction of, and does not represent,
the projected or actual performance of any Class of the Fund's shares.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses attributable to each Class of the Fund's shares will depend
upon, among other things, the level of average net assets and the extent to
which the Fund incurs variable expenses, such as transfer agency costs.
- -------
(1) Sales charge waivers are available for Class A and Class B shares, reduced
sales charge purchase plans are available for Class A shares and exchange
fee waivers are available for all three Classes. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the
first year after purchase; the charge generally declines by 1% annually
thereafter, reaching zero after six years. See "Purchases."
(2) See "Management" for additional information. All expenses are those
actually incurred for the fiscal year ended August 31, 1994.
-------------
Prospectus Page 5
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Prospectus Summary
(Continued)
- --------------------------------------------------------------------------------
(3) 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees................................. 0.23% 0.25% 0.25%
12b-1 distribution fees............................ 0.00 0.75 0.75
</TABLE>
12b-1 distribution fees are asset-based sales charges. Long-term Class B
and Class D shareholders may pay more in direct and indirect sales charges
(including distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. The 12b-1 service fees for Class A shares reflect a blended
annual rate of the Fund's average daily net assets of 0.25% and 0.15%
representing shares sold on or after December 2, 1988 and shares sold prior
to that date, respectively.
(4) Assumes deduction at the time of purchase of the maximum 4.5% initial sales
charge.
(5) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(6) Ten-year figures assume conversion of Class B shares to Class A shares at
end of sixth year.
-------------
Prospectus Page 6
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Financial Highlights
- --------------------------------------------------------------------------------
The tables below provide selected per share data and ratios for one Class A
share, one Class B share and one Class D share of the Fund for each of the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1994, which are incorporated by reference into
the Statement of Additional Information. The financial statements and notes, as
well as the information in the tables appearing below insofar as it relates to
the five years in the period ended August 31, 1994, have been audited by Ernst
& Young LLP, independent auditors, whose report thereon is included in the
Annual Report to Shareholders. Further information about the performance of the
Fund is also included in the Annual Report to Shareholders, which may be
obtained without charge. The information appearing below for periods prior to
the year ended August 31, 1990 also has been audited by Ernst & Young LLP,
whose reports thereon were unqualified. The financial statements and notes and
the financial information in the table below insofar as they relate to the six
months ended February 28, 1995 have been taken from the records of the Fund
without examination by the Fund's independent auditors, who do not express an
opinion thereon.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED
FEBRUARY 28, FOR THE YEARS ENDED AUGUST 31,
1995 ------------------------------------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------------ -------- -------- -------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32 $ 18.06 $ 17.41 $ 14.18 $ 12.93
-------- -------- -------- -------- -------- ------- ------- ------- -------- ------- -------
Income (loss) from
investment
operations:
Net investment
income.......... 0.10 0.28 0.28 0.24 0.19 0.51 0.49 0.60 0.68 0.85 0.96
Net realized and
unrealized gains
(losses) from
investment
transactions.... (0.05) (0.41) 0.37 1.25 3.50 (0.61) 3.17 (2.36) 1.79 3.36 1.27
-------- -------- -------- -------- -------- ------- ------- ------- -------- ------- -------
Total income
(loss) from
investment
operations....... 0.05 (0.13) 0.65 1.49 3.69 (0.10) 3.66 (1.76) 2.47 4.21 2.23
-------- -------- -------- -------- -------- ------- ------- ------- -------- ------- -------
Less dividends and
distributions:
Dividends from
net investment
income.......... (0.12) (0.27) (0.27) (0.27) (0.30) (0.53) (0.48) (0.88) (0.76) (0.61) (0.98)
Distributions
from net
realized gains
(losses) on
investments..... (1.21) (0.03) -- -- -- -- -- (2.10) (1.06) (0.37) --
-------- -------- -------- -------- -------- ------- ------- ------- -------- ------- -------
Total dividends
and
distributions... 1.33 (0.30) (0.27) (0.27) (0.30) (0.53) (0.48) (2.98) (1.82) (0.98) (0.98)
-------- -------- -------- -------- -------- ------- ------- ------- -------- ------- -------
Net asset value,
end of period.... $ 19.15 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32 $ 18.06 $ 17.41 $ 14.18
======== ======== ======== ======== ======== ======= ======= ======= ======== ======= =======
Total return(1)... 0.65% (0.58)% 3.15% 7.78% 23.62% (0.72)% 28.03% (10.73)% 16.25% 31.05% 18.02%
======== ======== ======== ======== ======== ======= ======= ======= ======== ======= =======
Ratios/Supplemental
data:
Net assets, end
of period
(000's)......... $180,817 $222,432 $359,073 $358,643 $232,555 $58,649 $61,617 $62,917 $107,778 $98,226 $54,185
Ratio of expenses
to average net
assets**........ 1.21%* 1.20% 1.13% 1.22% 1.42% 1.41% 1.41% 1.26% 1.15% 1.15% 1.34%
Ratio of net
investment
income to
average net
assets**........ 0.97%* 1.29% 1.33% 1.26% 1.79% 3.11% 3.26% 4.24% 4.14% 5.32% 6.77%
Portfolio
turnover........ 65.25% 94.32% 36.52% 15.57% 52.00% 32.10% 79.08% 88.95% 131.70% 83.48% 33.53%
</TABLE>
- -------
** During certain periods presented, PaineWebber/Mitchell Hutchins waived fees
or reimbursed the Fund for portions of its operating expenses. If such waiv-
ers or reimbursements had not been made for the Class A Shares, the
annualized ratio of expenses to average net assets and the annualized ratio
of net investment income to average net assets would have been 1.65% and
3.02%, respectively, for the year ended August 31, 1989, 1.36% and 4.14%,
respectively, for the year ended August 31, 1988 and 1.40% and 6.71%, re-
spectively, for the year ended August 31, 1985. For the years ended August
31, 1994, 1993, 1992, 1991, 1990 and 1987, there were no waivers or reim-
bursements and, for the year ended August 31, 1986, amounts reimbursed had
no significant impact on the ratios presented above.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain dis-
tributions at net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. The figures do not include
sales charges; results for Class A shares would be lower if sales charges
were included. Total return information for periods less than one year are
not annualized.
-------------
Prospectus Page 7
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS D
------------------------------------------------------ ------------------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS PERIOD SIX MONTHS FOR THE YEARS PERIOD
ENDED FOR THE YEARS ENDED JULY 1, ENDED ENDED JULY 2,
FEBRUARY 28, AUGUST 31, 1991+ TO FEBRUARY 28, AUGUST 31, 1992+ TO
1995 ----------------------------- AUGUST 31, 1995 ----------------- AUGUST 31,
(UNAUDITED) 1994 1993 1992 1991 (UNAUDITED) 1994 1993 1992
------------ -------- -------- -------- ---------- ------------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 18.04 $ 20.42 $ 20.83 $ 20.47 $ 20.95
-------- -------- -------- -------- ------- ------- ------- ------- -------
Income (loss) from
investment operations:
Net investment income.. 0.02 0.10 0.12 0.13 0.02 0.02 0.11 0.11 0.02
Net realized and
unrealized gains
(losses) from
investment
transactions.......... (0.05) (0.37) 0.36 1.20 1.17 (0.05) (0.38) 0.37 (0.44)
-------- -------- -------- -------- ------- ------- ------- ------- -------
Total income (loss)
from investment
operations............ (0.03) (0.27) 0.48 1.33 1.19 (0.03) (0.27) 0.48 (0.42)
-------- -------- -------- -------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Dividends from net
investment income..... (0.03) (0.11) (0.11) (0.15) -- (0.03) (0.11) (0.12) (0.06)
Distributions from net
realized gains on
investments........... (1.21) (0.03) -- -- -- (1.21) (0.03) -- --
-------- -------- -------- -------- ------- ------- ------- ------- -------
Total dividends and
distributions......... (1.24) (0.14) (0.11) (0.15) -- (1.24) (0.14) (0.12) (0.06)
-------- -------- -------- -------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 19.10 $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 19.15 $ 20.42 $ 20.83 $ 20.47
======== ======== ======== ======== ======= ======= ======= ======= =======
Total return(1)......... 0.22% (1.31)% 2.34% 6.99% 6.60% 0.26% (1.29)% 2.35% 2.85%
======== ======== ======== ======== ======= ======= ======= ======= =======
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $239,383 $289,290 $461,389 $386,275 $57,539 $29.928 $37,287 $61,869 $13,019
Ratio of expenses to
average net assets.... 1.99% 1.97% 1.90% 1.97% 2.10%* 2.00% 1.94% 1.87% 1.73%*
Ratio of net investment
income to average net
assets................ 0.19% 0.51% 0.57% 4.90% 1.18%* 0.18% 0.54% 0.61% 0.94%*
Portfolio turnover..... 65.25% 94.32% 36.52% 15.57% 52.00% 65.25% 94.32% 36.52% 15.57%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain dis-
tributions at net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. The figures do not include
sales charges; results for Class B shares would be lower if sales charges
were included. Total return information for periods less than one year are
not annualized.
-------------
Prospectus Page 8
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Flexible Pricing System
- --------------------------------------------------------------------------------
DIFFERENCES AMONG THE CLASSES
The primary distinctions among the Classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of distribution fees.
These differences are summarized in the table below. Each Class has distinct
advantages and disadvantages for different investors, and investors may choose
the Class that best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
----------------------- ------------------------ ----------------------
<C> <S> <C> <C>
Class A Maximum initial sales Service fee of up Initial sales charge
charge of 4.5% of the to 0.25% waived or reduced for
public offering price certain purchases
Class B Maximum contingent de- Service fee of 0.25%; Shares convert to
ferred sales charge of distribution fee of Class A shares
5% of redemption pro- 0.75% approximately six
ceeds; declines to zero years after issuance
after six years
Class D None Service fee of 0.25%; --
distribution fee of
0.75%
</TABLE>
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
In deciding which Class of shares to purchase, investors should consider the
cost of sales charges together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances.
SALES CHARGES. Class A shares are sold at net asset value plus an initial sales
charge of up to 4.5% of the public offering price. Because of this initial
sales charge, not all of a Class A shareholder's purchase price is invested in
the Fund. Class B shares are sold with no initial sales charge, but a
contingent deferred sales charge of up to 5% of the redemption proceeds applies
to redemptions made within six years of purchase. Class D shareholders pay no
initial or contingent deferred sales charges. Thus, the entire amount of a
Class B or Class D shareholder's purchase price is immediately invested in the
Fund.
WAIVERS AND REDUCTIONS OF CLASS A SALES CHARGES. Class A share purchases over
$50,000 and Class A share purchases made under the Fund's reduced sales charge
plan may be made at a reduced sales charge. In considering the combined cost of
sales charges and ongoing annual expenses, investors should take into account
any reduced sales charges on Class A shares for which they may be eligible.
The entire initial sales charge on Class A shares is waived for certain
eligible purchasers. Because Class A shares bear lower ongoing annual expenses
than Class B shares or Class D shares, investors eligible for complete waivers
should purchase Class A shares.
ONGOING ANNUAL EXPENSES. All three Classes of Fund shares pay an annual 12b-1
service fee of up to 0.25% of average daily net assets. Class B and Class D
shares pay an annual 12b-1 distribution fee of 0.75% of average daily net
assets. Annual 12b-1 distribution fees are a form of asset-based sales charge.
An investor should consider both ongoing annual expenses and initial or
contingent deferred sales charges in estimating the costs of investing in the
respective Classes of Fund shares over various time periods.
For example, assuming a constant net asset value, the cumulative distribution
fees on the Fund's
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<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND
Class B or Class D shares and the 4.5% maximum initial sales charge on the
Fund's Class A shares would all be approximately equal if the shares were held
for six years. Because Class B shares convert to Class A shares (which do not
bear the expense of ongoing distribution fees) approximately six years after
purchase, an investor expecting to hold Fund shares for longer than six years
would generally pay lower cumulative expenses by purchasing Class A or Class B
shares than by purchasing Class D shares. An investor expecting to hold Fund
shares for less than six years would generally pay lower cumulative expenses by
purchasing Class D shares than by purchasing Class A shares and, due to the
contingent deferred sales charges that would become payable on redemption of
Class B shares, such an investor would generally pay lower cumulative expenses
by purchasing Class D shares than Class B shares.
The foregoing examples do not reflect, among other variables, the cost or
benefit of bearing sales charges or distribution fees at the time of purchase,
upon redemption or over time, nor can they reflect fluctuations in the net
asset value of Fund shares, which will affect the actual amount of expenses
paid. Expenses borne by Classes may differ slightly because of the allocation
of other Class-specific expenses. The "Example of Effect of Fund Expenses"
under "Prospectus Summary" shows the cumulative expenses an investor would pay
over time on a hypothetical investment in each Class of Fund shares, assuming
an annual return of 5%.
OTHER INFORMATION
PaineWebber investment executives may receive different levels of compensation
for selling one particular Class of Fund shares rather than another. Investors
should understand that distribution fees and initial and contingent deferred
sales charges all are intended to compensate Mitchell Hutchins for distribution
services.
See "Purchases," "Redemptions" and "Management" for a more complete description
of the initial and contingent sales charges, service fees and distribution fees
for the three Classes of Fund shares. See also "Conversion of Class B Shares,"
"Dividends and Taxes," "Valuation of Shares" and "General Information" for
other differences among the three Classes.
- --------------------------------------------------------------------------------
Investment Objective and Policies
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income and capital
growth. The Fund seeks to achieve this objective by investing primarily in
dividend-paying equity securities believed by Mitchell Hutchins to have the
potential for rapid earnings growth. Under normal circumstances, the Fund will
invest at least 65% of its total assets in such securities. In managing the
Fund, Mitchell Hutchins follows a disciplined methodology under which stocks
from a universe of approximately 2,000 medium to large capitalization companies
are ranked utilizing quantitative measures of value, earnings and price
momentum in the context of Mitchell Hutchins' economic forecast. Stocks are
selected for the Fund based on fundamental analysis of the highest ranking
stocks.
The Fund may invest up to 35% of its total assets in equity securities not
meeting the above criteria, as well as convertible securities, U.S. government
securities, investment grade corporate debt securities and money market
instruments. See "Other Investment Policies and Risk Factors-- Debt
Securities." The Fund may invest in instruments other than common stocks when,
in the opinion of Mitchell Hutchins, their projected total return is equal to
or greater than that of common stocks or when such holdings might reduce the
volatility of the Fund's portfolio.
The Fund primarily purchases equity securities of issuers with medium to large
capitalization. The Fund generally will not invest in stocks of issuers with
market capitalization below $300 million. Over the past 65 years, the total
return of equity investments, as measured by the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), has exceeded the inflation rate, as
measured by the Consumer Price Index, as well as total return on long-term
Treasury bonds, long-term corporate bonds and short-term Treasury bills.
However, year-to-year fluctuations in each of these indices and instruments
have been significant, and total return for the S&P 500 for some periods has
been negative.There can be no
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<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
assurance that this trend will continue, and the Fund's performance may be
better or worse than that of the S&P 500.
There can be no assurance that the Fund will achieve its investment objective.
The Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities. The Fund's investment objective and certain investment
limitations as described in the Statement of Additional Information are
fundamental policies that may not be changed without shareholder approval. All
other investment policies may be changed by the Trust's board of trustees
without shareholder approval.
OTHER INVESTMENT POLICIES AND RISK FACTORS
DEBT SECURITIES. The Fund is permitted to purchase investment grade corporate
debt securities. Securities rated BBB by Standard & Poor's Ratings Group
("S&P"), Baa by Moody's Investor Services, Inc. ("Moody's") or comparably rated
by another nationally recognized statistical rating organization ("NRSRO") are
investment grade but Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher-rated debt securities. The Fund
is also permitted to purchase debt securities that are not rated by S&P,
Moody's or another NRSRO but that Mitchell Hutchins determines to be of
comparable quality to that of rated securities in which the Fund may invest.
Such securities are included in the computation of any percentage limitations
applicable to the comparable rated securities. See the Statement of Additional
Information for more information about S&P and Moody's ratings.
Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality and may be reduced after the Fund has
acquired the security. Mitchell Hutchins will consider such an event in
determining whether the Fund should continue to hold the security but is not
required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. Also, NRSROs may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
U.S. government securities in which the Fund may invest include direct
obligations of the U.S. Treasury as well as obligations of U.S. government
agencies and instrumentalities backed by the U.S. Treasury or primarily or
solely by the credit of the issuer.
DOLLAR-DENOMINATED FOREIGN SECURITIES. The Fund may invest up to 25% of its
total assets in U.S. dollar-denominated securities of foreign issuers that are
traded on recognized U.S. exchanges or in the U.S. over-the-counter ("OTC")
market. These investments may involve special risks, arising both from
political and economic developments abroad and differences between foreign and
U.S. regulatory systems. Foreign securities may be less liquid and their prices
more volatile than comparable U.S. securities. The prices of these securities
may also be affected by fluctuations in the values of foreign currencies.
LOWER RATED CONVERTIBLE SECURITIES. A convertible security is a bond,
debenture, note, preferred stock or other security 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. The
Fund may convert any convertible securities it may own into common stock, and
it may hold the common stock upon conversion.
Up to 10% of the Fund's total assets may be invested in convertible securities
that are rated below investment grade but no lower than B by S&P or Moody's or
comparably rated by another NRSRO, or if not rated by an NRSRO, determined by
Mitchell Hutchins to be of comparable quality. Convertible securities rated
below investment grade are commonly referred to as "junk bonds," are deemed by
the NRSROs to be predominantly speculative and may involve major risk exposure
to adverse conditions. Investments in convertible securities generally entail
less risk than the issuer's common stock, although the extent to which such
risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
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Prospectus Page 11
<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND
Lower rated convertible securities generally offer a higher current yield than
that available from higher grade issues, but they involve higher risks, in that
they are especially subject to adverse changes in general economic conditions
and in the industries in which the issuers are engaged, to changes in the
financial condition of the issuers and to price fluctuation in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress, which
could adversely affect their ability to make payments of principal and interest
(or, in the case of convertible preferred stock, dividends) and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them, and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk
that holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower rated debt
securities generally is thinner and less active than that for higher quality
securities, which may limit a Fund's ability to sell such securities at fair
value in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
HEDGING STRATEGIES. The Fund may attempt to reduce the overall risk of its
investments (hedge) by using options (both exchange-traded and OTC) and futures
contracts. The Fund's ability to use these instruments may be limited by market
conditions, regulatory limits and tax considerations. The Appendix to this
Prospectus describes the hedging instruments the Fund may use. The Statement of
Additional Information contains further information on these strategies.
The Fund may write (sell) covered put and call options or buy put and call
options on securities in which it may invest and on stock indices. In addition,
the Fund may buy and sell stock index futures contracts and interest rate
futures contracts and may write covered put and call options or buy put and
call options on such futures contracts. Because the Fund intends to
use options and futures for hedging purposes, the Fund may enter into options
and futures contracts that approximate (but do not exceed) the full value of
its portfolio.
The Fund might not employ any of the strategies described above, and there can
be no assurance that any strategy used will succeed. If Mitchell Hutchins
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a hedging strategy for the Fund, the Fund would be in a better
position had it not hedged at all. The use of these strategies involves certain
special risks, including (1) the fact that skills needed to use hedging
instruments are different from those needed to select the Fund's securities,
(2) possible imperfect correlation, or even no correlation, between price
movements of hedging instruments and price movements of the investments being
hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments and (4) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to the
need for the Fund to maintain "cover" or to segregate securities in connection
with hedging transactions and the possible inability of the Fund to close out
or to liquidate its hedged position.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment objective and regulatory and federal tax considerations.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities, including certain cover for OTC options and securities
whose disposition is restricted under
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<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
the federal securities laws (other than "Rule 144A securities" Mitchell
Hutchins has determined to be liquid under procedures approved by the Trust's
trustees). Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act of 1933 ("1933 Act"). Institutional markets
for restricted securities have developed as a result of Rule 144A, providing
both readily ascertainable values for restricted securities and the ability to
liquidate an investment to satisfy share redemption orders. An insufficient
number of qualified institutional buyers interested in purchasing Rule 144A-
eligible restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at favorable prices.
PORTFOLIO TURNOVER. The Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate (100% or more) will
involve correspondingly greater transaction costs, which will be borne directly
by the Fund, and may increase the potential for short-term capital gains.
The portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of securities in the portfolio during the
year. For the fiscal years ended August 31, 1994 and August 31, 1993, the
Fund's portfolio turnover rates were 94.32% and 36.52%, respectively.
OTHER INFORMATION. When Mitchell Hutchins believes unusual circumstances
warrant a defensive posture, the Fund temporarily may commit all or a portion
of its assets to cash or money market instruments, including repurchase
agreements. The Fund may also engage in short sales of securities "against the
box" to defer realization of gains or losses for tax or other purposes. The
Fund may borrow money for temporary purposes, but not in excess of 10% of its
total assets.
- --------------------------------------------------------------------------------
Purchases
- --------------------------------------------------------------------------------
GENERAL. Class A shares of the Fund are sold to investors subject to an initial
sales charge. Class B shares of the Fund are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares approximately six years after
issuance. Class D shares are sold without an initial or a contingent deferred
sales charge but are subject to higher ongoing expenses than Class A shares and
do not convert into another Class. See "Flexible Pricing System" and
"Conversion of Class B Shares."
Shares of the Fund are available through PaineWebber and its correspondent
firms or, for shareholders who are not PaineWebber clients, through the
Transfer Agent. Investors may contact a local PaineWebber office to open an
account. The minimum initial investment for the Fund is $1,000, and the minimum
for additional purchases is $100. These minimums may be waived or reduced for
investments by employees of PaineWebber or its affiliates, certain pension
plans and retirement accounts and participants in the Fund's automatic
investment plan. Purchase orders will be priced at the net asset value per
share next determined (see "Valuation of Shares") after the order is received
by PaineWebber's New York City offices or by the Transfer Agent, plus any
applicable sales charge for Class A shares. The Fund and Mitchell Hutchins
reserve the right to reject any purchase order and to suspend the offering of
Fund shares for a period of time.
When placing purchase orders, investors should specify whether the order is for
Class A, Class B or Class D shares. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.
PURCHASES THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. Purchases through
PaineWebber investment executives orcorrespondent firms may be made in person
or by mail, telephone or wire; the minimum wire purchase is $1 million.
Investment executives and correspondent firms are responsible for transmitting
purchase orders to PaineWebber's New York City offices promptly. Investors may
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<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND
pay for purchases with checks drawn on U.S. banks or with funds held in
brokerage accounts at PaineWebber or its correspondent firms. Payment is due on
the fifth Business Day after the order is received at PaineWebber's New York
City offices. A "Business Day" is any day, Monday through Friday, on which the
New York Stock Exchange, Inc. ("NYSE") is open for business.
PURCHASES THROUGH THE TRANSFER AGENT. Investors who are not PaineWebber clients
may purchase shares of the Fund through the Transfer Agent. Shares of the Fund
may be purchased, and an account with the Fund established, by completing and
signing the purchase application at the end of this Prospectus and mailing it,
together with a check to cover the purchase, to the Transfer Agent: PFPC Inc.,
Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington, Delaware 19899.
Subsequent investments need not be accompanied by an application.
INITIAL SALES CHARGE--CLASS A SHARES. The public offering price of Class A
shares is the next determined net asset value, plus any applicable sales
charge, which will vary with the size of the purchase as shown in the following
table:
INITIAL SALES CHARGE SCHEDULE-- CLASS A SHARES
<TABLE>
<CAPTION>
SALES CHARGE
AS A DISCOUNT TO
PERCENTAGE OF SELECTED
---------------------------------------- DEALERS
NET AMOUNT AS A
INVESTED PERCENTAGE
OFFERING (NET ASSET OF OFFERING
AMOUNT OF PURCHASE PRICE VALUE) PRICE
------------------ -------- ---------- -----------
<S> <C> <C> <C>
Less than $ 50,000 4.50% 4.71% 4.25%
$50,000 to $ 99,999 4.00 4.17 3.75
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over(1) None None 1.00
</TABLE>
- -------
(1) Mitchell Hutchins pays compensation to PaineWebber out of its own
resources.
Mitchell Hutchins may at times agree to reallow a higher discount to
PaineWebber, as exclusive dealer for the Fund's shares, than those shown above.
To the extent PaineWebber or any dealer receives 90% or more of the sales
charge, it may be deemed an "underwriter" under the 1933 Act.
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares of the Fund are available
without a sales charge through exchanges for Class A shares of most other
PaineWebber mutual funds. See "Exchanges." In addition, Class A shares may be
purchased without a sales charge, and exchanges of any Class of shares made
without the $5.00 exchange fee, by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of any
PaineWebber funds, their spouses, parents and children and advisory clients of
Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the purchase is
made through a PaineWebber investment executive who formerly was employed as a
broker with another firm registered as a broker-dealer with the SEC, provided
(1) the purchaser was the investment executive's client at the competing
brokerage firm, (2) within 90 days of the purchase of Class A shares the
purchaser redeemed shares of one or more mutual funds for which that competing
firm or its affiliates was principal underwriter, provided the purchaser either
paid a sales charge to invest in those funds, paid a contingent deferred sales
charge upon redemption or held shares of those funds for the period required
not to pay the otherwise applicable contingent deferred sales charge and (3)
the total amount of shares of all PaineWebber funds purchased under this sales
charge waiver does not exceed the amount of the purchaser's redemption proceeds
from the competing firm's funds. To take advantage of this waiver, an investor
must provide satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment executives for
more information.
Certificate holders of unit investment trusts ("UITs") sponsored by PaineWebber
may acquire Class A shares of the Fund without regard to minimum investment
requirements and without sales charges by electing to have dividends and other
distributions from their UIT investment automatically invested in Class A
shares.
REDUCED SALES CHARGE PLANS--CLASS A SHARES. If an investor or eligible group of
related Fund investors purchases Class A shares of the Fund concurrently with
Class A shares of other PaineWebber mutual funds, the purchases may be combined
to take advantage of the reduced sales charge applicable to larger purchases.
In addition, the right of accumulation permits the Fund investor or eligible
group of related Fund investors to pay the lower sales charge applicable to
larger purchases by basing the sales charge on the dollar amount of Class A
shares currently being purchased, plus the net asset value of the investor's or
group's total existing Class A shareholdings in other PaineWebber mutual funds.
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PAINEWEBBER GROWTH AND INCOME FUND
An "eligible group of related Fund investors" includes an individual, the
individual's spouse, parents and children, the individual's individual
retirement account ("IRA"), certain companies controlled by the individual and
employee benefit plans of those companies, and trusts or Uniform Gifts to
Minors Act/Uniform Transfers to Minors Act accounts created by the individual
or eligible group of individuals for the benefit of the individual and/or the
individual's spouse, parents or children. The term also includes a group of
related employers and one or more qualified retirement plans of such employers.
For more information, an investor should consult the State-ment of Additional
Information or contact a PaineWebber investment executive or correspondent firm
or the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The public offering price of
the Class B shares of the Fund is the next determined net asset value, and no
initial sales charge is imposed. A contingent deferred sales charge, however,
is imposed upon certain redemptions of Class B shares.
Class B shares that are redeemed will not be subject to a contingent deferred
sales charge to the extent that the value of such shares represents (1) capital
appreciation of Fund assets, (2) reinvestment of dividends or capital gain
distributions or (3) shares redeemed more than six years after their purchase.
Otherwise, redemption of Class B shares of the Fund will be subject to a
contingent deferred sales charge. The amount of any applicable contingent
deferred sales charge will be calculated by multiplying the net asset value of
such shares at the time of redemption by the applicable percentage shown in the
table below:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
REDEMPTION NET ASSET VALUE
DURING AT REDEMPTION
---------- -----------------
<S> <C>
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
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The holding period of Class B
shares acquired through an exchange with another PaineWebber mutual fund will
be calculated from the date that the Class B shares were initially acquired in
one of the other PaineWebber funds, and Class B shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. This will result
in any contingent deferred sales charge being imposed at the lowest possible
rate. For federal income tax purposes, the amount of the contingent deferred
sales charge will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any contingent deferred sales
charge will be paid to Mitchell Hutchins.
SALES CHARGE WAIVERS--CLASS B SHARES. The contingent deferred sales charge will
be waived for exchanges, as described below, and for redemptions in connection
with the Fund's systematic withdrawal plan. In addition, the contingent
deferred sales charge will be waived for a total or partial redemption made
within one year of 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. The contingent deferred sales charge will also be waived in
connection with a lump-sum or other distribution in the case of an IRA, a self-
employed individual retirement plan (so-called "Keogh Plan") or a custodial
account under Section 403(b) of the Internal Revenue Code following attainment
of age 59 1/2; a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement plan; and a
redemption resulting from a tax-free return of an excess contribution to an
IRA.
Contingent deferred sales charge waivers will be granted subject to
confirmation (by PaineWebber in the case of shareholders who are PaineWebber
clients or by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
PURCHASE OF CLASS D SHARES. The public offering price of the Class D shares of
the Fund is the next determined net asset value. No initial or contingent
deferred sales charge is imposed.
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PAINEWEBBER GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Exchanges
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of the corresponding Class of
other PaineWebber and MH/KP mutual funds, or may be acquired through an
exchange of shares of the corresponding Class of those funds. No initial sales
charge is imposed on the shares being acquired, and no contingent deferred
sales charge is imposed on the shares being disposed of, through an exchange.
However, contingent deferred sales charges may apply to redemptions of Class B
shares of PaineWebber mutual funds acquired through an exchange. Class B shares
of MH/KP mutual funds differ from those of PaineWebber mutual funds. Class B
shares of MH/KP mutual funds are equivalent to Class D shares of PaineWebber
mutual funds. Thus, contingent deferred sales charges are not applicable to
redemptions of the Class B shares of MH/KP mutual funds. A $5.00 exchange fee
is charged for each exchange, and exchanges may be subject to minimum
investment requirements of the fund into which exchanges are made.
Exchanges are permitted among other PaineWebber and MH/KP mutual funds,
including:
Income Funds
. MH/KP ADJUSTABLE RATE GOVERNMENT FUND
. MH/KP GLOBAL FIXED INCOME FUND
. MH/KP GOVERNMENT INCOME FUND
. MH/KP INTERMEDIATE FIXED INCOME FUND
. PW GLOBAL INCOME FUND
. PW HIGH INCOME FUND
. PW INVESTMENT GRADE INCOME FUND
. PW SHORT-TERM U.S. GOVERNMENT INCOME FUND
. PW SHORT-TERM U.S. GOVERNMENT INCOME FUND FOR CREDIT UNIONS
. PW STRATEGIC INCOME FUND
. PW U.S. GOVERNMENT INCOME FUND
Tax-Free Income Funds
. MH/KP MUNICIPAL BOND FUND
. PW CALIFORNIA TAX-FREE INCOME FUND
. PW MUNICIPAL HIGH INCOME FUND
. PW NATIONAL TAX-FREE INCOME FUND
. PW NEW YORK TAX-FREE INCOME FUND
Growth Funds
. MH/KP EMERGING MARKETS EQUITY FUND
. MH/KP GLOBAL EQUITY FUND
. MH/KP SMALL CAP GROWTH FUND
. PW ATLAS GLOBAL GROWTH FUND
. PW BLUE CHIP GROWTH FUND
. PW CAPITAL APPRECIATION FUND
. PW COMMUNICATIONS & TECHNOLOGY GROWTH FUND
. PW EUROPE GROWTH FUND
. PW GROWTH FUND
. PW REGIONAL FINANCIAL GROWTH FUND
. PW SMALL CAP VALUE FUND
Growth and Income Funds
. MH/KP ASSET ALLOCATION FUND
. MH/KP EQUITY INCOME FUND
. PW ASSET ALLOCATION FUND
. PW GLOBAL ENERGY FUND
. PW GLOBAL GROWTH AND INCOME FUND
. PW UTILITY INCOME FUND
PW MONEY MARKET FUND
PaineWebber clients must place exchange orders through their PaineWebber
investment executives or correspondent firms unless the shares to be exchanged
are held in certificate form. Shareholders who are not PaineWebber clients or
who hold their shares in certificate form must place exchange orders in writing
with the Transfer
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<PAGE>
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PAINEWEBBER GROWTH AND INCOME FUND
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. All exchanges will be effected based on the relative net asset
values per share next determined after the exchange order is received at
PaineWebber's New York City offices or by the Transfer Agent. See "Valuation of
Shares." Shares of the Fund purchased through PaineWebber or its correspondent
firms may be exchanged only after the settlement date has passed and payment
for such shares has been made.
OTHER EXCHANGE INFORMATION. This exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice when such notice is
required by SEC rules. See the Statement of Additional Information for further
details. This exchange privilege is available only in those jurisdictions where
the sale of the PaineWebber and MH/KP fund shares to be acquired may be legally
made. Before making any exchange, shareholders should contact their PaineWebber
investment executives or correspondent firms or the Transfer Agent to obtain
more information and prospectuses of the PaineWebber and MH/KP funds to be
acquired through the exchange.
- --------------------------------------------------------------------------------
Redemptions
- --------------------------------------------------------------------------------
As described below, Fund shares may be redeemed at their net asset value
(subject to any applicable contingent deferred sales charge) and redemption
proceeds will be paid within seven days of the receipt of a redemption request.
PaineWebber clients may redeem non-certificated shares through PaineWebber or
its correspondent firms; all other shareholders must redeem through the
Transfer Agent. If a redeeming shareholder owns shares of more than one Class,
the shares will be redeemed in the following order unless the shareholder
specifically requests otherwise: Class D shares, then Class A shares, and
finally Class B shares.
REDEMPTION THROUGH PAINEWEBBER OR CORRESPONDENT FIRMS. PaineWebber clients may
submit redemption requests to their investment executives or correspondent
firms in person or by telephone, mail or wire. As the Fund's agent, PaineWebber
may honor a redemption request by repurchasing Fund shares from a redeeming
shareholder at the shares' net asset value next determined after receipt of the
request by PaineWebber's New York City offices. Within seven days, repurchase
proceeds (less any applicable contingent deferred sales charge) will be paid by
check or credited to the shareholder's brokerage account at the election of the
shareholder. PaineWebber investment executives and correspondent firms are
responsible for promptly forwarding redemption requests to PaineWebber's New
York City offices.
PaineWebber reserves the right not to honor any redemption request, in which
case PaineWebber promptly will forward the request to the Transfer Agent for
treatment as described below.
REDEMPTION THROUGH THE TRANSFER AGENT.
Fund shareholders who are not PaineWebber clients or who wish to redeem
certificated shares must redeem their shares through the Transfer Agent by
mail; other shareholders also may redeem Fund shares through the Transfer
Agent. Shareholders should mail redemption requests directly to the Transfer
Agent: PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wilmington,
Delaware 19899. A redemption request will be executed at the net asset value
next computed after it is received in "good order." "Good order" means that the
request must be accompanied by the following: (1) a letter of instruction or a
stock assignment specifying the number of shares or amount of investment to be
redeemed (or that all shares credited to the Fund account be redeemed), signed
by all registered owners of the shares in the exact names in which they are
registered, (2) a guarantee of the signature of each registered owner by an
eligible institution acceptable to the Transfer Agent and in accordance with
SEC rules, such as a commercial bank, trust company or member of a recognized
stock exchange, (3) other supporting legal documents for estates, trusts,
guardianships, custodianships, partnerships and corporations and (4) duly
endorsed share certificates, if any.
-------------
Prospectus Page 17
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Shareholders are responsible for ensuring that a request for redemption is
received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS. A shareholder who holds non-certificated
Fund shares may have redemption proceeds of $1 million or more wired to the
shareholder's PaineWebber brokerage account or a commercial bank account
designated by the shareholder. Questions about this option, or redemption
requirements generally, should be referred to the shareholder's PaineWebber
investment executive or correspondent firm, or to the Transfer Agent if the
shares are not held in a PaineWebber brokerage account. If a shareholder
requests redemption of shares which were purchased recently, the Fund may delay
payment until it is assured that good payment has been received. In the case of
purchases by check, this can take up to 15 days.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, it reserves the right to redeem all Fund shares in any shareholder
account of less than $500 net asset value. If the Fund elects to do so, it will
notify the shareholder and provide the shareholder the opportunity to increase
the amount invested to $500 or more within 60 days of the notice. The Fund will
not redeem accounts that fall below $500 solely as a result of a reduction in
net asset value per share.
Shareholders who have redeemed Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount redeemed by purchasing Class A
shares within 365 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their PaineWebber investment
executive or correspondent firm at the time the privilege is exercised.
- --------------------------------------------------------------------------------
Conversion of Class B Shares
- --------------------------------------------------------------------------------
A shareholder's Class B shares will automatically convert to Class A shares of
the Fund approximately six years after the date of issuance, together with a
pro rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares. The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes on the first Business Day of the month in which the
sixth anniversary of the issuance of the Class B shares occurs. See "Valuation
of Shares." If a shareholder effects one or more exchanges among Class B shares
of the PaineWebber mutual funds during the six-year period, the holding periods
for the shares so exchanged will be counted toward the six-year period.
- --------------------------------------------------------------------------------
Other Services and Information
- --------------------------------------------------------------------------------
Investors interested in the services described below should consult their
PaineWebber investment executives or correspondent firms or call the Transfer
Agent toll-free at 1-800-647-1568.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase shares of the Fund through
an automatic investment plan, under which an amount specified by the
shareholder of $50 or more each month will be sent to the Transfer Agent from
the shareholder's bank for investment in the Fund. In addition to providing a
convenient and disciplined manner of investing, participation in the automatic
investment plan enables the investor to use the technique of "dollar cost
averaging." When under the plan a shareholder invests the same dollar amount
each month, the shareholder will purchase more shares when the Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, a shareholder's average
-------------
Prospectus Page 18
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
purchase price per share over any given period will be lower than if the
shareholder purchased a fixed number of shares on a monthly basis during the
period.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own non-certificated Class A or
Class D shares of the Fund with a value of $5,000 or more or Class B shares of
the Fund with a value of $20,000 or more may have PaineWebber redeem a portion
of their shares monthly, quarterly or semi-annually under the systematic
withdrawal plan. No contingent deferred sales charge will be imposed on such
withdrawals for Class B shares. The minimum amount for all withdrawals of Class
A or Class D shares is $100, and minimum monthly, quarterly and semi-annual
withdrawal amounts for Class B shares are $200, $400 and $600, respectively.
Quarterly withdrawals are made in March, June, September and December, and
semi-annual withdrawals are made in June and December. A Class B shareholder of
the Fund may not withdraw an amount exceeding 12% annually of his or her
"Initial Account Balance," a term that means the value of the Fund account at
the time the shareholder elects to participate in the systematic withdrawal
plan. A Class B shareholder's participation in the systematic withdrawal plan
will terminate automatically if the Initial Account Balance (plus the net asset
value on the date of purchase of Fund shares acquired after the election to
participate in the systematic withdrawal plan), less aggregate redemptions made
other than pursuant to the systematic withdrawal plan, is less than $20,000.
Shareholders who receive dividends or other distributions in cash may not
participate in the systematic withdrawal plan. Purchases of additional shares
of the Fund concurrent with withdrawals are ordinarily disadvantageous to
shareholders because of tax liabilities and, for Class A shares, sales charges.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Fund may be purchased through
IRAs available through the Fund. In addition, a Self-Directed IRA is available
through PaineWebber under which investments may be made in the Fund as well as
in other investments available through PaineWebber. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS. If a shareholder holding shares of the Fund in a
PaineWebber brokerage account transfers his brokerage account to another firm,
the Fund shares will be transferred to an account with the Transfer Agent.
However, if the other firm has entered into a selected dealer agreement with
Mitchell Hutchins relating to the Fund, the shareholder may be able to hold
Fund shares in an account with the other firm.
- --------------------------------------------------------------------------------
Dividends and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS. The Fund pays dividends from net investment income semi-annually. The
Fund distributes annually substantially all of its net capital gain (the
excess of net long-term capital gain over net short-term capital loss) and net
short-term capital gain, if any. The Fund may make additional distributions if
necessary to avoid a 4% excise tax on certain undistributed income and capital
gain. Dividends and other distributions paid on each Class of shares of the
Fund are calculated at the same time and in the same manner. Dividends on Class
B and Class D shares of the Fund are expected to be lower than those for its
Class A shares because of the higher expenses resulting from distribution fees
borne by the Class B and Class D shares. Dividends on each Class also might be
affected differently by the allocation of other Class-specific expenses. See
"Valuation of Shares."
The Fund's dividends and capital gain distributions are paid in additional Fund
shares of the same Class at net asset value unless the shareholder has
requested cash payments. Shareholders who wish to receive dividends and/or
capital gain distributions in cash, either mailed to the shareholder by check
or credited to the shareholder's PaineWebber account, should contact their
PaineWebber investment executives or correspondent firms or complete the
appropriate section of the application form.
TAXES. The Fund intends to continue to qualify for treatment as a regulated
investment company
-------------
Prospectus Page 19
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
under the Internal Revenue Code so that it will be relieved of federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income and net short-term capital gain) and net capital gain
that is distributed to its shareholders.
Dividends paid by the Fund (whether in cash or in additional shares) generally
are taxable to shareholders as ordinary income. Distributions of the Fund's net
capital gain (whether paid in cash or in additional shares) are taxable to
shareholders as long-term capital gain, regardless of how long they have held
their Fund shares. Shareholders not subject to tax on their income generally
will not be required to pay tax on amounts distributed to them.
The Fund notifies its shareholders following the end of each calendar year of
the amounts of dividends and capital gain distributions paid (or deemed paid)
that year and of any portion of those dividends that qualifies for the
corporate dividends-received deduction.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gain distributions is also required for those shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds payable to the
shareholder are more or less than the shareholder's adjusted basis for the
redeemed shares (which normally includes any initial sales charge paid on Class
A shares). An exchange of Fund shares for shares of another PaineWebber or
MH/KP fund generally will have similar tax consequences. However, special tax
rules apply when a shareholder (1) disposes of Class A shares through a
redemption or exchange within 90 days of purchase and (2) subsequently acquires
Class A shares of a PaineWebber or MH/KP fund (including the Fund) without
paying a sales charge due to the 365-day reinstatement privilege or the
exchange privilege. In these cases, any gain on the disposition of the original
Class A shares would be increased, or loss decreased, by the amount of the
sales charge paid when those shares were acquired, and that amount will
increase the basis of the PaineWebber fund shares subsequently acquired. In
addition, if Fund shares are purchased within 30 days before or after redeeming
other Fund shares (regardless of Class) at a loss, all or a portion of that
loss will not be deductible and will increase the basis of the newly purchased
shares.
No gain or loss will be recognized to a shareholder as a result of a conversion
of Class B shares into Class A shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. There may be
other federal, state or local tax considerations applicable to a particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers.
- --------------------------------------------------------------------------------
Valuation of Shares
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined
separately for each Class as of the close of regular trading on the NYSE
(currently 4:00 p.m., eastern time) each Business Day. The Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund plus any cash or other assets minus all liabilities by the total
number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of the Trust's board of trustees. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the board of trustees determines that this does not represent
fair value.
-------------
Prospectus Page 20
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
The Trust's board of trustees, as part of its overall management
responsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, investment adviser and administrator of
the Fund, makes and implements all investment decisions and supervises all
aspects of the Fund's operations. Mitchell Hutchins receives a monthly fee for
these services at the annual rate of 0.70% of average daily net assets of the
Fund. Brokerage transactions for the Fund may be conducted through PaineWebber
or its affiliates in accordance with procedures adopted by the Trust's board of
trustees.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for certain services not provided by the Transfer
Agent. The Fund incurs other expenses and, for the fiscal year ended August 31,
1994, the Fund's total expenses for its Class A, Class B and Class D shares,
stated as a percentage of net assets, were 1.20%, 1.97% and 1.94%,
respectively.
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. It is a wholly owned subsidiary of PaineWebber, which is in turn wholly
owned by Paine Webber Group Inc., a publicly owned financial services holding
company. At March 31, 1995, Mitchell Hutchins was adviser or subadviser of 42
investment companies with 77 separate portfolios and aggregate assets of over
$26.8 billion.
Mark A. Tincher has been responsible for the day-to-day management of the Fund
since April 1995. Mr. Tincher is a Managing Director and Chief Investment
Officer of Equity Investments of Mitchell Hutchins responsible for overseeing
the management of domestic equity investments for Mitchell Hutchins. Prior to
joining Mitchell Hutchins in March 1995, Mr. Tincher worked for Chase Manhattan
Private Bank where he was Vice President and directed the U.S. Funds Management
and Equity Research area. At Chase since 1988, Mr. Tincher oversaw the
management of all Chase U.S. equity funds (the Vista Funds and Trust Investment
Funds).
Other members of Mitchell Hutchins' domestic equities and fixed income groups
provide input on market outlook, interest rate forecasts and other
considerations pertaining to domestic equity and fixed income investments.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of the Fund's
shares and has appointed PaineWebber as the exclusive dealer for the sale of
those shares. Under separate plans of distribution pertaining to the Class A
shares, the Class B shares and Class D shares ("Class A Plan," "Class B Plan"
and "Class D Plan," collectively, "Plans"), the Fund pays Mitchell Hutchins
monthly service fees at the annual rate of up to 0.25% of the average daily net
assets of each Class of shares and monthly distribution fees at the annual rate
of 0.75% of the average daily net assets of the Class B and Class D shares.
Under all three Plans, Mitchell Hutchins uses the service fees primarily to pay
PaineWebber for shareholder servicing, currently at the annual rate of up to
0.25% of the aggregate investment amounts maintained in the Fund by PaineWebber
clients. PaineWebber passes on a portion of these fees to its investment
executives to compensate them for shareholder servicing that they perform and
retains the remainder to offset its own expenses in servicing and maintaining
shareholder accounts. These expenses may include costs of the PaineWebber
branch office in which the investment executive is based, such as rent,
communications equipment, employee salaries and other overhead costs.
Mitchell Hutchins uses the distribution fees under the Class B and Class D
Plans to offset the commissions it pays to PaineWebber for selling the Fund's
Class B and Class D shares. PaineWebber passes on to its investment executives
a portion of these commissions and retains the remainder to offset its expenses
in selling Class B and Class D shares. These expenses may include the branch
office costs noted above. In addition, Mitchell Hutchins uses the distribution
fees under the Class B and Class D Plans to offset the Fund's marketing costs
attributable to such Classes, such as preparation of sales literature,
advertising and printing and
-------------
Prospectus Page 21
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
distributing prospectuses and other shareholder materials to prospective
investors. Mitchell Hutchins also may use the distribution fees to pay
additional compensation to PaineWebber and other costs allocated to Mitchell
Hutchins' and PaineWebber's distribution activities, including employee
salaries, bonuses and other overhead expenses.
Mitchell Hutchins expects that, from time to time, PaineWebber will pay
shareholder servicing fees and sales commissions to its investment executives
at the time of sale of Class D shares of the Fund. If PaineWebber makes such
payments, it will retain the service and distribution fees on Class D shares
until it has been reimbursed and thereafter will pass a portion of the service
and distribution fees on Class D shares on to its investment executives.
Mitchell Hutchins receives the proceeds of the initial sales charge paid upon
the purchase of Class A shares and the contingent deferred sales charge paid
upon certain redemptions of Class B shares, and may use these proceeds for any
of the distribution expenses described above. See "Purchases."
During the period they are in effect, the Plans and related distribution
contracts pertaining to each Class of shares ("Distribution Contracts")
obligate the Fund to pay service and distribution fees to Mitchell Hutchins as
compensation for its service and distribution activities, not as reimbursement
for specific expenses incurred. Thus, even if Mitchell Hutchins' expenses
exceed its service or distribution fees for the Fund, it will not be obligated
to pay more than those fees and, if Mitchell Hutchins' expenses are less than
such fees, it will retain its full fees and realize a profit. The Fund will pay
the service and distribution fees to Mitchell Hutchins until either the
applicable Plan or Distribution Contract is terminated or not renewed. In that
event, Mitchell Hutchins' expenses in excess of service and distribution fees
received or accrued through the termination date will be Mitchell Hutchins'
sole responsibility and not obligations of the Fund. In their annual
consideration of the continuation of the Plans, the trustees will review the
Plan and Mitchell Hutchins' corresponding expenses for each Class separately
from the Plans and corresponding expenses for the other two Classes.
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
The Fund performs a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized return. Standardized return for the Class
A shares of the Fund reflects deduction of the Fund's maximum initial sales
charge at the time of purchase, and standardized return for the Class B shares
of the Fund reflects deduction of the applicable contingent deferred sales
charge imposed on a redemption of shares held for the period. One-, five-and
ten-year periods will be shown, unless the Class has been in existence for a
shorter period. Total return calculations assume reinvestment of dividends and
other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were included.
The Fund will include performance data for all three Classes of Fund shares in
any advertisements or promotional materials including Fund performance data.
Total return information reflects past performance and does not necessarily
indicate future results. Investment return and principal values will fluctuate,
and proceeds upon redemption may be more or less than a shareholder's cost.
-------------
Prospectus Page 22
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
ORGANIZATION. PaineWebber America Fund is registered with the SEC as an open-
end management investment company and was organized as a business trust under
the laws of the Commonwealth of Massachusetts by Declaration of Trust dated
October 31, 1986. The trustees have authority to issue an unlimited number of
shares of beneficial interest of separate series, par value $.001 per share, of
the Trust.
The shares of beneficial interest of the Fund are divided into four Classes,
designated Class A shares, Class B shares, Class C shares and Class D shares.
Each Class represents interests in the same assets of the Fund. The Classes
differ as follows: (1) each Class of shares has exclusive voting rights on
matters pertaining to its plan of distribution, (2) Class A shares are subject
to an initial sales charge, (3) Class B shares bear ongoing distribution fees,
are subject to a contingent deferred sales charge upon certain redemptions and
will automatically convert to Class A shares approximately six years after
issuance, (4) Class D shares are subject to neither an initial nor a contingent
deferred sales charge, bear ongoing distribution fees and do not convert into
another Class, (5) Class C shares, which may be offered only to a limited class
of institutional investors, are subject to neither an initial or contingent
deferred sales charge nor ongoing service or distribution fees, and (6) each
Class may bear differing amounts of certain Class-specific expenses. The board
of trustees of the Trust does not anticipate that there will be any conflicts
among the interests of the holders of each Class of Fund shares. On an ongoing
basis, the board of trustees will consider whether any such conflict exists
and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees of the Trust holding office have been elected by shareholders.
Shareholders of record holding at least two-thirds of the outstanding shares of
the Trust may remove a trustee by votes cast in person or by proxy at a meeting
called for that purpose. The trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when so requested in writing by the shareholders of record holding at
least 10% of the Trust's outstanding shares. Each share of the Fund has equal
voting rights, except as noted above. Each share of the Fund is entitled to
participate equally in dividends and other distributions and the proceeds of
any liquidation, except that, due to the differing expenses borne by the four
classes, these dividends and proceeds for the Class B and Class D shares are
likely to be lower than for the Class A shares and are likely to be lower for
the Class A, Class B and Class D shares than for Class C shares.
To avoid additional operating costs and for investor convenience, the Fund does
not issue share certificates. Ownership of shares of the Fund is recorded on a
stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heritage
Drive, North Quincy, Massachusetts 02171, is custodian for the Fund. PFPC Inc.,
a subsidiary of PNC Bank, National Association, whose principal address is 400
Bellevue Parkway, Wilmington, Delaware 19809, is the Fund's transfer and
dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS. Shareholders receive confirmations of purchases
and redemptions of shares of the Fund. PaineWebber clients receive statements
at least quarterly that report their Fund activity and consolidated year-end
statements that show all Fund transactions for that year. Shareholders who are
not PaineWebber clients receive quarterly statements from the Transfer Agent.
Shareholders also receive audited annual and unaudited semi-annual financial
statements of the Fund.
-------------
Prospectus Page 23
<PAGE>
------------------------------
PAINEWEBBER GROWTH AND INCOME FUND
Appendix
- --------------------------------------------------------------------------------
The Fund may use the hedging instruments described below:
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. The writer of the call option, who receives
the premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying security against payment of the exercise price.
A put option is a similar contract that gives its purchaser, in return for a
premium, the right to sell the underlying security at a specified price during
the option term. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option during the option term, to buy the
underlying security at the exercise price.
OPTIONS ON STOCK INDEXES--A stock index assigns relative values to the stocks
included in the index and fluctuates with changes in the market values of those
stocks. A stock index option operates in the same way as a more traditional
stock option, except that exercise of a stock index option is effected with
cash payment and does not involve delivery of securities. Thus, upon exercise
of a stock 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 stock index.
STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock 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 stocks 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.
-------------
Prospectus Page 24
<PAGE>
Application Form
THE PAINEWEBBER [_][_] - [_][_][_][_][_][_] - [_][_]
MUTUAL FUNDS PaineWebber Account No.
- --------------------------------------------------------------------------------
INSTRUCTIONS DO NOT USE THIS FORM IF YOU WOULD LIKE YOUR ACCOUNT SERVICED
THROUGH PAINEWEBBER. INSTEAD, CALL YOUR PAINEWEBBER INVESTMENT
EXECUTIVE (OR YOUR LOCAL PAINEWEBBER OFFICE TO OPEN AN ACCOUNT).
Return this completed
ALSO, DO NOT USE THIS FORM TO OPEN A form to: PFPC Inc. P.O.
RETIREMENT PLAN ACCOUNT. FOR Box 8950 Wilmington,
RETIREMENT PLAN FORMS OR FOR Delaware 19899 ATTN:
ASSISTANCE IN COMPLETING THIS FORM PaineWebber Mutual Funds
CONTACT PFPC INC. AT 1-800-647-1568.
PLEASE PRINT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
--------------------------------------------------------------------------
[1] INITIAL INVESTMENT ($1,000 MINIMUM)
--------------------------------------------------------------------------
ENCLOSED IS A CHECK FOR:
$____(payable to PaineWebber Growth and Income Fund) to purchase Class A [_]
Class B [_] or Class D [_] shares
(Check one Class; if no Class is specified Class A shares will be purchased)
--------------------------------------------------------------------------
[2] ACCOUNT REGISTRATION
--------------------------------------------------------------------------
Not valid without signature and
Soc. Sec. or Tax ID # 1. Individual / /
- --As joint tenants, use ----------- --------------- --------------
Lines 1 and 2 First Name Last Name MI Soc. Sec. No.
- --As custodian for a minor,
use Lines 1 and 3
- --In the name of a 2. Joint Tenancy / /
corporation, trust or other --------- --------------- --------------
organization or any First Name Last Name MI Soc. Sec. No.
fiduciary capacity, use ("Joint Tenants with Rights of Survivorship" unless
Line 4 otherwise specified)
3. Gifts to Minors / /
------------------------- --------------
Minor's Name Soc. Sec. No.
Under the Uniform Gifts to Uniform Transfers
--------------------------- Minors Act /to Minors Act
State of Residence of Minor
4. Other Registrations
---------------------- --------------
Name Tax Ident. No.
5. If Trust, Date of Trust Instrument:
-------
--------------------------------------------------------------------------
[3] ADDRESS
--------------------------------------------------------------------------
---------------------------- U.S. Citizen [_] YES [_] NO*
Street
----------------------------------------- -----------------------
City State Zip Code *Country of Citizenship
--------------------------------------------------------------------------
[4] DISTRIBUTION OPTIONS See Prospectus
--------------------------------------------------------------------------
Please select one of the following:
[_] Reinvest both dividends and capital gain distributions in additional shares
[_] Pay dividends to my address above; reinvest capital gain distributions
[_] Pay both dividends and capital gain distributions in cash to my address above
[_] Reinvest dividends and pay capital gain distributions in cash to my address above
--------------------------------------------------------------------------
[5] SPECIAL OPTIONS (For More Information--Check Appropriate Box)
--------------------------------------------------------------------------
[_] Automatic Investment Plan [_] Prototype IRA Application [_] Systematic Withdrawal Plan
NOTE: If a selection is not made, both dividends and capital gain distributions will be
paid in additional Fund shares of the same Class.
</TABLE>
<PAGE>
---------------------------------------------------------
[6] RIGHTS OF ACCUMULATION--CLASS A SHARES (See Prospectus)
---------------------------------------------------------
Indicate here any other account(s) in
the group of funds that would qualify
for the cumulative quantity discount as
outlined in the Prospectus.
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
--------------------- ----------- ---------------------
Fund Name Account No. Registered Owner
---------------------------------------------------------
[7] PLEASE INDICATE BELOW IF YOU ARE AFFILIATED WITH PAINEWEBBER
---------------------------------------------------------
"Affiliated" persons are defined as officers,
directors/trustees and employees of the PaineWebber funds,
PaineWebber or its affiliates, and their parents, spouses and
children.
-----------------------------------------------
Nature of Relationship
---------------------------------------------------------
[8] SIGNATURE (S) AND TAX CERTIFICATION (S)
---------------------------------------------------------
I warrant that I have full authority and am of legal age to
purchase shares of the Fund and have received and read a
current Prospectus of the Fund and agree to its terms. The Fund
and its Transfer Agent will not be liable for acting upon
instructions or inquiries believed genuine. Under penalties of
perjury, I certify that (1) my taxpayer identification number
provided in this application is correct and (2) I am not
subject to backup withholding because (i) I have not been
notified that I am subject to backup withholding as a result of
failure to report interest or dividends or (ii) the IRS has
notified me that I am no longer subject to backup withholding
(strike out clause (2) if incorrect).
---------------------- ---------------------- -------
Individual (or Custodian) Joint Registrant (if any)Date
---------------------- ---------------------- -------
Corporate Officer, Title Date
Partner, Trustee, etc.
---------------------------------------------------------
[9] INVESTMENT EXECUTIVE IDENTIFICATION (To Be Completed By
Investment Executive Only)
---------------------------------------------------------
-------------------------- --------------------------
Broker No./Name Branch Wire Code
( )
-------------------------- --------------------------
Branch Address Telephone
---------------------------------------------------------
[10] CORRESPONDENT FIRM IDENTIFICATION (To Be Completed By
Correspondent Firm Only)
---------------------------------------------------------
-------------------------- --------------------------
Name Address
--------------------------
MAIL COMPLETED FORM TO YOUR PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM OR TO: PFPC INC., P.O. BOX 8950, WILMINGTON,
DELAWARE 19899.
<PAGE>
Shares of the Fund can be exchanged for shares of the following other
PaineWebber and Mitchell Hutchins/Kidder Peabody mutual funds:
INCOME FUNDS
. MH/KP Adjustable Rate Government Fund
. MH/KP Global Fixed Income Fund
. MH/KP Government Income Fund
. MH/KP Intermediate Fixed Income Fund
. PW Global Income Fund
. PW High Income Fund
. PW Investment Grade Income Fund
. PW Short-Term U.S. Government Income Fund
. PW Short-Term U.S. Government Income Fund for Credit Unions
. PW Strategic Income Fund
. PW U.S. Government Income Fund
TAX-FREE INCOME FUNDS
. MH/KP Municipal Bond Fund
. PW California Tax-Free Income Fund
. PW Municipal High Income Fund
. PW National Tax-Free Income Fund
. PW New York Tax-Free Income Fund
GROWTH FUNDS
. MH/KP Emerging Markets Equity Fund
. MH/KP Global Equity Fund
. MH/KP Small Cap Growth Fund
. PW Atlas Global Growth Fund
. PW Blue Chip Growth Fund
. PW Capital Appreciation Fund
. PW Communications & Technology Growth Fund
. PW Europe Growth Fund
. PW Growth Fund
. PW Regional Financial Growth Fund
. PW Small Cap Value Fund
GROWTH AND INCOME FUNDS
. MH/KP Asset Allocation Fund
. MH/KP Equity Income Fund
. PW Asset Allocation Fund
. PW Dividend Growth Fund
. PW Global Energy Fund
. PW Global Growth and Income Fund
. PW Utility Income Fund
PW MONEY MARKET FUND
---------------
A prospectus containing more complete information for any of the above funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Read it carefully before investing.
(C) 1995 PaineWebber Incorporated
[RECYCLED PAPER LOGO APPEARS HERE]
PaineWebber
Growth and Income
Fund
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
PROSPECTUS
May , 1995
<PAGE>
PAINEWEBBER GROWTH AND INCOME FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Growth and Income Fund ("Fund") is a diversified series of
PaineWebber America Fund ("Trust"), a professionally managed, open-end
investment company organized as a Massachusetts business trust. The Fund seeks
to provide current income and capital growth; it invests primarily in dividend-
paying equity securities believed by Mitchell Hutchins to have the potential
for rapid earnings growth; stocks are selected through a disciplined
methodology that utilizes quantitative measures of value, earnings and price
momentum, as well as fundamental analysis. The Fund's investment adviser,
administrator and distributor is Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"). As distributor for the Fund, Mitchell Hutchins has appointed
PaineWebber to serve as the exclusive dealer for the sale of Fund shares. This
Statement of Additional Information is not a prospectus and should be read only
in conjunction with the Fund's current Prospectus, dated May , 1995. A copy of
the Prospectus may be obtained by calling any PaineWebber investment executive
or correspondent firm or by calling toll-free 1-800-647-1568. This Statement of
Additional Information is dated May , 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of debt obligations. A description of the ratings
assigned to corporate debt obligations by Moody's and S&P is included in the
Appendix to this Statement of Additional Information. The Fund may use these
ratings in determining whether to purchase, sell or hold a security. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. To the extent that the
Fund invests in U.S. dollar-denominated securities of foreign issuers, these
securities may not be registered with the Securities and Exchange Commission
("SEC") nor may the issuers thereof be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning
U.S. companies. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements comparable to those applicable to U.S. companies.
The Fund may invest in foreign securities by purchasing American Depository
Receipts ("ADRs"). Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed
<PAGE>
for use in the U.S. securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
For purposes of the Fund's investment policies, ADRs are deemed to have the
same classification as the underlying securities they represent. Thus, an ADR
representing ownership of common stock will be treated as common stock.
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject.
CONVERTIBLE SECURITIES. A convertible security entitles the holder to receive
interest paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to non-
convertible debt securities in that they ordinarily provide a stable stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable non-
convertible securities.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. The value of a convertible security is a
function of its "investment value" (determined by its yield comparison with the
yields of other securities of comparable maturity and quality that do not have
a conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value, and generally the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price
of the convertible security will be increasingly influenced by its conversion
value. In addition, a convertible security generally will sell at a premium
over its conversion value determined by the extent to which investors place
value on the right to acquire the underlying common stock while holding a fixed
income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven
2
<PAGE>
days in the ordinary course of business at approximately the amount at which
the Fund has valued the securities and includes, among other things, purchased
over-the-counter ("OTC") options, repurchase agreements maturing in more than
seven days and restricted securities other than those Mitchell Hutchins has
determined are liquid pursuant to guidelines established by the Trust's board
of trustees. The assets used as cover for OTC options written by the Fund will
be considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Illiquid restricted securities may be sold
only in privately negotiated transactions or in public offerings with respect
to which a registration statement is in effect under the Securities Act of 1933
("1933 Act"). Where registration is required, the Fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible restricted
securities held by the Fund, however, could affect adversely the marketability
of such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at favorable prices.
The Trust's board of trustees has delegated the function of making day-to-day
determinations of liquidity to Mitchell Hutchins, pursuant to guidelines
approved by the board. Mitchell Hutchins takes into account a number of factors
in reaching liquidity decisions, including (1) the frequency of trades for the
security, (2) the number of dealers that make quotes for the security, (3) the
number of dealers that have undertaken to make a market in the security, (4)
the number of other potential purchasers and (5) the nature of the security and
how trading is effected (e.g., the time needed to sell the security, how offers
are solicited and the mechanics of transfer). Mitchell Hutchins monitors the
liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board.
3
<PAGE>
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. The Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by the
Fund upon acquisition is accrued as interest and included in its net investment
income. Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the other party
to a repurchase agreement becomes insolvent.
The Fund intends to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by the Trust's board of
trustees. Mitchell Hutchins reviews and monitors the creditworthiness of those
institutions under the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of its total assets. Such agreements involve the sale of
securities held by the Fund subject to its agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary purposes. While a reverse repurchase agreement is
outstanding, the Fund's custodian segregates assets to cover the Fund's
obligations under the reverse repurchase agreement. See "Investment Policies
and Restrictions--Segregated Accounts."
LENDING OF PORTFOLIO SECURITIES. Although the Fund has no intention of doing
so during the coming year, it is authorized to lend up to 10% of the total
value of its portfolio securities to broker-dealers or institutional investors
that Mitchell Hutchins deems qualified, but only when the borrower maintains
with the Fund's custodian bank collateral either in cash or money market
instruments in an amount, marked to market daily, at least equal to the market
value of the securities loaned, plus accrued interest and dividends. In
determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to terminate
any loans at any time. The Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or money market instruments held as collateral to the
borrower or placing broker. The Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.
4
<PAGE>
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions to make
future payments to third parties, including reverse repurchase agreements, it
will maintain with an approved custodian in a segregated account cash, U.S.
government securities or other liquid high-grade debt securities, marked to
market daily, in an amount at least equal to the Fund's obligation or
commitment under such transactions. As described below under "Hedging
Strategies," segregated accounts may also be required in connection with
certain transactions involving options and futures contracts.
INVESTMENT LIMITATIONS OF THE FUND
The Fund may not (1) purchase any securities other than those its investment
objective permits it to purchase; (2) purchase securities of any one issuer
(except U.S. government securities) if as a result more than 5% of the Fund's
total assets would be invested in such issuer or the Fund would own or hold
more than 10% of the outstanding voting securities of that issuer, provided,
however, that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations; (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
options, futures contracts and options on futures contracts; (4) underwrite
securities of other issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an underwriter
under the federal securities laws; (5) make short sales of securities or
maintain a short position, except that the Fund may (a) make short sales and
may maintain short positions in connection with its use of options, futures
contracts and options on futures contracts and (b) sell short "against the
box"; (6) purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein; (7) purchase or sell
commodities or commodity contracts, except that the Fund may purchase or sell
stock index futures, interest rate futures and options thereon; (8) invest in
oil, gas or mineral-related programs or leases; (9) make loans, except through
loans of portfolio securities as described herein and except through repurchase
agreements; provided that for purposes of this restriction the acquisition of
bonds, debentures, or other corporate debt securities and investment in
government obligations, short-term commercial paper, certificates of deposit
and bankers' acceptances shall not be deemed to be the making of loans; (10)
purchase any securities issued by any other investment company, except in
connection with the merger, consolidation or acquisition of all the securities
or assets of such an issuer; (11) issue senior securities or borrow money,
except from banks for temporary purposes and except for reverse repurchase
agreements, and then in an aggregate amount not in excess of 10% of the Fund's
total assets; provided further that the Fund will not purchase securities while
borrowings in excess of 5% of the Fund's total assets are outstanding; or (12)
make an investment in any one industry if the investment would cause the
aggregate value of the Fund's investments in such industry to exceed 25% of the
Fund's total assets.
The foregoing fundamental investment limitations cannot be changed 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 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, a later increase or decrease in
percentage resulting from a change in values of portfolio securities or amount
of total assets will not be considered a violation of any of the foregoing
limitations.
5
<PAGE>
The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: the Fund may not (1) purchase or retain
the securities of any issuer if, to the knowledge of the Fund's management, the
officers and trustees of the Trust and the officers and directors of Mitchell
Hutchins (each owning beneficially more than 0.5% of the outstanding securities
of an issuer) own in the aggregate more than 5% of the securities of the
issuer; (2) purchase any security if as a result more than 5% of its total
assets would be invested in securities of companies that together with any
predecessors have been in continuous operation for less than three years; (3)
invest more than 10% of its net assets in illiquid securities, a term which
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which it has valued the
securities and includes, among other things, repurchase agreements maturing in
more than seven days; (4) make investments in warrants if such investments,
valued at the lower of cost or market, exceed 5% of the value of its net
assets, which amount may include warrants that are not listed on the New York
Stock Exchange, Inc ("NYSE") or the American Stock Exchange, Inc., provided
that such unlisted warrants, valued at the lower of cost or market, do not
exceed 2% of its net assets, and further provided that this restriction does
not apply to warrants attached to, or sold as a unit with, other securities.
For purposes of this restriction, the term "warrants" does not include options
on securities, stock or bond indices or futures contracts; or (5) invest more
than 35% of its total assets in debt securities rated Ba or lower by Moody's or
BB or lower by S&P, comparably rated by another NRSRO or determined by Mitchell
Hutchins to be of comparable quality. This non-fundamental policy (5) can be
changed only upon 30 days' advance notice to shareholders. The Fund will
continue to interpret fundamental investment limitation (6) to prohibit
investment in real estate limited partnerships.
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins may use a variety of financial instruments ("Hedging
Instruments"), including certain options, futures contracts (sometimes referred
to as "futures") and options on futures contracts to attempt to hedge the
Fund's portfolio. The particular Hedging Instruments are described in the
Appendix to the Prospectus.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
to partially or fully offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Hedging Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged. For example,
the Fund might purchase a put option on a security to hedge against a potential
decline in the value of that security. If the price of the security declined
below the exercise price of the put, the Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transactions
costs. In the alternative, because the value of the put option can be expected
to increase as the value of the underlying security declines, the Fund might be
able to close out the put option and realize a gain to offset the decline in
the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Hedging Instrument whose
6
<PAGE>
price is expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, the Fund could exercise the call and thus limit its
acquisition cost to the exercise price plus the premium paid and transactions
costs. Alternatively, the Fund might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which the Fund has invested or expects to invest. Hedging
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, the Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with options, futures contracts and other hedging techniques. These
new opportunities may become available as Mitchell Hutchins develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts or other techniques are
developed. Mitchell Hutchins may utilize these opportunities to the extent that
they are consistent with the Fund's investment objective and permitted by the
Fund's investment limitations and applicable regulatory authorities. The Fund's
Prospectus or Statement of Additional Information will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the ability of
Mitchell Hutchins to predict movements of the overall securities and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. While Mitchell Hutchins is experienced in the
use of Hedging Instruments, there can be no assurance that any particular
hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded.
7
<PAGE>
The effectiveness of hedges using Hedging Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged. Because the Fund invests primarily in
common stocks of issuers meeting the specific criteria described in the
Prospectus, there might be a significant lack of correlation between the
portfolio and the stock indices underlying any such Hedging Instruments used by
the Fund.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because Mitchell Hutchins projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If the Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
positions expired or matured. These requirements might impair the Fund's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to close out a
position in a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of a contra party to enter into a transaction closing
out the position. Therefore, there is no assurance that any hedging position
can be closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. The Fund will not use Hedging Instruments for
speculative purposes or for purposes of leverage. Transactions using Hedging
Instruments, other than purchased options, expose the Fund to an obligation to
another party. The Fund will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities, other options
or futures contracts or (2) cash and short-term liquid debt securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so
require, set aside cash, U.S. government securities or other liquid, high-grade
debt 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 Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell) covered
put or call options, on equity and debt securities and stock indices. The
purchase of call options serves as a
8
<PAGE>
long hedge, and the purchase of put options serves as a short hedge. Writing
covered call options serves as a limited short hedge, because declines in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security appreciates to a
price higher than the exercise price of the call option, it can be expected
that the option will be exercised and the Fund will be obligated to sell the
security at less than its market value. Writing covered put options serves as a
limited long hedge because increases in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security depreciates to a price lower than the exercise price
of the put option, it can be expected that the put option will be exercised and
the Fund will be obligated to purchase the security at more than its market
value. If the covered option is an OTC option, the securities or other assets
used as cover would be considered illiquid to the extent described under
"Investment Policies 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. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize
profits or limit losses on an option position prior to its exercise or
expiration.
The Fund may purchase and write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities exist but are relatively new, and these
instruments are primarily traded on the OTC market. Exchange-traded options in
the United States are issued by a clearing organization affiliated with the
exchange on which the option is listed which, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between the Fund and its contra party (usually a securities dealer or
a bank) with no clearing organization guarantee. Thus, when the Fund purchases
or writes an OTC option, it relies on the contra party to make or take delivery
of the underlying investment upon exercise of the option. Failure by the contra
party to do so would result in the loss of any premium paid by the Fund as well
as the loss of any expected benefit of the transaction. The Fund will enter
into OTC option transactions only with contra parties that have a net worth of
at least $20 million.
Generally, the OTC debt options used by the Fund are European style options.
This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no
9
<PAGE>
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
contra party, or by a transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options only with contra parties
that are expected to be capable of entering into closing transactions with the
Fund, there is no assurance that the Fund will in fact be able to close out an
OTC option position at a favorable price prior to expiration. In the event of
insolvency of the contra party, the Fund might be unable to close out an OTC
option position at any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or
call option written by the Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.
LIMITATIONS ON THE USE OF OPTIONS. The Fund's use of options is governed by
the following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
(1) The Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums on
all other options held by the Fund, does not exceed 5% of the Fund's total
assets.
(2) The aggregate value of securities underlying put options written by the
Fund, determined as of the date the put options are written, will not exceed
50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities and stock or bond indices and options on futures contracts)
purchased by the Fund that are held at any time will not exceed 20% of the
Fund's net assets.
FUTURES. The Fund may purchase and sell stock index futures contracts and
interest rate futures contracts. The Fund may also purchase put and call
options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve as
a long hedge, and the sale of futures or the purchase of put options thereon
can serve as a short hedge. Writing covered call options on futures contracts
can serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using strategies similar to those
used for writing covered options on securities or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, "initial margin" consisting of cash, U.S. government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin on
futures contracts does not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
10
<PAGE>
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call option thereon, it is subject to
daily variation margin calls that could be substantial in the event of adverse
price movements. If the Fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The Fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist for a particular contract at
a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES. The Fund's use of futures is governed by
the following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
(1) To the extent the Fund enters into futures contracts, options on futures
positions that are not for bona fide hedging purposes (as defined by the CFTC),
the aggregate initial margin and
11
<PAGE>
premiums on those positions (excluding the amount by which options are "in-the-
money") may not exceed 5% of the Fund's net assets.
(2) The aggregate premiums paid on all options (including options on
securities and stock or bond indices and options on futures contracts)
purchased by the Fund that are held at any time will not exceed 20% of the
Fund's net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of the Fund's total
assets.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of Paine
Jr.**; 68 Chairman of the Webber Group Inc. ("PW Group")
Board of Trustees (holding company of PaineWebber
and Mitchell Hutchins) and 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
also a director of Interstate
Bakeries Corporation and a
director or trustee of 26 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Insti-
tute of Technology. Dean Feldberg
is also a director of AMSCO In-
ternational Inc., Federated De-
partment Stores, Inc., Inco Homes
Corporation and New World Commu-
nications Group Incorporated and
a director or trustee of 18 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------- --------------------
<S> <C> <C>
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was
a partner in the law firm of Fry-
er, Ross & Gowen. Mr. Gowen is
also a director of Columbia Real
Estate Investments, Inc. and a
director or trustee of 16 other
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment
Suite 300 bank) and a co-chairman and di-
Washington, D.C. 20005 rector of CB Commercial Group
Inc. (real estate). From January
1992 to November 1992, 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 North-
west Airlines Inc., NWA Inc.
(holding company of Northwest
Airlines Inc.) and Wings Holdings
Inc. (holding company of NWA
Inc.). Prior to 1989, he was em-
ployed by the Marriott Corpora-
tion (hotels, restaurants, air-
line catering and contract feed-
ing), where he most recently was
an executive vice president and
president of Marriott Hotels and
Resorts. Mr. Malek is also a di-
rector of American Management
Systems, Inc., Automatic Data
Processing, Inc., Avis, Inc., FPL
Group, Inc., ICF International,
Manor Care, Inc. and National Ed-
ucation Corporation and a direc-
tor or trustee of 16 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------- --------------------
<S> <C> <C>
Frank P. L. Minard**; 49 Trustee Mr. Minard is chairman and a di-
rector of Mitchell Hutchins,
chairman of the board of Mitchell
Hutchins Institutional Investors
Inc. and a director of
PaineWebber. Prior to 1993, Mr.
Minard was managing director of
Oppenheimer Capital in New York
and Director of Oppenheimer Capi-
tal Ltd. in London. Mr. Minard is
also a director or trustee of 30
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Judith Davidson Moyers; Trustee Mrs. Moyers is president of Public
59 Affairs Television, Inc., an edu-
Public Affairs cational consultant and a home
Television economist. Mrs. Moyers is also a
356 W. 58th Street director of Columbia Real Estate
New York, New York 10019 Investments, Inc. and Ogden Cor-
poration and a director or
trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Thomas F. Murray; 89 Trustee Mr. Murray is a real estate and
400 Park Avenue financial consultant. Mr. Murray
New York, New York 10022 is also a director and chairman
of American Continental Proper-
ties, Inc., a trustee of Pruden-
tial Realty Trust and a director
or trustee of 16 other investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------- --------------------
<S> <C> <C>
Margo N. Alexander; 48 President Ms. Alexander is president, chief
executive officer and a director
of Mitchell Hutchins. Prior to
January 1995, Ms. Alexander was
an executive vice president of
PaineWebber. Ms. Alexander is
also president of 26 other in-
vestment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice presi-
dent and manager--advisory admin-
istration of Mitchell Hutchins.
Prior to November 1993, she was
compliance manager of Hyperion
Capital Management, Inc., an in-
vestment advisory firm. Prior to
April 1993, Ms. Boyle was a vice
president and manager--legal ad-
ministration of Mitchell
Hutchins. Ms. Boyle is also a
vice president of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and
Assistant Secretary attorney of Mitchell Hutchins.
Prior to December 1993, she was
an associate at the law firm of
Seward & Kissel. Ms. Cohen is
also a vice president and assis-
tant secretary of 26 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic eq-
uity strategist and a managing
director of Mitchell Hutchins.
Ms. Harris is also a vice presi-
dent of 19 other investment com-
panies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------- --------------------
<S> <C> <C>
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is
also a vice president and assis-
tant treasurer of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice
Secretary president and senior associate
general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a
vice president and secretary of
39 other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing direc-
43 tor and general counsel of Mitch-
ell Hutchins. From April 1990 to
May 1994, she was a partner in
the law firm of Arnold & Porter.
Prior to April 1990, she was a
partner in the law firm of
Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a
vice president of 39 other in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president
Assistant Treasurer of Mitchell Hutchins. From August
1992 to August 1994, he was a
vice president at BlackRock Fi-
nancial Management, L.P. Prior to
August 1992, he was an audit man-
ager with Ernst & Young LLP. Mr.
Schubert is also a vice president
and assistant treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ------------- --------------------
<S> <C> <C>
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of
Assistant Treasurer Mitchell Hutchins. From September
1991 to April 1992, she was a
fund-raising director for a U.S.
Senate campaign. Prior to Septem-
ber 1991, she was a tax manager
with Arthur Andersen & Co. Ms.
Slezak is also a vice president
and assistant treasurer of 39
other investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice
Treasurer president and the director of the
mutual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager
with Ernst & Young LLP. Mr.
Sluyters is also a vice president
and treasurer of 39 other invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to 1993,
he was a partner in the law firm
of Shereff, Friedman, Hoffman &
Goodman. Mr. Todd is also a vice
president and assistant secretary
of 39 other investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of the Trust as
defined in the Investment Company Act of 1940 ("1940 Act") by virtue of their
positions with PW Group, PaineWebber and/or Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust $1,500
annually and $250 per meeting of the board or any committee thereof. Trustees
also are reimbursed for any expenses incurred in attending meetings. Trustees
and officers of the Trust own in the aggregate less than 1% of the shares of
the Fund. Because Mitchell Hutchins and PaineWebber perform substantially all
of the services necessary for the operation of the Trust and, 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.
17
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
AGGREGATE ACCRUED AS ESTIMATED TRUST AND THE
COMPENSATION PART OF A ANNUAL FUND COMPLEX
FROM FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION THE TRUST* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.,
Trustee and chairman of
the board of trustees..... -- -- -- --
Meyer Feldberg,
Trustee................... $2,750 -- -- $86,050
George W. Gowen,
Trustee................... 2,750 -- -- 71,425
Frederic V. Malek,
Trustee................... 3,000 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 2,750 -- -- 71,125
Thomas F. Murray,
Trustee................... 2,750 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended August 31,
1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to a contract with the Trust
dated March 1, 1989 ("Advisory Contract"). Under the Advisory Contract, the
Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate of 0.70% of the Fund's daily net assets.
For the fiscal years ended August 31, 1994, August 31, 1993 and August 31,
1992, the Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administration fees of $4,892,163, $6,413,944 and $3,852,408, respectively.
On May 19, 1994, Mitchell Hutchins entered into a sub-advisory contract with
its wholly-owned subsidiary, Mitchell Hutchins Institutional Investors Inc.
("MHII"), in order to enable the Fund to utilize the services of Mr. Gyandera
(Joe) Joshi, MHII's Managing Director of Equity Investments, as portfolio
manager. In February, 1995, Mr. Joshi became an officer and employee of
Mitchell Hutchins, and therefore, the sub-advisory contract with MHII was
terminated. Under the sub-advisory contract, MHII determined what securities
would be purchased, sold or held by the Fund, and Mitchell Hutchins (not the
Fund) paid MHII a fee in the annual amount of 0.25% of the Fund's average daily
net assets. During the period from May 19, 1994 to August 31, 1994, Mitchell
Hutchins paid or accrued to MHII sub-advisory fees of $405,821.
18
<PAGE>
Under a service agreement with the Trust pursuant to which PaineWebber
provides certain services to the Fund not otherwise provided by the Fund's
transfer agent, which agreement is reviewed by the Trust's board of trustees
annually, during the fiscal years ended August 31, 1994, August 31, 1993 and
August 31, 1992, the Fund paid (or accrued) to PaineWebber service fees of
$303,496, $355,724 and $224,546, respectively.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees and officers who are not interested
persons (as defined in the 1940 Act) of the Fund 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, uncollectable items of deposit and other
insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Trust or
Fund for violation of any law; (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees; (11)
charges of custodians, transfer agents and other agents; (12) costs of
preparing share certificates; (13) expenses of setting in type and printing
prospectuses, statements of additional information and supplements thereto,
reports and proxy materials for existing shareholders, and costs of mailing
such materials to shareholders; (14) any extraordinary expenses (including fees
and disbursements of counsel) incurred by the Fund; (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof;
(17) the cost of investment company literature and other publications provided
to trustees and officers; and (18) costs of mailing, stationery and
communications equipment.
As required by state regulation, Mitchell Hutchins will reimburse the Fund if
and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such
limit applicable to the Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees and extraordinary items, are excluded from this limitation. For the fiscal
years ended August 31, 1994, August 31, 1993 and August 31, 1992, no
reimbursements were required pursuant to such limitation.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the board of trustees or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.
19
<PAGE>
The following table shows the approximate net assets as of March 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT NET
CATEGORY ASSETS
---------- ---------
($ MIL)
<S> <C>
Domestic (excluding Money Market).............................. $ 5,730.7
Global......................................................... 3,392.5
Equity/Balanced................................................ 2,773.2
Fixed Income (excluding Money Market).......................... 6,350.0
Taxable Fixed Income......................................... 4,565.0
Tax-Free Fixed Income........................................ 1,785.0
Money Market Funds............................................. 17,769.0
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber and Mitchell Hutchins/Kidder, Peabody ("MH/KP")
mutual funds and other Mitchell Hutchins' advisory accounts by all Mitchell
Hutchins' directors, officers and employees, establishes procedures for
personal investing and restricts certain transactions. For example, employee
accounts generally must be maintained at PaineWebber, personal trades in most
securities require pre-clearance and short-term trading and participation in
initial public offerings generally are prohibited. In addition, the code of
ethics puts restrictions on the timing of personal investing in relation to
trades by PaineWebber and MH/KP funds and other Mitchell Hutchins advisory
clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class A, Class B and Class D shares under separate distribution contracts with
the Trust dated July 7, 1993 (collectively, "Distribution Contracts") that
require Mitchell Hutchins to use its best efforts, consistent with its other
businesses, to sell shares of the Fund. Shares of the Fund are offered
continuously. Under separate exclusive dealer agreements between Mitchell
Hutchins and PaineWebber dated July 7, 1993 relating to the Class A, Class B
and Class D shares (collectively, "Exclusive Dealer Agreements"), PaineWebber
and its correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class D shares adopted by the Trust in the manner prescribed under Rule 12b-1
under the 1940 Act ("Class A Plan," "Class B Plan" and "Class D Plan,"
collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily net
assets of each Class of shares, except that the Class A Plan for the Fund
provides that the service fee paid with respect to shares sold prior to
December 2, 1988 ("Old Shares") is paid at the annual rate of 0.15% of the
Fund's net assets represented by such Old Shares. Shares acquired through new
purchases, reinvestment of dividends and other distributions and exchanges on
or after December 2, 1988 are not considered "Old Shares" for this purpose.
Under the Class B Plan and the Class D Plan, the Fund pays Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of
0.75% of the average daily net assets of the Class B shares and Class D shares,
respectively.
Among other things, each Plan provides that (1) Mitchell Hutchins will submit
to the Trust's board of trustees at least quarterly, and the trustees will
review, reports regarding all amounts
20
<PAGE>
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 of
trustees, including those trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by the Fund under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the outstanding shares of the relevant class of the Fund and (4) while the
Plan remains in effect, the selection and nomination of trustees who are not
"interested persons" of the Trust shall be committed to the discretion of the
trustees who are not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins allocates expenses attributable to the sale of each Class of Fund
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 Fund shares
will not be used to subsidize the sale of any other Class of Fund shares.
For the fiscal year ended August 31, 1994, the Fund paid (or accrued) the
following fees to Mitchell Hutchins under the Plans:
<TABLE>
<S> <C>
Class A........................................................ $ 637,190
Class B........................................................ $3,590,435
Class D........................................................ $ 476,859
</TABLE>
Mitchell Hutchins estimates that it and its parent corporation, PaineWebber,
incurred the following shareholder service-related and distribution-related
expenses with respect to the Fund during the fiscal year ended August 31, 1994:
CLASS A
<TABLE>
<S> <C>
Marketing and advertising..................................... $ 220,770
Printing of prospectuses and statements of additional
information.................................................. 3,739
Branch network costs allocated and interest expense........... 1,597,764
Service fees paid to PaineWebber investment executives........ 286,736
</TABLE>
CLASS B
<TABLE>
<S> <C>
Marketing and advertising..................................... $ 459,990
Amortization of commissions................................... 1,735,989
Printing of prospectuses and statements of additional
information.................................................. 8,176
Branch network costs allocated and interest expense........... 3,678,624
Service fees paid to PaineWebber investment executives........ 403,924
</TABLE>
21
<PAGE>
CLASS D
<TABLE>
<S> <C>
Marketing and advertising...................................... $ 160,992
Amortization of commissions.................................... 178,489
Printing of prospectuses and statements of additional
information................................................... 2,719
Branch network costs allocated and interest expense............ 1,073,046
Service fees paid to PaineWebber investment executives......... 53,647
</TABLE>
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing Fund shares. These internal
costs encompass office rent, salaries and other overhead expenses of various
departments and areas of operations of Mitchell Hutchins. "Branch network
costs allocated and interest expense" consist of an allocated portion of the
expenses of various PaineWebber departments involved in the distribution of
the Fund's shares, including the PaineWebber retail branch system.
In approving the Fund's overall Flexible Pricing SM system of distribution,
the Trust's board of trustees considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby
encouraging current shareholders to make additional investments in the Fund
and attracting new investors and assets to the Fund to the benefit of the Fund
and its shareholders, (2) facilitate distribution of the Fund's shares and (3)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution
arrangements.
In approving the Class A Plan, the trustees considered all the features of
the distribution system, including (1) the conditions under which initial
sales charges would be imposed and the amount of such charges, (2) Mitchell
Hutchins' belief that the initial sales charge combined with a service fee
would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan, the trustees 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
the 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 investment executives 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
investment executives 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
22
<PAGE>
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 investment executives, 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 D Plan, the trustees considered all the features of
the distribution system, including (1) the advantage to investors in having no
initial sales charges deducted from the Fund's 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 and paying for distribution on an
ongoing basis, (3) Mitchell Hutchins' belief that the ability of PaineWebber
investment executives and correspondent firms to receive sales compensation for
their sales of Class D shares on an ongoing basis, along with continuing
service fees, while their customers invest their entire purchase payments
immediately in Class D shares and do not face contingent deferred sales
charges, would prove attractive to the investment executives and correspondent
firms, resulting in greater growth to the Fund than might otherwise be the
case, (4) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (5) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (6)
the services provided by PaineWebber pursuant to its Exclusive Dealer Agreement
with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder service- and
distribution-related expenses and costs. The trustees also recognized that
Mitchell Hutchins' willingness to compensate PaineWebber and its investment
executives without the concomitant receipt by Mitchell Hutchins of initial
sales charges or contingent deferred sales charges upon redemption, was
conditioned upon its expectation of being compensated under the Class D Plan.
With respect to each Plan, the trustees considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The trustees also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees which
are calculated based upon a percentage of the average net assets of the Fund,
which fees would increase if the Plan were successful and the Fund attained and
maintained significant asset levels.
Under the Distribution Contract for the Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell Hutchins
earned the following approximate amounts of sales charges and retained the
following approximate amounts, net of concessions to PaineWebber as exclusive
dealer.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
------------------------------
1994 1993 1992
-------- ---------- ----------
<S> <C> <C> <C>
Earned.................................... $186,333 $1,794,698 $4,969,439
Retained.................................. 11,944 108,359 298,514
</TABLE>
For the fiscal year ended August 31, 1994, Mitchell Hutchins earned and
retained $2,384,664 contingent deferred sales charges paid upon certain
redemptions of Class B shares.
23
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's board of trustees, Mitchell
Hutchins is responsible for the execution of the Fund's portfolio transactions
and the allocation of brokerage transactions. In executing portfolio
transactions, Mitchell Hutchins seeks to obtain the best net results for the
Fund, taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. Prices paid to dealers in
principal transactions, through which most debt securities and some equity
securities are traded, generally include a "spread," which is the difference
between the prices at which the dealer is willing to purchase and sell a
specific security at the time. The Fund may invest in securities traded in the
OTC market and will engage primarily in transactions directly with the dealers
who make markets in such securities, unless a better price or execution could
be obtained by using a broker. While Mitchell Hutchins generally seeks
reasonably competitive commission rates and dealer spreads, payment of the
lowest commission or spread is not necessarily consistent with obtaining the
best net results. For the fiscal years ended August 31, 1994, August 31, 1993
and August 31, 1992, the Fund paid $1,901,499, $1,131,909 and $1,095,795,
respectively, in brokerage commissions.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber. The Trust's board of trustees has adopted procedures in
conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to Mitchell Hutchins or its affiliates are reasonable and
fair. Specific provisions in the Advisory Contract authorize Mitchell Hutchins
and any of its affiliates that is a member of a national securities exchange
to effect portfolio transactions for the Fund on such exchange and to retain
compensation in connection with such transactions. Any such transactions will
be effected and related compensation paid only in accordance with applicable
SEC regulations. For the fiscal year ended August 31, 1994, the Fund paid
$47,142 in brokerage commissions to PaineWebber, which represented 2.48% of
the total brokerage commissions paid by the Fund and 2.81% of the total dollar
amount of transactions involving payment of commissions. For the fiscal years
ended August 31, 1993 and August 31, 1992, the Fund paid $108,080 and $5,040,
respectively, in brokerage commissions to PaineWebber.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute its transactions in futures
contracts, including procedures permitting the use of Mitchell Hutchins and
its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Consistent with the interests of the Fund and subject to the review of the
Trust's board of trustees, Mitchell Hutchins may cause the Fund to purchase
and sell portfolio securities through brokers who provide the Fund with
research, analysis, advice and similar services. In return for such services,
the Fund may pay to those brokers a higher commission than may be charged by
other brokers, provided that Mitchell Hutchins determines in good faith that
such commission is reasonable in terms either of that particular transaction
or of the overall responsibility of Mitchell Hutchins to the Fund and its
other clients and that the total commissions paid by the Fund will be
24
<PAGE>
reasonable in relation to the benefits to the Fund over the long term. Research
services furnished by brokers through which the Fund effects securities
transactions may be used by Mitchell Hutchins in advising other funds or
accounts it advises and, conversely, research services furnished to Mitchell
Hutchins in connection with other funds or accounts Mitchell Hutchins advises
may be used by Mitchell Hutchins in advising the Fund. Information and research
received from brokers will be in addition to, and not in lieu of, the services
required to be performed by Mitchell Hutchins under the Advisory Contract. For
the fiscal year ended August 31, 1994, MHII (and, for the period prior to May
19, 1994, Mitchell Hutchins) directed $223,552,118 in portfolio transactions to
brokers chosen because they provided research services, for which the Fund paid
$259,192 in commissions. The Fund may purchase and sell portfolio securities to
and from dealers who provide the Fund with research services. Portfolio
transactions will not be directed by the Fund to dealers solely on the basis of
research services provided. The Fund will not purchase portfolio securities at
a higher price or sell such securities at a lower price in connection with
transactions effected with a dealer, acting as principal, who furnishes
research services to Mitchell Hutchins than would be the case if no weight were
given by Mitchell Hutchins to the dealer's furnishing of such services.
Research services furnished by the dealers through which or with which the Fund
effects securities transactions may be used by Mitchell Hutchins in advising
other funds or accounts it advises and, conversely, research services furnished
to Mitchell Hutchins in connection with other funds or accounts it advises may
be used in advising the Fund.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for the Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or
upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in
which Mitchell Hutchins or any of its affiliates is a member of the
underwriting or selling group, except pursuant to procedures adopted by the
Trust's board of trustees pursuant to Rule 10f-3 under the 1940 Act. Among
other things, these procedures require that the spread or commission paid in
connection with such a purchase be reasonable and fair, the purchase be at not
more than the public offering price prior to the end of the first business day
after the date of the public offering and that Mitchell Hutchins or any
affiliate thereof not participate in or benefit from the sale to the Fund.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION AND OTHER
SERVICES
COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups of
related Fund investors may combine purchases of Class A shares of the Fund with
concurrent purchases of Class A shares of any other PaineWebber or MH/KP mutual
fund and thus take advantage of the reduced sales charges indicated in the
table of sales charges for Class A shares in the Prospectus. The sales
25
<PAGE>
charge payable on the purchase of Class A shares of the Fund and Class A shares
of such other funds will be at the rates applicable to the total amount of the
combined concurrent purchases.
An "eligible group of related Fund investors" can consist of any combination
of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by 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; or
(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).
RIGHTS OF ACCUMULATION--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber or MH/KP
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.
WAIVERS OF SALES CHARGES--CLASS B SHARES. 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 individual 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.
Certain PaineWebber mutual funds offered shares subject to contingent
deferred sales charges before the implementation of the Flexible Pricing System
on July 1, 1991 ("CDSC Funds"). The contingent deferred sales charge is waived
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 by officers, directors (trustees) or employees of the CDSC Funds,
Mitchell Hutchins or their affiliates (or their spouses and children under age
21). In addition, the contingent deferred sales charge will be reduced by 50%
with respect to redemptions of Class B shares of CDSC Funds purchased prior to
July 1, 1991 with a net asset value at the time of
26
<PAGE>
purchase of at least $1 million. If Class B shares of a CDSC Fund purchased
prior to July 1, 1991 are exchanged for Class B shares of the Fund, any waiver
or reduction of the contingent deferred sales charge that applied to the Class
B Shares of the CDSC Fund will apply to the Class B shares of the Fund acquired
through the exchange.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber or MH/KP mutual funds. This
exchange privilege is available only in those jurisdictions where the sale of
the PaineWebber fund shares to be acquired through such exchange may be legally
made. Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or the Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objective, policies and
restrictions.
If conditions exist that make cash payments undesirable, the Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. If payment is
made in securities, a shareholder may incur brokerage expenses in converting
these securities into cash. The Trust has elected, however, to be governed by
Rule 18f-1 under the 1940 Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for one shareholder. This election is
irrevocable unless the SEC permits its withdrawal. The Fund may suspend
redemption privileges or postpone the date of payment during any period (1)
when the New York Stock Exchange, Inc. ("NYSE") is closed or trading on the
NYSE is restricted as determined by the SEC, (2) when an emergency exists, as
defined by the SEC, that makes it not reasonably practicable for the Fund to
dispose of securities owned by it or fairly to determine the value of its
assets or (3) as the SEC may otherwise permit. The redemption price may be more
or less than the shareholder's cost, depending on the market value of the
Fund's portfolio at the time.
SYSTEMATIC WITHDRAWAL PLAN. On or about the 15th of each month for monthly
plans and on or about the 15th of the months selected for quarterly or semi-
annual plans, PaineWebber will arrange for redemption by the Fund of sufficient
Fund shares to provide the withdrawal payment specified by participants in the
Fund's systematic withdrawal plan. The payment generally is mailed
approximately five business days after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends and Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends, a shareholder's
investment may be correspondingly reduced. A shareholder may change the amount
of the systematic withdrawal or terminate participation in the systematic
withdrawal plan at any time without charge or penalty by written instructions
with signatures guaranteed to PaineWebber or PFPC Inc. ("Transfer Agent").
Instructions to participate in the plan, change the withdrawal amount or
terminate participation in the plan will not be effective until five days after
written instructions with signatures guaranteed are received by the Transfer
Agent. Shareholders may request the forms needed to establish a systematic
withdrawal plan from their PaineWebber investment executives, correspondent
firms or the Transfer Agent at 1-800-647-1568.
27
<PAGE>
REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Fund without a sales charge. Shareholders may exercise the reinstatement
privilege 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; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and 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 adjusted 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 "Dividends and Taxes" in
the Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN SM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT (R)(RMA (R))
Shares of the PaineWebber and MH/KP 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 five business days 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
28
<PAGE>
time, de-emphasizing the importance of timing the market's highs and lows.
Periodic investing also permits an investor to take advantage of "dollar cost
averaging." By investing a fixed amount in mutual fund shares at established
intervals, an investor purchases more shares when the price is lower and fewer
shares when the price is higher, thereby increasing his or her earning
potential. Of course, dollar cost averaging does not guarantee a profit or
protect against a loss in a declining market, and an investor should consider
his or her financial ability to continue investing through periods of low share
prices. However, over time, dollar cost averaging generally results in a lower
average original investment cost than if an investor invested a larger dollar
amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard (R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the five RMA money market funds--RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California
Municipal Money Fund and RMA New York Municipal Money Fund. Each money
market fund attempts to maintain a stable price per share of $1.00,
although there can be no assurance that it will be able to do so.
Investments in the money market funds are not insured or guaranteed by
the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $25 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
29
<PAGE>
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares,
based on the relative net asset values per share of each of the two Classes, 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 such Class B shares of the Fund occurs. For the purpose of calculating the
holding period required for conversion of Class B shares, the date of initial
issuance shall mean (i) the date on which such Class B shares were issued, or
(ii) for Class B shares obtained through an exchange, or a series of exchanges,
the date on which the original Class B shares were issued. If the shareholder
acquired Class B shares of the Fund through an exchange of Class B shares of a
CDSC Fund that were acquired prior to July 1, 1991, the shareholder's holding
period for purposes of conversion will be determined based on the date the CDSC
Fund shares were initially issued. For purposes of conversion into Class A,
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, a pro rata portion of
the Class B shares in the sub-account will also convert to Class A. The portion
will be determined by the ratio that the shareholder's Class B shares
converting to Class A bears to the shareholder's total Class B shares not
acquired through dividends and other distributions.
The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends
and other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the Class B shares
beyond six years from the date of purchase. Mitchell Hutchins has no reason to
believe that these conditions for the availability of the conversion feature
will not continue to be met.
VALUATION OF SHARES
The Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is closed on the observance of
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. stock exchanges are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by the Sub-Adviser as the primary market. Securities traded in the
OTC market and listed on Nasdaq are valued at the last trade price on Nasdaq at
4:00 p.m., eastern time; other OTC securities are valued at the last bid price
available prior to valuation. Securities and assets for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Trust's board of trustees.
30
<PAGE>
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated according
to the following formula:
P(1 + T)/n/ = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
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.
31
<PAGE>
The following table shows performance information for the Class A, Class B
and Class D shares of the Fund for the periods indicated. All returns for
periods of more than one year are expressed as an average return.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*............................... (5.04)% (6.31)% (1.29)%
Non-Standardized Return............................ (0.58)% (1.31)% (1.29)%
Five years ended August 31, 1994:
Standardized Return*............................... 5.32% NA NA
Non-Standardized Return............................ 6.30% NA NA
Ten years ended August 31, 1994:
Standardized Return*............................... 10.25% NA NA
Non-Standardized Return............................ 10.76% NA NA
Inception** to August 31, 1994:
Standardized Return*............................... 10.26% 3.40% 1.79%
Non-Standardized Return............................ 10.74% 4.56% 1.79%
</TABLE>
- --------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Until December 2, 1988, the maximum
sales charge imposed on purchases of Class A shares was 8.5%. This higher
sales charge is not reflected in the Standardized Return set forth above. All
Standardized Return figures for Class B shares reflect deduction of the
applicable contingent deferred sales charges imposed on a redemption of
shares held for the period. Class D shares do not impose an initial or
contingent deferred sales charge; therefore, Non-Standardized Return is
identical to Standardized Return.
** The inception date for each Class of shares is as follows: Class A--December
20, 1983, Class B--July 1, 1991 and Class D--July 2, 1992.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Companies Service ("Wiesenberger"), Investment
Company Data, Inc. ("ICD") or Morningstar Mutual Funds ("Morningstar"), with
the performance of recognized stock and other indices, including (but not
limited to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"),
the Dow Jones Industrial Average, the Nasdaq Composite Index, the Russell 2000
Index, the Wilshire 5000 Index, the Lehman Bond Index, 30-year and 10-year U.S.
Treasury bonds, the Morgan Stanley Capital International World Index and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of the Fund and comparative mutual
fund data and ratings reported in independent periodicals, including (but not
limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE,
THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the
32
<PAGE>
Fund investment are reinvested in additional Fund shares, any future income or
capital appreciation of the Fund would increase the value, not only of the
original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index, the Bank Rate Monitor National Index and the
averages of yields of CDs of major banks published by Banxquote(R) Money
Markets. In comparing the Fund's performance to CD performance, investors
should keep in mind that bank CDs are insured in whole or in part by an agency
of the U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares of the Fund
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. The securities held by the Fund generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in the Fund involves greater risks than an
investment in either a money market fund or a CD.
The Fund may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
33
<PAGE>
[MAC ART APPEARS HERE]
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1993, stocks beat all
other traditional asset classes. A $10 investment in the S&P 500 grew to
$8,001, significantly more than any other investment.
The chart shown is for illustrative purposes only and does not represent the
Fund's performance and should not be considered an indication or guarantee of
future results. Year-to-year fluctuations of the S&P 500 have been significant,
and total return for some periods has been negative. The S&P 500 includes
companies with larger market capitalizations than those in which the Fund
invests. Unlike investors in bonds and 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 Treasury bonds with 20-year maturities.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, the Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-
term capital gain) ("Distribution Requirement") and must meet several
additional requirements. Among these requirements are 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) the Fund must derive less than 30% of
its gross income each taxable year from
34
<PAGE>
the sale or other disposition of securities, options or futures held for less
than three months ("Short-Short Limitation"); (3) at the close of each quarter
of the Fund's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. government securities, securities
of other RICs and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.
Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in additional Fund shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for any dividend or capital gain distribution, the shareholder
will pay full price for the shares and receive some portion of the price back
as a taxable distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs") if such stock is denominated in U.S. dollars and otherwise is a
permissible investment. A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock of a PFIC or of any gain from disposition of such stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. If the Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund," then in lieu of the
foregoing tax and interest
35
<PAGE>
obligation, the Fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss)--which may have to be distributed to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain are not distributed to the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corporations, including eliminating
the provisions described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed by Congress in 1991 and 1992 and
vetoed. It is unclear at this time whether, and in what form, the proposed
modifications may be enacted into law.
Pursuant to proposed regulations, open-end RICs, such as the Fund, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).
The use of hedging strategies, such as writing ("selling") and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from transactions in
options and futures derived by the Fund with respect to its business of
investing in securities will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
contracts will be subject to the Short-Short Limitation if they are held for
less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.
OTHER INFORMATION
The Fund's name was changed from "PaineWebber Classic Growth and Income Fund"
to PaineWebber Dividend Growth Fund effective May 17, 1991 and to its current
name effective April 3, 1995. Effective on May 17, 1991, the Fund was combined
in a tax-free reorganization with PaineWebber Classic Dividend Growth Fund,
which was at the time another series of the Trust. As a result of the
reorganization, each shareholder of PaineWebber Classic Dividend Growth Fund
became a shareholder of Growth and Income Fund.
36
<PAGE>
PaineWebber America Fund is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of the
Fund could, under certain circumstances, be held personally liable for the
obligations of the Trust or Fund. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust or the Fund and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the trustees or by any
officers or officer by or on behalf of the Trust or the Fund, the trustees or
any of them in connection with the Trust. The Declaration of Trust provides for
indemnification from the Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations, a possibility that 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, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The trustees intend to conduct the operations of
the Fund in such a way as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific Classes of the
Fund's shares to which those expenses are attributable. For example, Class B
shares bear higher transfer agency fees per shareholder account than those
borne by Class A or Class D 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 in order to determine the
applicable charge. Moreover, the tracking and calculations required by the
automatic conversion feature of the Class B shares will cause the transfer
agent to incur additional costs. 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.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street, N.W.,
Washington, D.C., 20036-5891, counsel to the Fund, has passed upon the legality
of the shares offered by the Prospectus. Kirkpatrick & Lockhart LLP also acts
as counsel to PaineWebber and Mitchell Hutchins in connection with other
matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Fund.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year ended August 31,
1994 and its Semi-Annual Report to Shareholders for the six months ended
February 28, 1995 are separate documents supplied with this Statement of
Additional Information and the financial statements, accompanying notes and
(with respect to the Annual Report to Shareholders) report of independent
auditors appearing therein are incorporated by reference in this Statement of
Additional Information.
37
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC. ("MOODY'S") CORPORATE BOND
RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as a
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; AA. Bonds which are
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities; A. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future; BAA. Bonds which are rated
Baa are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; BA. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small; CAA. Bonds which are rated
Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest; CA. Bonds which are
rated Ca represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C. Bonds which
are rated C are the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the higher
rated issues only in small degree; A. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher
38
<PAGE>
rated categories; BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than in higher rated categories;
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions; C1. The rating C1 is reserved for income bonds on which no interest
is being paid; D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
39
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS AND THIS
STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAW-
FULLY BE MADE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions...................................... 1
Hedging Strategies........................................................ 6
Trustees and Officers..................................................... 12
Investment Advisory and Distribution Arrangements......................... 18
Portfolio Transactions.................................................... 24
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services........................................................... 25
Conversion of Class B Shares.............................................. 30
Valuation of Shares....................................................... 30
Performance Information................................................... 31
Taxes..................................................................... 34
Other Information......................................................... 36
Financial Statements...................................................... 37
Appendix.................................................................. 38
</TABLE>
(C) 1995 PaineWebber Incorporated
[RECYCLED PAPER LOGO APPEARS HERE]
PAINEWEBBER
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
May , 1995
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PAINEWEBBER ATLAS PAINEWEBBER
GLOBAL GROWTH FUND GROWTH AND INCOME FUND
PAINEWEBBER
GROWTH FUND
CLASS C SHARES
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019
. PaineWebber Atlas Global Growth Fund ("Atlas Fund"), a series of PaineWebber
Atlas Fund, seeks long-term capital appreciation and invests primarily in
common stocks of issuers based in the United States, Europe, Japan and the
Pacific Basin. The board of trustees of PaineWebber Atlas Fund has approved a
proposed Reorganization ("Reorganization") for submission to Atlas Fund's
shareholders at a special meeting to be held on July 14, 1995. If the Reor-
ganization is approved and implemented, Atlas Fund's assets will be acquired
and its liabilities assumed by Mitchell Hutchins/ Kidder Peabody Global Eq-
uity Fund ("MH/KP Global Equity Fund"), a series of another open-end manage-
ment investment company. As a result of the Reorganization, the two funds'
assets would be combined and each Atlas Fund shareholder would, on the clos-
ing date of the transaction, receive a number of full and fractional shares
of the corresponding class of shares of MH/KP Global Equity Fund having an
aggregate value equal to the value of the shareholder's holdings in Atlas
Fund. Following the Reorganization, the Atlas Fund would have neither as-
sets, liabilities or shareholders, and it would be terminated as soon as
practicable. See "General Information--Proposed Reorganization".
. PaineWebber Growth and Income Fund ("Growth and Income Fund"), a series of
PaineWebber America Fund, seeks to provide current income and capital growth
and invests primarily in dividend-paying equity securities believed by
Mitchell Hutchins to have the potential for rapid earnings growth; stocks
are selected through a disciplined methodology that utilizes quantitative
measures of value, earnings and price momentum, as well as fundamental anal-
ysis.
. PaineWebber Growth Fund ("Growth Fund"), a series of PaineWebber Olympus
Fund, seeks long-term capital appreciation and invests primarily in common
stocks issued by companies deemed by its investment adviser to have substan-
tial potential for capital growth.
----------------
The Class C shares described in this Prospectus are currently offered for
sale only to the trustee of the PaineWebber Savings Investment Plan on behalf
of that Plan.
----------------
This Prospectus concisely sets forth information about the Funds a prospec-
tive investor should know before investing. Please retain this Prospectus for
future reference. A Statement of Additional Information dated May , 1995
with respect to Growth and Income Fund and January 1, 1995 (as revised May ,
1995) with respect to Atlas Fund and Growth Fund (which is incorporated by
reference herein), has been filed with the Securities and Exchange Commission.
The Statement of Additional Information can be obtained without charge, and
further inquiries can be made, by contacting the PaineWebber Incorporated Ben-
efits Department, 1000 Harbor Boulevard, 10th Floor, Weehawken, New Jersey
07087 or by calling 1-201-902-4444.
----------------
Atlas Fund, Growth and Income Fund and Growth Fund are series of PaineWebber
Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund, respec-
tively (each a "Trust"), which are Massachusetts business trusts.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is May , 1995 with respect to Growth and Income
Fund and January 1, 1995 (as revised May , 1995) with respect to Atlas Fund
and Growth Fund.
PAINEWEBBER INCORPORATED
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR THEIR DISTRIBU-
TOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------
FUND EXPENSES
The following tables are intended to assist investors in understanding the
expenses associated with investing in Class C shares of each Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases of shares................................ None
Sales charge on reinvested dividends....................................... None
Redemption fee or deferred sales charge.................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH AND
ATLAS FUND INCOME FUND GROWTH FUND
---------- ----------- -----------
<S> <C> <C> <C>
Management fees.............................. 0.75% 0.70% 0.75%
12b-1 fees................................... 0.00 0.00 0.00
Other expenses............................... 0.38 0.20 0.19
---- ---- ----
Total estimated operating expenses........... 1.13% 0.90% 0.94%
==== ==== ====
</TABLE>
EXAMPLE OF EFFECT OF FUND EXPENSES
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
ATLAS FUND............................ $12 $36 $62 $137
GROWTH AND INCOME FUND................ $ 9 $29 $50 $111
GROWTH FUND........................... $10 $30 $52 $115
</TABLE>
This Example assumes that all dividends and other distributions are rein-
vested and that the percentage amounts listed under Annual Fund Operating Ex-
penses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the Securi-
ties and Exchange Commission ("SEC") applicable to all mutual funds; the as-
sumed 5% annual return is not a prediction of, and does not represent, the pro-
jected or actual performance of the Class C shares of any Fund.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND A FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
actual expenses attributable to a Fund's Class C shares will depend upon, among
other things, the level of average net assets and the extent to which the Fund
incurs variable expenses, such as transfer agency costs.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one Class C
share of each Fund for the periods shown. This information is supplemented by
the financial statements and accompanying notes appearing in each Fund's An-
nual Report to Shareholders for the fiscal year ended August 31, 1994, which
are incorporated by reference into the Statement of Additional Information.
Further information about the performance of each Fund is also included in the
Annual Report to Share holders, which may be obtained without charge. The fi-
nancial statements and notes, as well as the information in the tables appear-
ing below insofar as they relate to the three years in the period ended August
31, 1994, have been audited by Ernst & Young LLP, independent auditors, whose
report thereon is included in the Annual Report to Shareholders. The financial
statements and notes and the financial information for Growth and Income Fund
in the table below insofar as they relate to the six months ended February 28,
1995 have been taken from the records of Growth and Income Fund without exami-
nation by the Fund's independent auditors, who do not express an opinion
thereon.
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------------------
ATLAS FUND GROWTH AND INCOME FUND GROWTH FUND
------------------------ -------------------------------------------- -------------------------
FOR THE FOR THE
SIX MONTHS FOR THE PERIOD
FOR THE YEARS ENDED ENDED YEARS ENDED FEBRUARY 12, FOR THE YEARS ENDED
AUGUST 31,++ FEBRUARY 28, AUGUST 31, 1992+ TO AUGUST 31,++
------------------------ 1995 ----------------- AUGUST 31, -------------------------
1994 1993 1992 (UNAUDITED) 1994 1993 1992 1994 1993 1992
------- ------- ------ ------------ ------- ------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 15.64 $ 12.73 $13.62 $ 20.42 $ 20.86 $ 20.48 $ 20.95 $ 20.71 $ 16.83 $ 17.50
------- ------- ------ ------- ------- ------- ------- ------- -------
Income (loss) from
investment operations:
Net investment income.. 0.04 0.09 0.19 0.13 0,33 0.33 0.16 0.03 0.08 0.05
Net realized and
unrealized gains
(losses) from
investment
transactions.......... 1.49 2.82 (0.86) (0.05) (0.40) 0.37 (0.49) 0.55 4.42 (0.11)
------- ------- ------ ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations.. 1.53 2.91 (0.67) 0.08 (0.07) 0.70 (0.33) 0.58 4.50 (0.06)
------- ------- ------ ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Dividends from net
investment income..... (0.08) -- (0.22) (0.15) (0.34) (0.32) (0.14) -- -- (0.01)
Distributions from net
realized gains on
investments and
foreign currency
transactions.......... (0.68) -- -- (1.21) (0.03) -- -- (1.07) (0.62) (0.60)
------- ------- ------ ------- ------- ------- ------- ------- -------
Total dividends and
distributions......... (0.76) -- (0.22) (1.36) (0.37) (0.32) (0.14) (1.07) (0.62) (0.61)
------- ------- ------ ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $16.41 $ 15.64 $12.73 $ 19.14 $20.42 $ 20.86 $ 20.48 $20.22 $ 20.71 $ 16.83
======= ======= ====== ======= ======= ======= ======= ======= =======
Total Return(1)......... 9.59% 22.86% (5.10)% 0.81% (0.31)% 3.44% (1.15)% 2.67% 27.26% (0.52)%
======= ======= ====== ======= ======= ======= ======= ======= =======
Ratios/Supplemental
data:
Net assets, end of
period (000's)........ $38,912 $16,265 $6,327 $14,544 $14,690 $17,005 $10,560 $30,521 $20,706 $11,581
Ratio of expenses to
average net assets.... 1.13% 1.10% 1.45% 0.90%* 0.90% 0.86% 0.93%* 0.94% 0.95% 1.12%
Ratio of net investment
income to average net
assets................ 0.40% 0.87% 0.93% 1.29%* 1.60% 1.62% 1.56%* 0.40% 0.60% 0.38%
Portfolio turnover..... 176.16% 258.05% 80.14% 65.25% 94.32% 36.52% 15.57% 24.41% 35.81% 32.49%
</TABLE>
- --------
* Annualized.
+ Commencement of offering of shares.
++ A per share breakdown for Class C shares has been omitted for the period
August 25, 1991 (commencement of offering of shares) to August 31, 1991 due
to immaterial amounts.
(1) Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. Total return informa-
tion for periods less than one year are not annualized.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS
The investment objective of ATLAS FUND is to provide long-term capital appre-
ciation. Atlas Fund seeks to achieve this objective by investing primarily in
common stocks of issuers based in the United States, Europe, Japan and the
Pacific Basin.
The investment objective of GROWTH AND INCOME FUND is to provide current in-
come and capital growth. Growth and Income Fund seeks to achieve this objective
by investing primarily in dividend-paying common stocks of medium to large cap-
italization companies that have relatively low price-to-earnings ratios, based
on anticipated earnings for the next 12 months, and have reported earnings in
excess of general market expectations.
The investment objective of GROWTH FUND is to provide long-term capital ap-
preciation. Growth Fund seeks to achieve this objective by investing primarily
in common stocks issued by companies that, in the judgment of its investment
adviser have substantial potential for capital growth.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") serves as in-
vestment adviser and administrator for each Fund. GE Investment Management In-
corporated ("GEIM") serves as sub-adviser for Atlas Fund. See "Management."
There can be no assurance that any Fund will achieve its investment objec-
tive. Each Fund's net asset value fluctuates based upon changes in the value of
its portfolio securities. Each Fund's investment objective and certain invest-
ment limitations as described in the Statement of Additional Information are
fundamental policies that may not be changed without shareholder approval. All
other investment policies may be changed by each Trust's board of trustees
without shareholder approval.
ATLAS FUND
Normally, at least 80% of Atlas Fund's assets is invested in common stocks
and securities convertible into common stocks. In managing Atlas Fund's portfo-
lio, GEIM seeks to identify those companies, both in the United States and
abroad, likely to benefit from long-term trends and shifting trade patterns as
they develop in the global economy. Atlas Fund's investment policies are de-
signed to enable it to capitalize on unique investment opportunities presented
throughout the world and in international financial markets influenced by the
increasing interdependency of economic cycles and currency exchange rates.
For example, according to Morgan Stanley Capital International, as of Novem-
ber 30, 1994 approximately 63% of the world's equity securities were denomi-
nated in a currency other than the U.S. dollar. Over the past ten years, cer-
tain foreign equity markets have provided higher investment returns than the
U.S. equity market. These returns reflect interest rates and other market con-
ditions prevailing in those countries, particularly gains and losses in the de-
nominated currencies. Year-to-year fluctuations in certain markets have been
significant, and returns for various markets have sometimes been negative.
Mitchell Hutchins believes that, over time, investing in a combination of U.S.
and foreign equity securities is less risky than investing solely in foreign
securities and provides more opportunities for high total return than investing
solely in U.S. securities.
Atlas Fund's substantial foreign investments involve special risks, including
possible expropriation, confiscatory taxation, withholding taxes on dividends
and interest, limits on the use or transfer of Fund assets, political or social
instability and diplomatic developments. Foreign economies may differ favorably
or unfavorably from the U.S. economy in various respects, and many foreign se-
curities are less
4
<PAGE>
liquid and their prices more volatile than comparable U.S. securities. Al-
though Atlas Fund generally invests only in securities traded on recognized
exchanges or in over-the-counter markets, foreign securities at times may be
difficult to liquidate rapidly without adverse price effects. Legal remedies
for defaults and disputes may have to be pursued in foreign courts, whose pro-
cedures differ substantially from those of U.S. courts.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in for-
eign currency exchange rates will affect Atlas Fund's net asset value, the
value of dividends and interest earned, gains and losses realized on the sale
of securities and net investment income and capital gain, if any, to be dis-
tributed to shareholders by Atlas Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of Atlas Fund's assets denominated in
that currency will increase; correspondingly, if the value of a foreign cur-
rency declines against the U.S. dollar, the value of Atlas Fund's assets de-
nominated in that currency will decrease. The exchange rates between the U.S.
dollar and other currencies are determined by supply and demand in the cur-
rency exchange markets, international balances of payments, speculation and
other economic and political conditions. In addition, some foreign currency
values may be volatile and there is the possibility of governmental controls
on currency exchange or governmental intervention in the currency markets.
Foreign security trading practices, including those involving securities set-
tlement where Fund assets may be released prior to receipt of payment, may ex-
pose the Fund to increased risk in the event of a failed trade or the insol-
vency of a foreign broker-dealer. Any of these factors could adversely affect
Atlas Fund.
The costs attributable to foreign investing that Atlas Fund must bear fre-
quently are higher than those attributable to domestic investing. For example,
the costs of maintaining custody of securities in foreign countries exceed
custodian costs related to domestic securities.
Atlas Fund may enter into forward currency contracts to set the rate at
which currency exchanges will be made for specific contemplated transactions.
Atlas Fund might also enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date either with respect
to contemplated transactions or with respect to portfolio positions. For exam-
ple, when GEIM anticipates making a currency exchange transaction in connec-
tion with the purchase or sale of a security, Atlas Fund may enter into a for-
ward contract in order to set the exchange rate at which the transaction will
be made. Atlas Fund also may enter into a forward contract to sell an amount
of a foreign currency approximating the value of some or all of its securities
denominated in such currency. Atlas Fund may use forward contracts in one cur-
rency or a basket of currencies to hedge against fluctuations in the value of
another currency when GEIM anticipates there will be a correlation between the
two and may use forward currency contracts to shift the Fund's exposure to
foreign currency fluctuations from one country to another. The purpose of en-
tering into these contracts is to minimize the risk to Atlas Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
Atlas Fund may also write covered put and call options and purchase put and
call options on foreign currencies to hedge against movements in currency ex-
change rates. For the same purpose, Atlas Fund may purchase and sell foreign
currency futures contracts and write covered put and call options and purchase
put and call options on such contracts. The risks of these hedging strategies
are similar to those of the other hedging strategies in
5
<PAGE>
which Atlas Fund may engage, as described under "Other Investment Policies and
Risk Factors--Hedging Strategies." See the Statement of Additional Information
for more information on currency hedging strategies.
Atlas Fund may invest up to 20% of its assets in non-convertible debt securi-
ties of both domestic and foreign issuers, as well as in obligations issued or
guaranteed by the U.S. or foreign governments, their agencies or instrumentali-
ties. Atlas Fund will not invest more than 5% of its assets in debt securities
rated lower than investment grade. See "Other Investment Policies and Risk Fac-
tors--Debt Securities."
GROWTH AND INCOME FUND
Growth and Income Fund's investment objective is to provide current income
and capital growth. The Fund seeks to achieve this objective by investing pri-
marily in dividend-paying equity securities believed by Mitchell Hutchins to
have the potential for rapid earnings growth. Under normal circumstances, the
Fund will invest at least 65% of its total assets in such securities. In manag-
ing the Fund, Mitchell Hutchins follows a disciplined methodology under which
stocks from a universe of approximately 2,000 medium to large capitalization
companies are ranked utilizing quantitative measures of value, earnings and
price momentum in the context of Mitchell Hutchins' economic forecast. Stocks
are selected for the Fund based on fundamental analysis of the highest ranking
stocks.
Growth and Income Fund may invest up to 35% of its total assets in equity se-
curities not meeting the above criteria, as well as convertible securities,
U.S. government securities, investment grade corporate debt securities and
money market instruments. See "Other Investment Policies and Risk Factors--Debt
Securities." Growth and Income Fund may invest in instruments other than common
stocks when, in the opinion of Mitchell Hutchins, their projected total return
is equal to or greater than that of common stocks or when such holdings might
reduce the volatility of the Fund's portfolio.
Growth and Income Fund primarily purchases equity securities of issuers with
medium to large capitalization. The Fund generally will not invest in stocks of
issuers with market capitalization below $300 million. Over the past 65 years,
the total return of equity investments, as measured by the Standard & Poor's
500 Composite Stock Price Index ("S&P 500"), has exceeded the inflation rate,
as measured by the Consumer Price Index, as well as total return on long-term
Treasury bonds, long-term corporate bonds and short-term Treasury bills. Howev-
er, year-to-year fluctuations in each of these indexes and instruments have
been significant, and total return for the S&P 500 for some periods has been
negative. There can be no assurance that this trend will continue, and the
Fund's performance may be better or worse than that of the S&P 500.
GROWTH FUND
In selecting stocks for investment by Growth Fund, Mitchell Hutchins consid-
ers all those factors it believes affect potential capital appreciation, in-
cluding an issuer's current and projected revenues, earnings, cash flow and as-
sets, as well as general market conditions in relevant industries. Under normal
circumstances, at least 65% of Growth Fund's assets is invested in common
stocks. Growth Fund may invest up to 35%, and for temporary purposes more than
35%, of its assets in U.S. government securities and convertible and non-con-
vertible corporate debt securities. In seeking capital appreciation, the Fund
would invest in debt securities when, for instance, Mitchell Hutchins antici-
pates that market interest rates may decline or credit fac-
6
<PAGE>
tors or ratings affecting particular issues may improve. Growth Fund may invest
in corporate debt securities rated lower than investment grade. See "Other In-
vestment Policies and Risk Factors--Debt Securities."
OTHER INVESTMENT POLICIES AND RISK FACTORS
DEBT SECURITIES. All the Funds are permitted to purchase investment grade
corporate debt securities. Securities rated BBB by Standard & Poor's Ratings
Group ("S&P"), Baa by Moody's Investor Services, Inc. ("Moody's") or comparably
rated by another nationally recognized statistical rating organization
("NRSRO") are investment grade but Moody's considers securities rated Baa to
have speculative characteristics. Changes in economic conditions or other cir-
cumstances are more likely to lead to a weakened capacity for such securities
to make principal and interest payments than is the case for higher-rated debt
securities. Atlas Fund and Growth Fund are also permitted to purchase debt se-
curities rated as low as B+ by S&P, B1 by Moody's or comparably rated by an-
other NRSRO, with Atlas Fund limited in such investments to 5%, and Growth Fund
limited to 35%, of total assets. Growth and Income Fund is permitted to invest
up to 10% of its total assets in convertible securities rated below investment
grade but no lower than B by S&P or Moody's or comparably rated by another
NRSRO.These securities are deemed by those NRSROs to be predominantly specula-
tive with respect to the issuer's capacity to pay interest and repay principal
and may involve major risk exposure to adverse conditions. Such securities are
commonly referred to as "junk bonds." Each Fund is also permitted to purchase
debt securities that are not rated by S&P, Moody's or another NRSRO but that
Mitchell Hutchins (or, for Atlas Fund, GEIM) determines to be of comparable
quality to that of rated securities in which the Fund may invest. Such securi-
ties are included in the computa-tion of any percentage limitations applicable
to the comparable rated securities. See the Statement of Additional Information
for more information about S&P and Moody's ratings.
Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality and may be reduced after the Fund has
acquired the security. Mitchell Hutchins (or, for Atlas Fund, GEIM) will con-
sider such an event in determining whether the Fund should continue to hold the
security but is not required to dispose of it. Credit ratings attempt to evalu-
ate the safety of principal and interest payments and do not reflect an assess-
ment of the volatility of the security's market value or the liquidity of an
investment in the security. Also, NRSROs may fail to make timely changes in
credit ratings in response to subsequent events, so that an issuer's current
financial condition may be better or worse than the rating indicates.
Lower rated debt securities generally offer a higher current yield than that
available for higher grade issues, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of interest and principal and increase
the possibility of default. In addition, such issuers may not have more tradi-
tional methods of financing available to them, and may be unable to repay debt
at maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and sub-
ordinated to the prior payment of senior indebtedness.
7
<PAGE>
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting
an expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose dra-
matically. However, such higher yields did not reflect the value of the income
stream that holders of such securities expected, but rather the risk that hold-
ers of such securities could lose a substantial portion of their value as a re-
sult of the issuers' financial restructuring or default. There can be no assur-
ance that such declines will not recur. The market for lower-rated debt issues
generally is thinner and less active than that for higher quality securities,
which may limit a Fund's ability to sell such securities at fair value in re-
sponse to changes in the economy or financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower rated securities, especially in a
thinly traded market.
U.S. government securities in which the Funds may invest include direct obli-
gations of the U.S. Treasury as well as obligations of U.S. government agencies
and instrumentalities backed by the U.S. Treasury or primarily or solely by the
credit of the issuer.
DOLLAR-DENOMINATED FOREIGN SECURITIES. Growth and Income Fund and Growth Fund
each may invest up to 25% of its total assets in U.S. dollar-denominated secu-
rities of foreign issuers that are traded on recognized U.S. exchanges or in
the U.S. over-the-counter ("OTC") market. Atlas Fund may invest in such securi-
ties without limitation. These investments may involve special risks, arising
both from political and economic developments abroad and differences between
foreign and U.S regulatory systems. Foreign securities may be less liquid and
their prices more volatile than comparable U.S. securities. The prices of these
securities may also be affected by fluctuations in the values of foreign cur-
rencies.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security 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. The Funds may con-
vert any convertible securities they may own into common stock, and they may
hold the common stock upon conversion.
Investments in convertible securities generally entail less risk than the is-
suer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.
HEDGING STRATEGIES. Each Fund may attempt to reduce the overall risk of its
investments (hedge) by using options (both exchange-traded and OTC) and futures
contracts. A Fund's ability to use these instruments may be limited by market
conditions, regulatory limits and tax considerations. The Appendix to this Pro-
spectus describes the hedging instruments a Fund may use. The Statement of Ad-
ditional Information contains further information on these strategies.
The Funds may write (sell) covered put and call options or buy put and call
options on securities in which they may invest and on stock indices. In addi-
tion, the Funds may buy and sell stock index futures contracts and interest
rate futures contracts and may write covered put and call options or buy put
and call options on such futures contracts. Because each Fund in- tends to use
options and futures for hedging purposes, each Fund may enter into options
8
<PAGE>
and futures contracts that approximate (but do not exceed) the full value of
its portfolio.
The Funds might not employ any of the strategies described above, and there
can be no assurance that any strategy used will succeed. If Mitchell Hutchins
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a hedging strategy for a Fund, the Fund would be in a better posi-
tion had it not hedged at all. The use of these strategies involves certain
special risks, including (1) the fact that skills needed to use hedging instru-
ments are different from those needed to select a Fund's securities, (2) possi-
ble imperfect correlation, or even no correlation, between price movements of
hedging instruments and price movements of the investments being hedged, (3)
the fact that, while hedging strategies can reduce the risk of loss, they can
also reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments and (4) the possible inability
of a Fund to purchase or sell a portfolio security at a time that otherwise
would be favorable for it to do so, or the possible need for a Fund to sell a
portfolio security at a disadvantageous time, due to the need for a Fund to
maintain "cover" or to segregate securities in connection with hedging transac-
tions and the possible inability of such Fund to close out or to liquidate its
hedged position.
New financial products and risk management techniques continue to be devel-
oped. Each Fund may use these instruments and techniques to the extent consis-
tent with its investment objective and regulatory and federal tax considera-
tions.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in il-
liquid securities, including certain cover for OTC options and securities whose
disposition is restricted under the federal securities laws (other than "Rule
144A securities" Mitchell Hutchins has determined to be liquid under procedures
approved by the Trust's trustees). Rule 144A establishes a "safe harbor" from
the registration requirements of the Securities Act of 1933. Institutional mar-
kets for restricted securities have developed as a result of Rule 144A, provid-
ing both readily ascertainable values for restricted securities and the ability
to liquidate an investment to satisfy share redemption orders. An insufficient
number of qualified institutional buyers interested in purchasing Rule 144A-el-
igible restricted securities held by a Fund, however, could affect adversely
the marketability of such portfolio securities and the Fund might be unable to
dispose of such securities promptly or at favorable prices.
PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turnover rate for (100% or more) a par-
ticular Fund will involve correspondingly greater transaction costs, which will
be borne directly by that Fund, and may increase the potential for taxable
short-term capital gains.
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. For the fiscal years ended August 31, 1994 and August 31, 1993, the re-
spective portfolio turnover rates for the Funds were as follows: Atlas Fund--
176.16% and 258.05%; Growth and Income Fund--94.32% and 36.52%; Growth--24.41%
and 35.81%. Atlas Fund's high turnover rate in the fiscal year ended August 31,
1993 was attributable to a realignment of its portfolio undertaken by a new
portfolio manager.
9
<PAGE>
OTHER INFORMATION. When Mitchell Hutchins believes unusual circumstances war-
rant a defensive posture, each Fund temporarily may commit all or a portion of
its assets to cash or money market instruments, including repurchase agree-
ments. In the case of Atlas Fund, such temporary investments may include for-
eign currencies and money market instruments issued by U.S. or foreign issuers.
The Funds may also engage in short sales of securities "against the box" to de-
fer realization of gains or losses for tax or other purposes. Each Fund may
borrow money for temporary purposes, but not in excess of 10% of its total as-
sets.
PURCHASES AND REDEMPTIONS
The Class C shares of the Funds described in this Prospectus currently are
offered for sale only to the trustee of the PaineWebber Savings Investment Plan
("PW SIP"), a defined contribution plan sponsored by Paine Webber Group Inc.
("PW Group"). Such shares may be purchased or redeemed only by such trustee on
behalf of the PW SIP at net asset value without any sales or redemption charge.
The trustee of the PW SIP purchases and redeems Fund shares to implement the
investment choices of individual plan participants with respect to their PW SIP
contributions. INDIVIDUAL PLAN PARTICIPANTS SHOULD CONSULT THE PLAN INFORMATION
STATEMENT AND SUMMARY PLAN DESCRIPTION OF THE PW SIP (COLLECTIVELY THE "PLAN
DOCUMENTS") FOR A DESCRIPTION OF THE PROCEDURES AND LIMITATIONS APPLICABLE TO
MAKING AND CHANGING INVESTMENT CHOICES. Copies of the Plan Documents are avail-
able from the PaineWebber Incorporated Benefits Department, 1000 Harbor Boule-
vard, 10th Floor, Weehawken, New Jersey 07087 (telephone 1-201-902-4444).
As described in the Plan Documents, the average net asset value per share at
which shares of a Fund are purchased or redeemed by the trustee of the PW SIP
for the accounts of individual participants might be more or less than the net
asset value per share prevailing at the time that such participants made their
investment choices or made their contributions to the PW SIP.
Purchase and redemption orders by the trustee of the PW SIP for shares of a
Fund will be effected at the net asset value per share next computed (see "Val-
uation of Shares") after the order is received by the Funds' transfer agent,
PFPC Inc. ("Transfer Agent"). Each Fund and Mitchell Hutchins reserve the right
to reject any purchase order and to suspend the offering of Fund shares for a
period of time.
DIVIDENDS AND TAXES
DIVIDENDS. Atlas Fund and Growth Fund pay dividends from net investment in-
come annually. Growth and Income Fund pays dividends from net investment income
semi-annually. Each Fund distributes annually substantially all of its net cap-
ital gain (the excess of net long-term capital gain over net short-term capital
loss) and net short-term capital gain, if any. Atlas Fund also distributes any
net realized gains from foreign currency transactions with its annual dividend.
Each Fund may make additional distributions if necessary to avoid a 4% excise
tax on certain undistributed income and capital gain.
Each Fund's dividends and other distributions are paid in additional Fund
shares at net asset value unless the Transfer Agent is instructed otherwise.
TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment
10
<PAGE>
company under the Internal Revenue Code so that it will be relieved of federal
income tax on that part of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and, for Atlas
Fund, net gains from certain foreign currency transactions) and net capital
gain that is distributed to its shareholders.
The Class C shares of the Funds described in this Prospectus currently are
offered for sale only to the trustee of the PW SIP acting on behalf of such
plan. As a qualified profit-sharing plan, the PW SIP generally pays no federal
income tax. Individual participants in the PW SIP should consult the Plan Doc-
uments and their own tax advisers for information on the tax consequences as-
sociated with participating in the PW SIP.
VALUATION OF SHARES
The net asset value of each Fund's share fluctuates and is determined as of
the close of regular trading on the New York Stock Exchange Inc. ("NYSE")
(currently 4:00 p.m., eastern time) each Business Day. A "Business Day" is any
day, Monday through Friday, on which the NYSE is open for business. Each
Fund's net asset value per share is computed by dividing the value of the se-
curities held by the Fund plus any cash or other assets minus all liabilities
by the total number of Fund shares outstanding.
Each Fund values its assets based on their current market value where market
quotations are readily available. If such value cannot be established, assets
are valued at fair value as determined in good faith by or under the direction
of each Trust's board of trustees. The amortized cost method of valuation gen-
erally is used to value debt obligations with 60 days or less remaining to ma-
turity, unless the board of trustees determines that this does not represent
fair value. Investments of Atlas Fund denominated in a foreign currency are
valued daily in U.S. dollars based on the then-prevailing exchange rate. It
should be recognized that judgment plays a greater role in valuing lower rated
debt securities in which Growth Fund and Atlas Fund may invest, because there
is less reliable, objective data available.
MANAGEMENT
The board of trustees for each Trust, as part of its overall management re-
sponsibility, oversees various organizations responsible for the Fund's day-
to-day management. Mitchell Hutchins, investment adviser and administrator of
each Fund, makes and implements all investment decisions and supervises all
aspects of the operations of Growth Fund and Growth and Income Fund and super-
vises the activities of GEIM with respect to Atlas Fund. Brokerage transac-
tions for the Funds may be conducted through PaineWebber or its affiliates in
accordance with procedures adopted by each Trust's board of trustees.
Mitchell Hutchins receives a monthly fee for these services, at the annual
rate of 0.75% of average daily net assets for Atlas Fund and Growth Fund and
0.70% of average daily net assets for Growth and Income Fund. The advisory
fees for Atlas Fund and Growth Fund are higher than those paid by most invest-
ment companies to their advisers, but Mitchell Hutchins believes the fees are
comparable to the advisory fees paid by other funds with similar investment
objectives and policies.
Each Fund incurs other expenses and, for the fiscal year ended August 31,
1994, each Fund's total expenses for its Class C shares, stated as a percent-
age of net assets, were as follows: 1.13% for Atlas Fund, 0.90% for
11
<PAGE>
Growth and Income Fund and 0.94% for Growth Fund. See "Fund Expenses."
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"), which is in turn wholly owned by PW Group, the sponsor of the
PW SIP and a publicly owned financial services holding company. As of March
31, 1995, Mitchell Hutchins was adviser or a sub-adviser to 42 investment com-
panies with 77 separate portfolios and aggregate assets of over $26.8 billion.
GEIM serves as sub-adviser for Atlas Fund pursuant to an interim sub-advi-sory
agreement ("Interim Agreement") between Mitchell Hutchins Asset Manage-ment Inc.
("Mitchell Hutchins") and GEIM that was approved by the board of trustees of
PaineWebber Atlas Fund's. Under the Interim Agreement, GEIM makes and implements
all investment decisions with respect to Atlas Fund's portfolio. Under its
existing Investment Advisory and Administration Contract with re-spect to Atlas
Fund, Mitchell Hutchins supervises the activities of GEIM with respect to Atlas
Fund and continues to supervise all other aspects of Atlas Fund's operations.
Mitchell Hutchins (not Atlas Fund) pays GEIM for its serv-ices under the Interim
Agreement at the annual rate of 0.31% of Atlas Fund's average daily net assets
up to $500 million, 0.29% of Atlas Fund's average daily net assets in excess of
$500 million to $1 billion and 0.265% of Atlas Fund's average daily net assets
in excess of $1 billion. Atlas Fund had ap-proximately $362 million in net
assets as of February 28, 1995. The Interim Agreement will continue in effect
for the shorter of 120 days from March 23, 1995 (the date of the Interim
Agreement) or the date that a new sub-advisory contract is approved by Atlas
Fund's shareholders.
GEIM is located at 3003 Summer Street, P.O. Box 7900, Stamford Connecticut
06904 and is a wholly owned subsidiary of General Electric Company. Geim is a
registered investment adviser, and its principal officers and directors serve
in similar capacities with respect to General Electric Investment Corporation
("GEIC"), also a registered investment adviser and a wholly owned subsidiary
of General Electric Company. GEIM and GEIC together provide investment manage-
ment services to various institutional accounts with total assets of approxi-
mately $45.8 billion as of February 28, 1995.
PaineWebber Atlas board of trustees has called a special meeting for July 14,
1995 of the shareholders of Atlas Fund to consider the approval of a sub-advi-
sory contract with GEIM and the Reorganization.
Effective March 23, 1995, Ralph R. Layman became the individual primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Layman
is an executive vice president and a senior investment manager of GEIM and
GEIC. From 1989 to 1991, Mr. Layman served as executive vice president, part-
ner and portfolio manager of Northern Capital Management Co. and, prior there-
to, served as vice president and portfolio manager of Templeton Investment
Counsel.
Mark A. Tincher has been responsible for the day-to-day management of the
Fund since April 1995. Mr. Tincher is a Managing Director and Chief Investment
Officer of Equity Investments of Mitchell Hutchins responsible for overseeing
the management of domestic equity investments for Mitchell Hutchins. Prior to
joining Mitchell Hutchins in March 1995, Mr. Tincher worked for Chase Manhat-
tan Private Bank where he was Vice President and directed the U.S. Funds Man-
agement and Equity Research area. At Chase since 1988, Mr. Tincher oversaw the
management of all Chase U.S. equity funds (the Vista Funds and Trust Invest-
ment Funds).
12
<PAGE>
Ellen R. Harris has been primarily responsible for the day-to-day portfolio
management of Growth Fund since its inception. Ms. Harris is a vice president
of PaineWebber Olympus Fund and chief domestic equity strategist, a managing
director and chief investment officer--domestic of Mitchell Hutchins. Prior to
joining Mitchell Hutchins in 1983 as a portfolio manager, Ms. Harris served as
a vice president and portfolio manager at American General Capital Management
(now American Capital Management).
Other members of Mitchell Hutchins' international and domestic equities and
fixed income groups provide input on market outlook, interest rate forecasts
and other considerations pertaining to global and domestic equity and fixed in-
come investments.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins is the distributor of shares of
the Funds and has appointed PaineWebber as the exclusive dealer for the sale of
those shares.
PERFORMANCE INFORMATION
Each Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
return shows the change in value of an investment in the Fund as a steady com-
pound annual rate of return. Actual year-by-year returns fluctuate and may be
higher or lower than standardized return. One-, five- and ten-year periods will
be shown, unless the Class has been in existence for a shorter period. Total
return calculations assume reinvestment of dividends and other distributions.
Each Fund may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods than those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.
Each Fund also may use standardized return and, in conjunction therewith,
non-standardized return, of its Class A, Class B and Class D shares in perfor-
mance advertisements. Advertised returns for one Class of a Fund's shares may
include periods during which that Class was outstanding but others were not.
Standardized returns of the other Classes of Fund shares will reflect the
higher ongoing expenses attributable to those Classes, as well as the deduction
of any applicable initial or contingent deferred sales charge. Non-standardized
return of Class A or Class B shares will reflect such higher ongoing expenses
but not the sales charges, and would be lower if the sales charges were includ-
ed.
Total return information reflects past performance and does not necessarily
indicate future results. Investment return and principal values will fluctuate,
and proceeds upon redemption may be more or less than a shareholder's cost.
GENERAL INFORMATION
ORGANIZATION. Each Fund is organized as a series of a Massachusetts business
trust (each a "Trust"), which is registered with the SEC as an open-end manage-
ment investment company. The three Trusts were organized under separate Decla-
rations of Trust, each dated October 31, 1986.
The trustees have authority to issue an unlimited number of shares of benefi-
cial interest of separate series, par value $.001 per share, of each Trust. Al-
though each Fund is offering only its own shares, it is possible that a Fund
could become liable for a misstatement in this Prospectus about another Fund.
The trustees
13
<PAGE>
of the Trusts have considered this factor in approving the use of a combined
Prospectus.
In addition to Growth Fund, shares of one other series of PaineWebber Olympus
Fund have been authorized.
The shares of beneficial interest of each Fund are divided into four Classes,
designated Class A shares, Class B shares, Class C shares and Class D shares.
Each Class represents interests in the same assets of each Fund. The Classes
differ as follows: (1) Class A, Class B and Class D shares, unlike Class C
shares, bear certain fees under plans of distribution and have exclusive voting
rights on matters pertaining to those plans, (2) Class A shares are subject to
an initial sales charge, (3) Class B shares bear ongoing distribution fees, are
subject to a contingent deferred sales charge upon certain redemptions and will
automatically convert to Class A shares approximately six years after issuance,
(4) Class D shares are subject to neither an initial nor a contingent deferred
sales charge, bear ongoing distribution fees and do not convert into another
Class, (5) Class C shares are subject to neither an initial or contingent de-
ferred sales charge nor ongoing service or distribution fees and (6) each Class
may bear differing amounts of certain Class-specific expenses. The board of
trustees of each Trust does not anticipate that there will be any conflicts
among the interests of the holders of each Class of Fund shares. On an ongoing
basis, each board of trustees will consider whether any such conflict exists
and, if so, take appropriate action.
The Trusts do not hold annual shareholder meetings. There normally will be no
meetings of shareholders to elect trustees unless fewer than a majority of the
trustees of a Trust holding office have been elected by shareholders. Share-
holders of record holding at least two-thirds of the outstanding shares of a
Trust may remove a trustee by votes cast in person or by proxy at a meeting
called for that purpose. The trustees are required to call a meeting of share-
holders for the purpose of voting upon the question of removal of any trustee
when so requested in writing by the shareholders of record of not less than 10%
of a Trust's outstanding shares. Each share of a Fund has equal voting rights,
except as noted above. Each share of a Fund is entitled to participate equally
in dividends and distributions and the proceeds of any liquidation, except
that, due to the differing expenses borne by the four Classes, these dividends
and proceeds for the Class B and Class D shares are likely to be lower for the
other Classes than for Class C shares.
To avoid additional operating costs and for investor convenience, share cer-
tificates are not issued. Ownership of shares of each Fund is recorded on a
stock register by the Transfer Agent and shareholders have the same rights of
ownership with respect to such shares as if certificates had been issued.
PROPOSED REORGANIZATION OF ATLAS FUND. The board of trustees of PaineWebber
Atlas Fund has approved a proposed Reorganization for submission to Atlas
Fund's shareholders at a special meeting to be held on July 14, 1995. If the
Reorganization is approved and implemented, Atlas Fund's assets will be ac-
quired and its liabilities assumed by MH/KP Global Equity Fund, a series of
Mitchell Hutchins/ Kidder Peabody Investment Trust, another open-end management
investment company organized as a business trust under the laws of the Common-
wealth of Massachusetts. As a result of the Reorganization, the two funds' as-
sets would be combined and each Atlas Fund shareholder would, on the closing
date of the transaction, receive a number of full and fractional shares of the
corresponding class of shares of MH/KP Global Equity Fund having an aggregate
value equal to the value of the shareholder's holdings in Atlas Fund. Following
the Re
14
<PAGE>
organization, the Atlas Fund would have neither assets, liabilities or share-
holders, and it would be terminated as soon as practicable.
There can be no assurance that Atlas Fund's shareholders will approve the Re-
organization. If the Reorganization is approved, it is expected that Atlas Fund
will no longer be available for purchase starting approximately one week prior
to the closing date of the reorganization. Further information concerning the
Reorganization will be contained in a prospectus/proxy statement that will be
filed with the SEC and sent to Atlas Fund's shareholders of record as of May
24, 1995, the record date for the special meeting of the Fund shareholders.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, One Heri-
tage Drive, North Quincy, Massachusetts 02171, is custodian for Growth and In-
come Fund and Growth Fund. Brown Brothers Harriman & Co., 40 Water Street, Bos-
ton, Massachusetts 02109, is custodian for Atlas Fund and employs foreign sub-
custodians to provide custody of the Fund's foreign assets. PFPC Inc., a sub-
sidiary of PNC Bank, National Association, whose principal address is 400
Bellevue Parkway, Wilmington, Delaware 19809, is the Funds' transfer and divi-
dend disbursing agent.
CONFIRMATIONS AND STATEMENTS. The PW SIP receives confirmations of purchases
and redemptions of shares of the Funds and quarterly statements from the Trans-
fer Agent. The PW SIP also receives audited annual and unaudited semi-annual
financial statements of the Funds. PW SIP participants receive periodic infor-
mation about their plan participation from the PW SIP plan administrator.
15
<PAGE>
APPENDIX
The Funds may use the hedging instruments described below except only Atlas
Fund may use foreign currency options, futures contracts and forward contracts:
OPTIONS ON EQUITY AND DEBT SECURITIES AND FOREIGN CURRENCIES--A call op-
tion is a short-term contract pursuant to which the purchaser of the op-
tion, in return for a premium, has the right to buy the security or cur-
rency underlying the option at a specified price at any time during the
term of the option. The writer of the call option, who receives the premi-
um, has the obligation, upon exercise of the option during the option term,
to deliver the underlying security or currency against payment of the exer-
cise price. A put option is a similar contract that gives its purchaser, in
return for a premium, the right to sell the underlying security or currency
at a specified price during the option term. The writer of the put option,
who receives the premium, has the obligation, upon the exercise of the op-
tion during the option term, to buy the underlying security or currency at
the exercise price.
OPTIONS ON STOCK INDEXES--A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market val-
ues of those stocks. A stock index option operates in the same way as a
more traditional stock option, except that exercise of a stock index option
is effected with cash payment and does not involve delivery of securities.
Thus, upon exercise of a stock index option, the purchaser will realize,
and the writer will pay, an amount based on the difference between the ex-
ercise price and the closing price of the stock index.
STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a bilat-
eral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the
close of trading of the contract and the price at which the futures con-
tract is originally struck. No physical delivery of the stocks comprising
the index is made. Generally, contracts are closed out prior to the expira-
tion date of the contract.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to
which one party agrees to make, and the other party agrees to accept, de-
livery of a specified type of debt security or currency at a specified fu-
ture time and at a specified price. Although such futures contracts by
their terms call for actual delivery or acceptance of debt securities or
currency, 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 or currency, except that an option on a futures con-
tract 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 or currency, 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
16
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses.............................................................. 2
Financial Highlights....................................................... 3
Investment Objectives and Policies......................................... 4
Purchases and Redemptions.................................................. 10
Dividends and Taxes........................................................ 10
Valuation of Shares........................................................ 11
Management................................................................. 11
Performance Information.................................................... 13
General Information........................................................ 13
Appendix................................................................... 16
</TABLE>
(C) 1995 PaineWebber Incorporated
[RECYCLED PAPER LOGO APPEARS HERE]
PAINEWEBBER
ATLAS GLOBAL GROWTH FUND
GROWTH AND INCOME FUND
GROWTH FUND
Class C Shares
PROSPECTUS
May , 1995 with respect to Growth and Income Fund and January 1, 1995 (as
revised May , 1995) with respect to Atlas Fund and Growth Fund.
<PAGE>
PAINEWEBBER ATLAS GLOBAL GROWTH FUND
PAINEWEBBER GROWTH AND INCOME FUND
PAINEWEBBER GROWTH FUND
CLASS C SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
The three funds named above (each a "Fund") are diversified series of
PaineWebber Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund,
respectively (each a "Trust"), professionally managed, open-end investment
companies organized as Massachusetts business trusts. PaineWebber Atlas Global
Growth Fund ("Atlas Fund") seeks long-term capital appreciation; it invests
primarily in common stocks of issuers based in the United States, Europe, Japan
and the Pacific Basin. PaineWebber Growth and Income Fund ("Growth and Income
Fund") seeks current income and capital growth; it invests primarily in
dividend-paying equity securities believed by Mitchell Hutchins to have the
potential for rapid earnings growth; stocks are selected through a disciplined
methodology that utilizes quantitative measures of value, earnings and price
momentum, as well as fundamental analysis. PaineWebber Growth Fund ("Growth
Fund") seeks long-term capital appreciation; it invests primarily in common
stocks issued by companies deemed by Growth Fund's investment adviser to have
substantial potential for capital growth. The Funds' investment adviser,
administrator and distributor is Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated
("PaineWebber"). GE Investment Management Incorporated ("GEIM") serves as sub-
adviser for Atlas Fund. As distributor for the Funds, Mitchell Hutchins has
appointed PaineWebber to serve as the exclusive dealer for the sale of Fund
shares. The Class C shares described in this Statement of Additional
Information are currently offered for sale only to the trustee of the
PaineWebber Savings Investment Plan acting on behalf of that Plan. This
Statement of Additional Information is not a prospectus and should be read only
in conjunction with the Funds' current Prospectus, dated May , 1995 with
respect to Growth and Income Fund and January 1, 1995 (as revised May , 1995)
with respect to Atlas Fund and Growth Fund. A copy of the Prospectus may be
obtained by contacting the PaineWebber Incorporated Benefits Department, 1000
Harbour Boulevard, 10th Floor, Weehawken, New Jersey 07087 or by calling 1-201-
902-4444. This Statement of Additional Information is dated May , 1995 with
respect to Growth and Income Fund and January 1, 1995 (as revised May , 1995)
with respect to Atlas Fund and Growth Fund.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's")
Standard & Poor's Ratings Group ("S&P") and other nationally recognized
statistical rating organizations ("NRSROs") are private services that provide
ratings of the credit quality of debt obligations. A description of the ratings
assigned to corporate debt obligations by Moody's and S&P is included in the
Appendix to this
<PAGE>
Statement of Additional Information. The Funds may use these ratings in
determining whether to purchase, sell or hold a security. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices.
As noted in the Prospectus, the Funds may invest in non-investment grade debt
securities--that is, debt securities that are not rated at the time of purchase
within one of the four highest grades assigned by S&P or Moody's, comparably
rated by another NRSRO or determined by Mitchell Hutchins (or, for Atlas Fund,
GEIM) to be of comparable quality.
SPECIAL CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Many of the foreign
securities held by the Funds are not registered with the Securities and
Exchange Commission ("SEC"), nor are the issuers thereof subject to its
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by the Funds 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.
All the Funds may invest in foreign securities by purchasing American
Depository Receipts ("ADRs"). Atlas Fund also may purchase securities of
foreign issuers in foreign markets and purchase European Depository Receipts
("EDRs") or other securities convertible into securities of issuers based in
foreign countries. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets, while EDRs, in bearer form, may be
denominated in other currencies and are designed for use in European securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. For purposes of the Funds' investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR or EDR representing
ownership of common stock will be treated as common stock.
Atlas Fund anticipates that its brokerage transactions involving securities
of companies headquartered in countries other than the United States will be
conducted primarily on the principal exchanges of such countries. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment, may expose the
Fund to increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although Atlas Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than
in the United States.
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.
FOREIGN CURRENCY TRANSACTIONS. Although Atlas Fund values its assets daily in
U.S. dollars, it does not intend to convert its holdings of foreign currencies
to U.S. dollars on a daily basis. Atlas
2
<PAGE>
Fund's foreign currencies generally will be held as "foreign currency call
accounts" at foreign branches of foreign or domestic banks. These accounts bear
interest at negotiated rates and are payable upon relatively short demand
periods. If a bank became insolvent, Atlas Fund could suffer a loss of some or
all of the amounts deposited. Atlas Fund may convert foreign currency to U.S.
dollars from time to time. Although foreign exchange dealers generally do not
charge a stated commission or fee for conversion, the prices posted generally
include a "spread," which is the difference between the prices at which the
dealers are buying and selling foreign currencies.
CONVERTIBLE SECURITIES. A convertible security entitles the holder to receive
interest paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to non-
convertible debt securities in that they ordinarily provide a stable stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable non-
convertible securities.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. The value of a convertible security is a
function of its "investment value" (determined by its yield comparison with the
yields of other securities of comparable maturity and quality that do not have
a conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value, and generally the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price
of the convertible security will be increasingly influenced by its conversion
value. In addition, a convertible security generally will sell at a premium
over its conversion value determined by the extent to which investors place
value on the right to acquire the underlying common stock while holding a fixed
income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which a Fund has valued the
securities and includes, among other things, purchased over-the-counter ("OTC")
options,
3
<PAGE>
repurchase agreements maturing in more than seven days and restricted
securities other than those Mitchell Hutchins (or, for Atlas Fund, GEIM) has
determined are liquid pursuant to guidelines established by the Trusts' boards
of trustees. The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Illiquid restricted securities may be sold
only in privately negotiated transactions or in public offerings with respect
to which a registration statement is in effect under the Securities Act of 1933
("1933 Act"). In the case of Atlas Fund, illiquid securities include those that
are subject to restrictions contained in the securities laws of other
countries. However, securities that are freely marketable in the country where
they are principally traded, but would not be freely marketable in the United
States, will not be subject to this 10% limit for Atlas Fund. 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 the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible restricted
securities held by 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 of trustees for each Trust has delegated the function of making
day-to-day determinations of liquidity to Mitchell Hutchins, pursuant to
guidelines approved by the board. Mitchell Hutchins (or, for Atlas Fund, GEIM)
takes into account a number of factors in reaching liquidity decisions,
including (1) the frequency of trades for the security, (2) the number of
dealers that make quotes for the security, (3) the number of dealers that have
undertaken to make a market in the security, (4) the number of other potential
purchasers and (5) the nature of the security and
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how trading is effected (e.g., the time needed to sell the security, how offers
are solicited and the mechanics of transfer). Mitchell Hutchins (or, for Atlas
Fund, GEIM) will monitor the liquidity of restricted securities in each Fund's
portfolio and report periodically on such decisions to the board of trustees.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. A Fund maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of these securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price which was paid by a
Fund upon acquisition is accrued as interest and included in that Fund's net
investment income. Repurchase agreements carry certain risks not associated
with direct investments in securities, including possible declines in the
market value of the underlying securities and delays and costs to a Fund if the
other party to a repurchase agreement becomes insolvent.
Each Fund intends to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins (or, for Atlas Fund,
GEIM) to present minimal credit risks in accordance with guidelines established
by the Trusts' boards of trustees. Mitchell Hutchins (or, for Atlas Fund, GEIM)
reviews and monitors the creditworthiness of those institutions under the
boards' general supervision.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's total assets. Such agreements involve the sale of
securities held by a Fund subject to the Fund's agreement to repurchase the
securities at an agreed-upon date and 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's custodian segregates assets to cover the Fund's
obligations under the reverse repurchase agreement. See "Investment Policies
and Restrictions--Segregated Accounts."
LENDING OF PORTFOLIO SECURITIES. Although the Funds have no intention of
doing so during the coming year, each Fund is authorized to lend up to 10% of
the total value of its portfolio securities to broker-dealers or institutional
investors that Mitchell Hutchins (or, for Atlas Fund, GEIM) deems qualified,
but only when the borrower maintains with the Fund's custodian bank collateral
either in cash or money market instruments in an amount, marked to market
daily, at least equal to the market value of the securities loaned, plus
accrued interest and dividends. In determining whether to lend securities to a
particular broker-dealer or institutional investor, Mitchell Hutchins (or, for
Atlas Fund, GEIM) 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 loans at any
time. A Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the cash
or
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money market instruments held as collateral to the borrower or placing broker.
A Fund will receive reasonable interest on the loan or a flat fee from the
borrower and amounts equivalent to any dividends, interest or other
distributions on the securities loaned. A Fund will regain record ownership of
loaned securities to exercise beneficial rights, such as voting and
subscription rights and rights to dividends, interest or other distributions,
when regaining such rights is considered to be in the Fund's interest.
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions to make
future payments to third parties, including reverse repurchase agreements, the
Fund will maintain with an approved custodian in a segregated cash account,
U.S. government securities or other liquid high-grade debt securities, marked
to market daily, in an amount at least equal to the Fund's obligation or
commitment under such transactions. As described below under "Hedging
Strategies," segregated accounts may also be required in connection with
certain transactions involving options, futures contracts and forward currency
contracts.
INVESTMENT LIMITATIONS OF THE FUNDS
ATLAS FUND. Atlas Fund may not (1) purchase any securities other than those
its investment objective permits it to purchase; (2) purchase securities of any
one issuer (except U.S. government securities) if as a result more than 5% of
Atlas Fund's total assets would be invested in such issuer or Atlas Fund would
own or hold more than 10% of the outstanding voting securities of that issuer,
provided, however, that up to 25% of the value of Atlas Fund's total assets may
be invested without regard to these limitations; (3) purchase securities on
margin, except for short-term credit necessary for clearance of portfolio
transactions, and except that Atlas Fund may make margin deposits in connection
with its use of options, futures contracts and options on futures contracts;
(4) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, Atlas Fund may be
deemed an underwriter under federal securities laws; (5) make short sales of
securities or maintain a short position, except that Atlas Fund may (a) make
short sales and may maintain short positions in connection with its use of
options, futures contracts and options on futures contracts and (b) sell short
"against the box"; (6) purchase or sell real estate, provided that Atlas Fund
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein; (7) purchase or
sell commodities or commodity contracts, provided that Atlas Fund may engage in
forward currency contracts and provided that Atlas Fund may purchase or sell
stock index futures, foreign currency futures, interest rate futures and
options thereon; (8) invest in oil, gas or mineral-related programs or leases;
(9) make loans, except through loans of portfolio securities and except through
repurchase agreements; provided that for purposes of this restriction the
acquisition of bonds, debentures, or other corporate debt securities and
investment in government obligations, short-term commercial paper, certificates
of deposit and bankers' acceptances shall not be deemed to be the making of
loans; (10) issue senior securities or borrow money, except from banks for
temporary purposes and except for reverse repurchase agreements, and then in an
aggregate amount not in excess of 10% of Atlas Fund's total assets; provided
further that Atlas Fund will not purchase securities while borrowings in excess
of 5% of its total assets are outstanding; (11) make an investment in any one
industry if the investment would cause the aggregate value of Atlas Fund's
investments in such industry to exceed 25% of Atlas Fund's total assets; or
(12) purchase any securities issued by any other investment company, except by
purchase in the open market where no commission or profit, other than a
customary
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brokers' commission, is earned by any sponsor or dealer associated with the
investment company whose shares are acquired as a result of such purchase,
provided that such securities in the aggregate do not represent more than 10%
of Atlas Fund's total assets, and except in connection with the merger,
consolidation or acquisition of all the securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of Atlas Fund or (b) 67% or more of the shares 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, a later increase or
decrease in percentage resulting from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing limitations.
The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: Atlas Fund may not (1) purchase or
retain the securities of any issuer if, to the knowledge of Atlas Fund's
management, the officers and trustees of the Trust and the officers and
directors of Mitchell Hutchins or GEIM (each owning beneficially more than 0.5%
of the outstanding securities of an issuer) own in the aggregate more than 5%
of the securities of the issuer; (2) except under unusual circumstances,
purchase securities issued by investment companies unless they are issued by
companies that follow a policy of investing primarily in the capital markets of
a single foreign country; (3) purchase any security if as a result more than 5%
of it's total assets would be invested in securities of companies that together
with any predecessors have been in continuous operation for less than three
years; (4) invest more than 10% of its net assets in illiquid securities, a
term which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which it has valued
the securities and includes, among other things, repurchase agreements maturing
in more than seven days; (5) make investments in warrants if such investments,
valued at the lower of cost or market, exceed 5% of the value of its net
assets, which amount may include warrants that are not listed on the New York
Stock Exchange, Inc. ("NYSE") or the American Stock Exchange, Inc. ("Amex"),
provided that such unlisted warrants, valued at the lower of cost or market, do
not exceed 2% of it's net assets, and further provided that this restriction
does not apply to warrants attached to, or sold as a unit with, other
securities. For purposes of this restriction, the term "warrants" does not
include options on securities, stock or bond indices, foreign currencies or
futures contracts; or (6) invest more than 35% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, comparably rated
by another NRSRO or determined by Mitchell Hutchins or GEIM to be of comparable
quality. This non-fundamental policy (6) can be changed only upon 30 days'
advance notice to shareholders. The Fund will continue to interpret fundamental
investment limitation (6) to prohibit investment in real estate limited
partnerships.
GROWTH AND INCOME FUND. Growth and Income Fund may not (1) purchase any
securities other than those its investment objective permits it to purchase;
(2) purchase securities of any one issuer (except U.S. government securities)
if as a result more than 5% of Growth and Income Fund's total assets would be
invested in such issuer or Growth and Income Fund would own or hold more than
10% of the outstanding voting securities of that issuer, provided, however,
that up to 25% of the value of Growth and Income Fund's total assets may be
invested without regard to these limitations; (3) purchase securities on
margin, except for short-term credit necessary for clearance
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of portfolio transactions and except that Growth and Income Fund may make
margin deposits in connection with its use of options, futures contracts and
options on futures contracts; (4) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, Growth and Income Fund may be deemed an underwriter under the
federal securities laws; (5) make short sales of securities or maintain a short
position, except that Growth and Income Fund may (a) make short sales and may
maintain short positions in connection with its use of options, futures
contracts and options on futures contracts and (b) sell short "against the
box"; (6) purchase or sell real estate, provided that Growth and Income Fund
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interest therein; (7) purchase or
sell commodities or commodity contracts, except that Growth and Income Fund may
purchase or sell stock index futures, interest rate futures and options
thereon; (8) invest in oil, gas or mineral-related programs or leases; (9) make
loans, except through loans of portfolio securities as described herein and
except through repurchase agreements; provided that for purposes of this
restriction the acquisition of bonds, debentures, or other corporate debt
securities and investment in government obligations, short-term commercial
paper, certificates of deposit and bankers' acceptances shall not be deemed to
be the making of loans; (10) purchase any securities issued by any other
investment company, except in connection with the merger, consolidation or
acquisition of all the securities or assets of such an issuer; (11) issue
senior securities or borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in an aggregate amount not
in excess of 10% of Growth and Income Fund's total assets; provided further
that Growth and Income Fund will not purchase securities while borrowings in
excess of 5% of Growth and Income Fund's total assets are outstanding; or (12)
make an investment in any one industry if the investment would cause the
aggregate value of Growth and Income Fund's investments in such industry to
exceed 25% of Growth and Income Fund's total assets.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of Growth and Income Fund or (b) 67% or more of the shares 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, a later increase or
decrease in percentage resulting from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing limitations.
The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: Growth and Income Fund may not (1)
purchase or retain the securities of any issuer if, to the knowledge of Growth
and Income Fund's management, the officers and trustees of the Trust and the
officers and directors of Mitchell Hutchins (each owning beneficially more than
0.5% of the outstanding securities of an issuer) own in the aggregate more than
5% of the securities of the issuer; (2) purchase any security if as a result
more than 5% of it's total assets would be invested in securities of companies
that together with any predecessors have been in continuous operation for less
than three years; (3) invest more than 10% of its net assets in illiquid
securities, a term which means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which it has valued the securities and includes, among other things, repurchase
agreements maturing in more than seven days; or (4) make investments in
warrants if such investments, valued at the lower of cost or market, exceed 5%
of the value of its net assets, which amount may include warrants that are not
listed on the NYSE or Amex, provided
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that such unlisted warrants, valued at the lower of cost or market, do not
exceed 2% of the it's net assets, and further provided that this restriction
does not apply to warrants attached to, or sold as a unit with, other
securities. For purposes of this restriction, the term "warrants" does not
include options on securities, stock or bond indices or futures contracts; or
(5) invest more than 35% of its total assets in debt securities rated Ba or
lower by Moody's or BB or lower by S&P, comparably rated by another NRSRO or
determined by Mitchell Hutchins to be of comparable quality. This non-
fundamental policy (5) can be changed only upon 30 days' advance notice to
shareholders.
The Fund will continue to interpret fundamental investment limitation (6) to
prohibit investment in real estate limited partnerships.
GROWTH FUND. Growth Fund may not (1) issue senior securities or borrow money,
except from banks for temporary purposes and except for reverse repurchase
agreements, and then in an aggregate amount not in excess of 10% of Growth
Fund's total assets; provided further that Growth Fund will not purchase
securities while borrowings (including reverse repurchase agreements) in excess
of 5% of Growth Fund's total assets are outstanding; (2) make an investment in
any one industry if the investment would cause the aggregate value of Growth
Fund's investments in such industry to exceed 25% of Growth Fund's total
assets; (3) purchase securities of any one issuer (except U.S. government
securities) if as a result more than 5% of Growth Fund's total assets would be
invested in such issuer or Growth Fund would own or hold more than 10% of the
outstanding voting securities of that issuer, provided, however, that up to 25%
of the value of Growth Fund's total assets may be invested without regard to
these limitations; (4) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions and except that Growth
Fund may make margin deposits in connection with its use of options, futures
contracts and options on futures contracts; (5) underwrite securities of other
issuers, except to the extent that, in connection with the disposition of
portfolio securities, Growth Fund may be deemed an underwriter under federal
securities laws; (6) make short sales of securities or maintain a short
position, except that Growth Fund may (a) make short sales and may maintain
short positions in connection with its use of options, futures contracts and
options on future contracts and (b) sell short "against the box"; (7) purchase
or sell real estate, provided that Growth Fund may invest in securities secured
by real estate or interests therein or issued by companies that invest in real
estate or interests therein; (8) purchase or sell commodities or commodity
contracts, except that Growth Fund may purchase or sell stock index futures and
interest rate futures and options thereon; (9) invest in oil, gas or mineral-
related programs or leases; (10) make loans, except through loans of portfolio
securities as described herein and except through repurchase agreements;
provided that for purposes of this restriction the acquisition of bonds,
debentures, or other corporate debt securities and investments in government
obligations, short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of loans; or (11) purchase any
securities issued by any other investment company, except by purchase in the
open market where no commission or profit, other than a customary brokers'
commission, is earned by any sponsor or dealer associated with the investment
company whose shares are acquired as a result of such purchase, provided that
such securities in the aggregate do not represent more than 10% of Growth
Fund's total assets, and except in connection with the merger, consolidation or
acquisition of all the securities or assets of such an issuer.
The foregoing fundamental investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of Growth Fund or (b) 67% or
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more of the shares 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, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the foregoing limitations.
The following investment restrictions may be changed by the Trust's board of
trustees without shareholder approval: Growth Fund may not (1) purchase or
retain the securities of any issuer if, to the knowledge of Growth Fund's
management, the officers and trustees of the Trust and the officers and
directors of Mitchell Hutchins (each owning beneficially more than 0.5% of the
outstanding securities of an issuer) own in the aggregate more than 5% of the
securities of the issuer; (2) purchase any security if as a result more than 5%
of its total assets would be invested in securities of companies that together
with any predecessors have been in continuous operation for less than three
years; (3) invest more than 10% of its net assets in illiquid securities, a
term which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which it has valued
the securities and includes, among other things, repurchase agreements maturing
in more than seven days; (4) make investments in warrants if such investments,
valued at the lower of cost or market, exceed 5% of the value of its net
assets, which amount may include warrants that are not listed on the NYSE on
Amex, provided that such unlisted warrants, valued at the lower of cost or
market, do not exceed 2% of its net assets, and further provided that this
restriction does not apply to warrants attached to, or sold as a unit with,
other securities. For purposes of this restriction, the term "warrants" does
not include options on securities, stock or bond indices or futures contracts;
or (5) invest more than 35% of its total assets in debt securities rated Ba or
lower by Moody's or BB or lower by S&P, comparably rated by another NRSRO or
determined by Mitchell Hutchins to be of comparable quality. This non-
fundamental policy (5) can be changed only upon 30 days' advance notice to
shareholders. The Fund will continue to interpret fundamental investment
limitation (7) to prohibit investment in real estate limited partnerships.
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES. As discussed in the Prospectus,
Mitchell Hutchins (or, for Atlas Fund, GEIM) may use a variety of financial
instruments ("Hedging Instruments"), including certain options, futures
contracts (sometimes referred to as "futures"), options on futures contracts
and, in the case of Atlas Fund, forward currency contracts, to attempt to hedge
the Funds' portfolios. The particular Hedging Instruments are described in the
Appendix to the Prospectus.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Hedging Instrument intended
to partially or fully 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 Hedging 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, the Fund could exercise the put and thus
limit its loss below the exercise price to the premium paid plus transactions
costs. In the alternative,
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because the value of the put option can be expected to increase as the value of
the underlying security declines, the Fund might be able to close out the put
option and realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging 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 Hedging Instrument whose price is expected
to move in the same direction as the price of the prospective investment being
hedged. For example, a Fund might purchase a call option on a security it
intends to purchase in order to hedge against an increase in the cost of the
security. If the price of the security increased above the exercise price of
the call, the Fund could exercise the call and thus limit its acquisition cost
to the exercise price plus the premium paid and transactions costs.
Alternatively, the Fund might be able to offset the price increase by closing
out an appreciated call option and realizing a gain.
Hedging 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. Hedging 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. Hedging Instruments
on debt securities may be used to hedge either individual securities or broad
fixed income market sectors.
The use of Hedging Instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins and GEIM expect to discover additional
opportunities in connection with options, futures contracts, forward currency
contracts and other hedging techniques. These new opportunities may become
available as Mitchell Hutchins and GEIM develop new techniques, as regulatory
authorities broaden the range of permitted transactions and as new options,
futures contracts or other techniques are developed. Mitchell Hutchins or GEIM
may utilize these opportunities to the extent that they are consistent with the
Funds' investment objectives and permitted by the Funds' investment limitations
and applicable regulatory authorities. The Funds' Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the ability of
Mitchell Hutchins or GEIM to predict movements of the overall securities,
currency and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. While Mitchell
Hutchins and GEIM are experienced in the use of Hedging Instruments, there can
be no assurance that any particular hedging strategy adopted will succeed.
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(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded.
The effectiveness of hedges using Hedging Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged. Because Growth and Income Fund
invests primarily in common stocks of issuers meeting the specific criteria
described in the Prospectus, there might be a significant lack of correlation
between the portfolio and the stock indices underlying any such Hedging
Instruments used by that Fund.
(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 Mitchell Hutchins or GEIM projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Hedging Instrument. Moreover, if the price of the
Hedging Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not hedged at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If a Fund were unable to
close out its positions in such Hedging 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 a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Hedging Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of a contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. The Funds will not use Hedging Instruments for
speculative purposes or for purposes of leverage. Transactions using Hedging
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, other options or
futures contracts or (in the case of Atlas Fund) currencies or forward currency
contracts or (2) cash and short-term liquid debt 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 hedging transactions and will, if the guidelines so
require, set aside cash, U.S. government securities or other liquid, high-grade
debt securities in a segregated account with its custodian in the prescribed
amount.
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Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Funds may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices
and, in the case of Atlas Fund, foreign currencies. The purchase of call
options serves as a long hedge, and the purchase of put options serves as a
short hedge. Writing covered call options serves as a limited short hedge,
because declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be exercised and the Fund will be
obligated to sell the security at less than its market value. Writing covered
put options serves as a limited long hedge because increases in the value of
the hedged investment would be offset to the extent of the premium received for
writing the option. However, if the security depreciates to a price lower than
the exercise price of the put option, it can be expected that the put option
will be exercised and the Fund will be obligated to purchase the security at
more than its market value. The securities or other assets used as cover for
OTC options written by the Funds would be considered illiquid to the extent
described under "Investment Policies 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. 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 transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.
The Funds may purchase and write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist but are
relatively new, and these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between a Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when a Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction. The Funds will enter into OTC option transactions
only with contra parties that have a net worth of at least $20 million.
13
<PAGE>
Generally, the OTC debt options or foreign currency options (in the case of
Atlas Fund) used by the Funds are European style options. This means that the
option is only exercisable immediately prior to its expiration. This is in
contrast to American-style options, which are exercisable at any time prior to
the expiration date of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.
If 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 a Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.
Limitations on the Use of Options. A Fund's use of options is governed by the
following guidelines, which can be changed by its Trust's board of trustees
without shareholder vote:
(1) A Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the
premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets.
(2) The aggregate value of securities underlying put options written by a
Fund, determined as of the date the put options are written, will not
exceed 50% of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by the Fund that are held at any time will not
exceed 20% of the Fund's net assets.
FUTURES. The Funds may purchase and sell stock index futures contracts and
interest rate futures contracts and, in the case of Atlas Fund, foreign
currency futures contracts. The Funds may also purchase put and call options,
and write covered put and call options, on futures in which they are 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 strategies similar to those used for
writing covered options on securities or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a segregated
account with its custodian, in the name of
14
<PAGE>
the futures broker through whom the transaction was effected, "initial margin"
consisting of cash, U.S. government securities or other liquid, high-grade debt
securities, in an amount generally equal to 10% or less of the contract value.
Margin must also be deposited when writing a call option on a futures contract,
in accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, 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 the 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 the Fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Each Fund intends to enter into futures transactions only on exchanges or
boards of trade where there appears to be a liquid secondary market. However,
there can be no assurance that such a market will exist for a particular
contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If 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. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to
15
<PAGE>
further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin deposit
requirements in the futures market are less onerous than margin requirements in
the securities markets, there might be increased participation by speculators
in the futures markets. This participation also might cause temporary price
distortions. In addition, activities of large traders in both the futures and
securities markets involving arbitrage, "program trading" and other investment
strategies might result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES. A Fund's use of futures is governed by the
following guidelines, which can be changed by its Trust's board of trustees
without shareholder vote:
(1) To the extent a Fund enters into futures contracts, options on
futures positions and options on foreign currencies traded on a commodities
exchange that are not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed
5% of the Fund's net assets.
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by a Fund that are held at any time will not
exceed 20% of the Fund's net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by a Fund will not exceed 5% of the Fund's net
assets.
FOREIGN CURRENCY HEDGING STRATEGIES SPECIAL CONSIDERATIONS. Atlas Fund may
use options and futures on foreign currencies, as described above, and forward
currency forward contracts, as described below, to hedge against movements in
the values of the foreign currencies in which that Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security Atlas Fund owns or intends to acquire that are attributable to changes
in the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are
attributable to other causes.
Atlas Fund might seek to hedge against changes in the value of a particular
currency when no Hedging Instruments on that currency are available or such
Hedging Instruments are more expensive than certain other Hedging Instruments.
In such cases, Atlas Fund may hedge against price movements in that currency by
entering into transactions using Hedging Instruments on another currency or a
basket of currencies, the value of which GEIM believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the Hedging Instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Hedging Instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Hedging
Instruments, Atlas Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
16
<PAGE>
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Hedging Instruments until they
reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, Atlas Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. Atlas Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. Such transactions may serve as long
hedges--for example, Atlas Fund may purchase a forward currency contract to
lock in the U.S. dollar price of a security denominated in a foreign currency
that the Fund intends to acquire. Forward currency contract transactions may
also serve as short hedges--for example, Atlas Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
As noted above, Atlas Fund also may seek to hedge against changes in the
value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which GEIM believes will have
a positive correlation to the values of the currency being hedged. In addition,
Atlas Fund may use forward currency contracts to shift its exposure to foreign
currency fluctuations from one country to another. For example, if Atlas Fund
owned securities denominated in a foreign currency and GEIM believed that
currency would decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedging." Use of a
different foreign currency magnifies the risk that movements in the price of
the Hedging Instrument will not correlate or will correlate unfavorably with
the foreign currency being hedged.
The cost to Atlas Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When Atlas Fund enters into a forward currency contract, it relies on the
contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.
17
<PAGE>
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or
purchasing, respectively, an instrument identical to the instrument purchased
or sold. Secondary markets generally do not exist for forward currency
contracts, with the result that closing transactions generally can be made for
forward currency contracts only by negotiating directly with the contra party.
Thus, there can be no assurance that the Fund will in fact be able to close out
a forward currency contract at a favorable price prior to maturity. In
addition, in the event of insolvency of the contra party, the Fund might be
unable to close out a forward currency contract at any time prior to maturity.
In either event, the Fund would continue to be subject to market risk with
respect to the position, and would continue to be required to maintain a
position in the securities or currencies that are the subject of the hedge or
to maintain cash or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, Atlas Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Limitations on the Use of Forward Currency Contracts. Atlas Fund may enter
into forward currency contracts or maintain a net exposure to such contracts
only if (1) the consummation of the contracts would not obligate the Fund to
deliver an amount of foreign currency in excess of the value of the position
being hedged by such contracts or (2) the Fund maintains cash, U.S. government
securities or other liquid, high-grade debt securities in a segregated account
in an amount not less than the value of its total assets committed to the
consummation of the contract and not covered as provided in (1) above, as
marked to market daily.
TRUSTEES AND OFFICERS
The trustees and executive officers of each Trust (except as indicated),
their business addresses and principal occupations during the past five years
are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* EACH TRUST OTHER DIRECTORSHIPS
- ----------------- -------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Jr.**; 68 Trustee and Mr. Bewkes is a director of PaineWebber
Chairman of the Group Inc. ("PW Group") (holding company
Board of Trustees of PaineWebber and Mitchell Hutchins) and
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 also a di-
rector of Interstate Bakeries Corporation
and a director or trustee of 26 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* EACH TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Meyer Feldberg; 52 Trustee Mr. Feldberg is Dean and Professor of Man-
Columbia University agement of the Graduate School of Busi-
101 Uris Hall ness, Columbia University. Prior to July
New York, New York 10027 1989, he was president of the Illinois In-
stitute of Technology. Dean Feldberg is
also a director of AMSCO International
Inc., Federated Department Stores, Inc.,
Inco Homes Corporation and New World Com-
munications Group Incorporated and a di-
rector or trustee of 18 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
George W. Gowen; 65 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is also
a director of Columbia Real Estate Invest-
ments, Inc. and a director or trustee of
16 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
an investment adviser.
Frederic V. Malek; 58 Trustee Mr. Malek is chairman of Thayer Capital
901 15th Street, N.W. Partners (investment bank) and a co-chair-
Suite 300 man and director of CB Commercial Group
Washington, D.C. 20005 Inc. (real estate). From January 1992 to
November 1992, 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.,
NWA Inc. (holding company of Northwest
Airlines Inc.) and Wings Holdings Inc.
(holding company of NWA Inc.). Prior to
1989, he was employed by the Marriott Cor-
poration (hotels, restaurants, airline ca-
tering and contract feeding), where he
most recently was an executive vice presi-
dent and president of Marriott Hotels and
Resorts. Mr. Malek is also a director of
American Management Systems, Inc., Auto-
matic Data Processing, Inc., Avis, Inc.,
FPL Group, Inc., ICF International, Manor
Care, Inc. and National Education Corpora-
tion and a director or trustee of 16 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* EACH TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Frank P. L. Minard**; 49 Trustee Mr. Minard is chairman and a director of
Mitchell Hutchins, chairman of the board
of Mitchell Hutchins Institutional Invest-
ors Inc. and a director of PaineWebber.
Prior to 1993, Mr. Minard was managing di-
rector of Oppenheimer Capital in New York
and Director of Oppenheimer Capital Ltd.
in London. Mr. Minard is also a director
or trustee of 30 other investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Judith Davidson Moyers; 59 Trustee Mrs. Moyers is president of Public Affairs
Public Affairs Television Television, Inc., an educational consul-
356 W. 58th Street tant and a home economist. Mrs. Moyers is
New York, New York 10019 also a director of Columbia Real Estate
Investments, Inc. and Ogden Corporation
and a director or trustee of 16 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Thomas F. Murray; 89 Trustee Mr. Murray is a real estate and financial
400 Park Avenue consultant. Mr. Murray is also a director
New York, New York 10022 and chairman of American Continental Prop-
erties, Inc., a trustee of Prudential Re-
alty Trust and a director or trustee of 16
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Margo N. Alexander; 48 President Ms. Alexander is president, chief executive
officer and a director of Mitchell
Hutchins. Prior to January 1995, Ms. Alex-
ander was an executive vice president of
PaineWebber. Ms. Alexander is also presi-
dent of 26 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president and
manager--advisory administration of Mitch-
ell Hutchins. Prior to November 1993, she
was Compliance Manager of Hyperion Capital
Management, Inc., an investment advisory
firm. Prior to April 1993, Ms. Boyle was a
vice president and manager--legal adminis-
tration of Mitchell Hutchins. Ms. Boyle is
also a vice president of 39 other invest-
ment companies for which Mitchell Hutchins
or PaineWebber serves as investment advis-
er.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* EACH TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and attorney
Assistant Secretary of Mitchell Hutchins. Prior to December
1993, she was an associate at the law firm
of Seward & Kissel. Ms. Cohen is also a
vice president and assistant secretary of
26 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment
adviser.
Ellen R. Harris; 48 Vice President Ms. Harris is chief domestic equity strate-
gist and a managing director and chief in-
vestment officer--domestic of Mitchell
Hutchins. Ms. Harris is also a vice presi-
dent of 19 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is also a vice presi-
dent and assistant treasurer of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment
adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice president
Secretary and senior associate general counsel
of Mitchell Hutchins. Ms. O'Donnell is
also a vice president and secretary of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment
adviser.
Victoria E. Schonfeld; 43 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins. From
April 1990 to May 1994, she was a partner
in the law firm of Arnold & Porter. Prior
to April 1990, she was a partner in the
law firm of Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a vice
president of 39 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS* EACH TRUST OTHER DIRECTORSHIPS
- ----------------- ------------- --------------------
<S> <C> <C>
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of Mitch-
Assistant Treasurer ell Hutchins. From August 1992 to August
1994, he was a vice president at BlackRock
Financial Management, L.P. Prior to August
1992, he was an audit manager with Ernst &
Young LLP. Mr. Schubert is also a vice
president and assistant treasurer of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment
adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of Mitchell
Assistant Treasurer Hutchins. From September 1991 to April
1992, she was a fund-raising director for
a U.S. Senate campaign. Prior to September
1991, she was a tax manager with Arthur
Andersen & Co. Ms. Slezak is also a vice
president and assistant treasurer of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice president and
Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. Prior to
1991, he was an audit senior manager with
Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president and as-
Assistant Secretary sociate general counsel of Mitchell
Hutchins. Prior to 1993, he was a partner
in the law firm of Shereff, Friedman,
Hoffman & Goodman. Mr. Todd is also a vice
president and assistant secretary of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of Americas, New York, New York 10019.
** Messrs. Bewkes, Guenther and Minard are "interested persons" of each Trust
as defined in the Investment Company Act of 1940 ("1940 Act") by virtue of
their positions with PW Group, PaineWebber and/or Mitchell Hutchins.
22
<PAGE>
Each Trust pays trustees who are not "interested persons" of the Trust $250
per meeting of the board or any committee thereof; the Trusts also pay each
such trustee the following annual compensation; $3,000 for PaineWebber Atlas
Fund, $1,500 for PaineWebber America Fund and $2,000 for PaineWebber Olympus
Fund. Trustees also are reimbursed for any expenses incurred in attending
meetings. Trustees and officers of the Trusts own in the aggregate less than 1%
of the shares of each Fund. Because Mitchell Hutchins and PaineWebber perform
substantially all of the services necessary for the operation of the Trusts and
the Funds, the Trusts require no employees. No officer, director or employee of
Mitchell Hutchins or PaineWebber presently receives any compensation from the
Trusts for acting as a trustee or officer.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM THE
AGGREGATE BENEFITS TRUST AND
COMPENSATION ACCRUED AS ESTIMATED THE
FROM PART OF A ANNUAL FUND COMPLEX
PAINEWEBBER FUND'S BENEFITS UPON PAID TO
NAME OF PERSON, POSITION AMERICA FUND* EXPENSES RETIREMENT TRUSTEES**
------------------------ ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
E. Garrett Bewkes, Jr.
Trustee and chairman of
the board of trustees..... -- -- -- --
Meyer Feldberg,
Trustee................... $2,750 -- -- $86,050
George W. Gowen,
Trustee................... 2,750 -- -- 71,425
Frederic V. Malek,
Trustee................... 3,000 -- -- 77,875
Frank P.L. Minard,
Trustee................... -- -- -- --
Judith Davidson Moyers,
Trustee................... 2,750 -- -- 71,125
Thomas F. Murray,
Trustee................... 2,750 -- -- 71,925
</TABLE>
- --------
* Represents fees paid to each trustee during the fiscal year ended August 31,
1994.
** Represents total compensation paid to each trustee during the calendar year
ended December 31, 1994.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of each Fund pursuant to separate contracts dated
March 1, 1989 with the respective Trusts (each an "Advisory Contract"). Under
the Advisory Contracts, each Fund pays Mitchell Hutchins a fee, computed daily
and paid monthly at the annual rates set forth in the Prospectus.
23
<PAGE>
For the fiscal years ended August 31, 1994, August 31, 1993 and August 31,
1992, the Funds paid (or accrued) to Mitchell Hutchins the following investment
advisory and administration fees: Atlas Fund--$3,143,778, $1,307,641 and
$1,492,499; Growth and Income Fund--$4,892,163, $6,413,944 and $3,852,408; and
Growth Fund--$2,069,033, $1,402,141 and $1,017,798.
On May 19, 1994, Mitchell Hutchins entered into a sub-advisory contract with
its wholly-owned subsidiary, Mitchell Hutchins Institutional Investors Inc.
("MHII"), in order to enable Growth and Income Fund to utilize the services of
Mr. Gyandera (Joe) Joshi, MHII's Managing Director of Equity Investments as
portfolio manager. In February, 1995, Mr. Joshi became an officer and employee
of Mitchell Hutchins, and therefore, the sub-advisory contract with MHII was
terminated. Under the sub-advisory contract, MHII determined what securities
would be purchased, sold or held by the Fund, and Mitchell Hutchins (not the
Fund) paid MHII a fee in the annual amount of 0.25% of the Fund's average daily
net assets. During the period from May 19, 1994 to August 31, 1994, Mitchell
Hutchins paid or accrued to MHII sub-advisory fees of $405,821.
Under a service agreement with each Trust pursuant to which PaineWebber
provides certain services not otherwise provided by the Fund's transfer agent,
which agreements are reviewed by each Trust's board of trustees annually,
during the fiscal years ended August 31, 1994, August 31, 1993 and August 31,
1992, the Funds paid (or accrued) the following respective fees: Atlas Fund--
$169,521, $90,347 and $102,907; Growth and Income Fund--$303,496, $355,724 and
$224,546; Growth Fund--$103,435, $75,713 and $59,969.
Under the terms of the applicable Advisory Contract, each Fund bears all
expenses incurred in its operation that are not specifically assumed by
Mitchell Hutchins. Expenses borne by each Fund include the following: (1) the
cost (including brokerage commissions) of securities purchased or sold by the
Fund and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees and officers who are not interested
persons (as defined in the 1940 Act) of the Fund 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, uncollectable items of deposit and other
insurance or fidelity bonds; (9) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Trust or
Fund for violation of any law; (10) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent trustees; (11)
charges of custodians, transfer agents and other agents; (12) costs of
preparing share certificates; (13) expenses of setting in type and printing
prospectuses, statements of additional information and supplements thereto,
reports and proxy materials for existing shareholders, and costs of mailing
such materials to shareholders; (14) any extraordinary expenses (including fees
and disbursements of counsel) incurred by the Fund; (15) fee, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof;
(17) the cost of investment company literature and other publications provided
to trustees and officers; and (18) costs of mailing, stationery and
communications equipment.
24
<PAGE>
As required by state regulation, Mitchell Hutchins will reimburse a Fund if
and to the extent that the aggregate operating expenses of the Fund in any
fiscal year exceed applicable limits. Currently, the most restrictive such
limit applicable to a Fund is 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
Certain expenses, such as brokerage commissions, taxes, interest, distribution
fees, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this limitation. For the fiscal years
ended August 31, 1994, August 31, 1993 and August 31, 1992, no reimbursements
were made pursuant to such limitation for any Fund.
Under each Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. Each Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the board of trustees or by vote of the holders of a majority of a
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to a Fund.
The following table shows the approximate net assets as of March 31, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or sub-adviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT NET
CATEGORY ASSETS
---------- ------
($ MIL)
<S> <C>
Domestic (excluding Money Market)................................ $5,730.7
Global........................................................... 3,392.5
Equity/Balanced.................................................. 2,773.2
Fixed Income (excluding Money Market)............................ 6,350.0
Taxable Fixed Income........................................... 4,565.0
Tax-Free Fixed Income.......................................... 1,785.0
Money Market Funds............................................... 17,769.0
</TABLE>
Mitchell Hutchins personnel may invest in securities for their own accounts
pursuant to a code of ethics that describes the fiduciary duty owed to
shareholders of the PaineWebber and Mitchell Hutchins/Kidder, Peabody ("MH/KP")
mutual funds and other Mitchell Hutchins' advisory accounts by all Mitchell
Hutchins' directors, officers and employees, establishes procedures for
personal investing and restricts certain transactions. For example, employee
accounts generally must be maintained at PaineWebber, personal trades in most
securities require pre-clearance and short-term trading and participation in
initial public offerings generally are prohibited. In addition, the code of
ethics puts restrictions on the timing of personal investing in relation to
trades by PaineWebber and MH/KP funds and other Mitchell Hutchins advisory
clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Class C shares of each Fund under separate distribution contracts with each
Trust dated July 1, 1991 that require Mitchell Hutchins to use its best
efforts, consistent with its other business, to sell shares of the Funds.
25
<PAGE>
Class C shares of the Funds are offered continuously. Under exclusive dealer
agreements between Mitchell Hutchins and PaineWebber dated July 1, 1991,
PaineWebber and its correspondent firms sell each Fund's Class C shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board of trustees of each Trust,
Mitchell Hutchins is responsible for the execution of each Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, Mitchell Hutchins 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. Prices paid to
dealers in principal transactions, through which most debt securities and some
equity securities are traded, generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. Each Fund may invest in securities traded
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. While Mitchell Hutchins generally seeks
reasonably competitive commission rates and dealer spreads, payment of the
lowest commission or spread is not necessarily consistent with obtaining the
best net results. During the fiscal years ended August 31, 1994, August 31,
1993 and August 31, 1992, respectively, the Funds paid approximately the
following amounts in brokerage commissions: Atlas Fund--$4,545,604, $3,041,882
and $339,112; Growth and Income Fund--$1,901,499, $1,131,909 and $1,095,795;
and Growth Fund--$222,490, $150,432 and $804,066.
No Fund has any 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, including
PaineWebber. Each Trust's board of trustees has adopted procedures in
conformity with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to Mitchell Hutchins or its affiliates are reasonable and
fair. Specific provisions in each Advisory Contract authorize Mitchell Hutchins
and any of its affiliates that is a member of a national securities exchange to
effect portfolio transactions for the Fund on such exchange and to retain
compensation in connection with such transactions. Any such transactions will
be effected and related compensation paid only in accordance with applicable
SEC regulations. For the fiscal year ended August 31, 1994, Growth and Income
Fund paid $47,142 and Growth Fund paid $9,326 to PaineWebber in brokerage
commissions which represented 2.48% and 4.19%, respectively, of the total
brokerage commissions paid by the Funds and 2.81% and 2.04%, respectively, of
all portfolio transactions involving payment of commissions. For the fiscal
year ended August 31, 1993, Atlas Fund paid $4,000, Growth and Income Fund paid
$108,080 and Growth Fund paid $3,500 to PaineWebber in brokerage commissions.
For the fiscal year ended August 31, 1992, Growth and Income Fund paid $5,040
and Growth Fund paid $5,260 to PaineWebber in brokerage commissions.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"). Each Fund's procedures in selecting FCMs to execute the
Fund's 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.
26
<PAGE>
Consistent with the interests of each Fund and subject to the review of the
board of trustees of each Trust, Mitchell Hutchins may cause a Fund to purchase
and sell portfolio securities through brokers who provide the Fund with
research, analysis, advice and similar services. In return for such services,
the Fund may pay to those brokers a higher commission than may be charged by
other brokers, provided that Mitchell Hutchins determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of Mitchell Hutchins to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. Research services
furnished by brokers through which a Fund effects securities transactions may
be used by Mitchell Hutchins in advising other funds or accounts it advises
and, conversely, research services furnished to Mitchell Hutchins in connection
with other funds or accounts Mitchell Hutchins advises may be used by Mitchell
Hutchins in advising a Fund. Information and research received from brokers
will be in addition to, and not in lieu of, the services required to be
performed by Mitchell Hutchins under the Advisory Contracts. For Atlas Fund,
Growth and Income Fund and Growth Fund, for the fiscal year ended August 31,
1994, Mitchell Hutchins (and, for Growth and Income Fund, MHII) directed
$67,049,373, $223,552,118 and $3,459,145, respectively, in portfolio
transactions to brokers chosen because they provided research services, for
which the Funds paid $297,369, $259,192 and $13,789, respectively, in
commissions. The Funds may purchase and sell portfolio securities to and from
dealers who provide the Funds with research services. Portfolio transactions
will not be directed by the Funds to dealers solely on the basis of research
services provided. The Funds will not purchase portfolio securities at a higher
price or sell such securities at a lower price in connection with transactions
effected with a dealer, acting as principal, who furnishes research services to
Mitchell Hutchins than would be the case if no weight were given by Mitchell
Hutchins to the dealer's furnishing of such services. Research services
furnished by the dealers through which or with which the Funds effect
securities transactions may be used by Mitchell Hutchins in advising other
funds or accounts they advise and, conversely, research services furnished to
Mitchell Hutchins in connection with other funds or accounts that Mitchell
Hutchins advises may be used in advising the Funds.
Investment decisions for the Funds and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for a Fund and one or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund involved and such other
account(s) as to amount according to a formula deemed equitable to the Fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Fund is concerned,
or upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
No Fund will purchase securities that are offered in underwritings in which
Mitchell Hutchins or any of its affiliates is a member of the underwriting or
selling group, except pursuant to procedures adopted by the board of trustees
of each Trust pursuant to Rule 10f-3 under the 1940 Act. Among other things,
these procedures require that the spread or commission paid in connection with
such a purchase be reasonable and fair, the purchase be at not more than the
public offering price prior to the end of the first business day after the date
of the public offering and that Mitchell Hutchins or any affiliate thereof not
participate in or benefit from the sale to a Fund.
27
<PAGE>
VALUATION OF SHARES
Each Fund determines the net asset value per share separately for each Class
of shares as of the close of regular trading (currently 4:00 p.m., eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is closed on the observance of
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. and, in the case of Atlas Fund, foreign
stock exchanges are valued at the last sale price on the day the securities are
valued or, lacking any sales on such day, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
generally valued on the exchange considered by Mitchell Hutchins as the primary
market. Securities traded in the OTC market and listed on Nasdaq are valued at
the last trade price on Nasdaq at 4:00 p.m., eastern time; other OTC securities
are valued at the last bid price available prior to valuation. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of each Trust's
board of trustees. In valuing lower rated corporate debt securities it should
be recognized that judgment often plays a greater role than is the case with
respect to securities for which a broader range of dealer quotations and last-
sale information is available. All investments of Atlas Fund quoted in foreign
currency will be valued daily in U.S. dollars on the basis of the foreign
currency exchange rate prevailing at the time such valuation is determined by
the Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close
of trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events would not be
reflected in a computation of Atlas Fund's net asset value on that day. If
events materially affecting the value of such investments or currency exchange
rates occur during such time period, the investments will be valued at their
fair value as determined in good faith by or under the direction of the
applicable board of trustees. The foreign currency exchange transactions of
Atlas Fund conducted on a spot (that is, cash) basis are valued at the spot
rate for purchasing or selling currency prevailing on the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
28
<PAGE>
PERFORMANCE INFORMATION
Each Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Total Return Calculations. Average annual total return quotes ("Standardized
Return") used in a Fund's Performance Advertisements are calculated according
to the following formula:
P(1 + T)/n/ = ERV
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000 to purchase shares of a
specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B shares, the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period is deducted. All dividends and
other distributions are assumed to have been reinvested at net asset value.
Each Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). A Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years will reflect conversion of the Class B shares to
Class A shares at the end of the sixth year.
29
<PAGE>
The following table shows performance information for the Class A, Class B,
Class C and Class D shares of the Funds for the periods indicated. All returns
for periods of more than one year are expressed as an average return.
<TABLE>
<CAPTION>
ATLAS FUND
----------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*....................... 4.44% 3.48% 9.59% 8.54%
Non-Standardized Return.................... 9.34% 8.48% 9.59% 8.54%
Five years ended August 31, 1994:
Standardized Return*....................... 5.02% NA NA NA
Non-Standardized Return.................... 5.98% NA NA NA
Ten years ended August 31, 1994:
Standardized Return*....................... 15.40% NA NA NA
Non-Standardized Return.................... 15.94% NA NA NA
Inception** to August 31, 1994:
Standardized Return*....................... 13.71% 7.22% 8.68% 10.45%
Non-Standardized Return.................... 14.20% 8.29% 8.68% 10.45%
<CAPTION>
GROWTH AND INCOME FUND
----------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*....................... (5.04)% (6.31)% (0.31)% (1.29)%
Non-Standardized Return.................... (0.58)% (1.31)% (0.31)% (1.29)%
Five years ended August 31, 1994:
Standardized Return*....................... 5.32% NA NA NA
Non-Standardized Return.................... 6.30% NA NA NA
Ten years ended August 31, 1994:
Standardized Return*....................... 10.25% NA NA NA
Non-Standardized Return.................... 10.76% NA NA NA
Inception** to August 31, 1994:
Standardized Return*....................... 10.26% 3.40% 0.58% 1.79%
Non-Standardized Return.................... 10.74% 4.56% 0.58% 1.79%
<CAPTION>
GROWTH FUND
----------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1994:
Standardized Return*........................ (2.27)% (3.45)% 2.67% 1.59%
Non-Standardized Return..................... 2.33% 1.55% 2.67% 1.59%
Five years ended August 31, 1994:
Standardized Return*....................... 9.40% NA NA NA
Non-Standardized Return.................... 10.40% NA NA NA
Inception** to August 31, 1994:
Standardized Return*....................... 13.42% 10.37% 9.92% 11.13%
Non-Standardized Return.................... 13.98% 11.38% 9.92% 11.13%
</TABLE>
- --------
*All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. Until December 2, 1988, the maximum
sales charge imposed on purchases of Class A shares of the Funds was 8.5%.
This higher sales charge is not reflected in the Standardized Return set
forth above. All Standardized Return figures for Class B shares reflect
deduction of the applicable contingent deferred sales charges imposed on a
redemption of shares held for the period. Class C and Class D shares do not
impose an initial or contingent deferred sales charge; therefore, Non-
Standardized Return is identical to Standardized Return.
**The inception dates for the Class A shares of the Funds are as follows:
Atlas Fund--December 30, 1983; Growth and Income Fund--December 20, 1983;
Growth Fund--March 18, 1985. The inception date for the Class B shares of
each Fund is July 1, 1991. The inception dates for the Class C shares of the
Funds are as follows: Atlas Fund--August 26, 1991; Growth and Income Fund--
February 12, 1992; Growth Fund--August 26, 1991. The inception date for
Class D shares of each Fund is July 2, 1992.
30
<PAGE>
Other Information. In Performance Advertisements, each Fund may compare its
Standardized Return and/or its Non-Standardized Return with data published by
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Companies Services ("Wiesenberger"),
Investment Company Data, Inc. ("ICD") or Morningstar Mutual Funds
("Morningstar"), with the performance of recognized stock and other indices,
including (but not limited to) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), the Dow Jones Industrial Average, the Nasdaq Composite
Index, the Russell 2000 Index, 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. Each Fund also may refer in such materials
to mutual fund performance rankings and other data, such as comparative asset,
expense and fee levels, published by Lipper, CDA, Wiesenberger, ICD or
Morningstar. Performance Advertisements also may refer to discussions of a Fund
and comparative mutual fund data and ratings reported in independent
periodicals, including (but not limited to) THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW
YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS.
Comparisons in Performance Advertisements may be in graphic form.
Each Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a 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.
Each Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index and
the averages of yields of CDs of major banks published by Banxquote(R) Money
Markets. In comparing a Fund's performance to CD performance, investors should
keep in mind that bank CDs are insured in whole or in part by an agency of the
U.S. government and offer fixed principal and fixed or variable rates of
interest, and that bank CD yields may vary depending on the financial
institution offering the CD and prevailing interest rates. Shares of the Funds
are not insured or guaranteed by the U.S. government and returns and net asset
value will fluctuate. The securities held by the Funds generally have longer
maturities than most CDs and may reflect interest rate fluctuations for longer
term securities. An investment in a Fund involves greater risks than an
investment in either a money market fund or a CD.
A Fund may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
31
<PAGE>
[CHART TO COME]
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1993, stocks beat all
other traditional asset classes. A $10 investment in the S&P 500 grew to
$8,001, significantly more than any other investment.
The chart shown is for illustrative purposes only and does not represent any
Fund's performance and should not be considered an indication or guarantee of
future results. Year-to-year fluctuations of the S&P 500 have been significant,
and total return for some periods has been negative. The S&P 500 includes
companies with larger market capitalizations than those in which the Funds
invest. Unlike investors in bonds and 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 Treasury bonds with 20-year maturities.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code, 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, net short-term
capital gain and, for Atlas Fund, net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. Among these requirements are the following: (1) a 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 foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies ("Income
Requirement"); (2) a Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities, or any of the
following, that were held for less than three months--options, futures or
forward contracts (other than those on foreign currencies), or foreign
currencies (or options, futures or forward contracts thereon) that are not
32
<PAGE>
directly related to the Fund's principal business of investing in securities
(or options and futures with respect to securities) ("Short-Short Limitation");
(3) 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, with
these other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (4)
at the close of each quarter of 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.
Dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January.
Dividends and interest received by Atlas Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
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 that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
Atlas Fund has invested, and may continue to invest, in the stock of "passive
foreign investment companies" ("PFICs") and Growth and Income Fund and Growth
Fund may invest in the stock of PFICs if such stock is denominated in U.S.
dollars and otherwise is a permissible investment. A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under
certain circumstances, a Fund will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain from disposition of such stock (collectively "PFIC income"), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it
to the extent that income is distributed to its shareholders. If a Fund invests
in a PFIC and elects to treat the PFIC as a "qualified electing fund," then in
lieu of the foregoing tax and interest obligation, the Fund will be required to
include in income each year its pro rata share of the qualified electing fund's
annual ordinary earnings and net capital gain (the excess of net long-term
capital gain over net short-term capital loss)--which would have to be
distributed to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax--even if those earnings and gain are not distributed to the Fund. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corporations,
33
<PAGE>
including eliminating the provisions described above dealing with PFICs and
replacing them (and other provisions) with a regulatory scheme involving
entities called "passive foreign corporations." Three similar bills were passed
by Congress in 1991 and 1992 and vetoed. It is unclear at this time whether,
and in what form, the proposed modifications may be enacted into law.
Pursuant to proposed regulations, open-end RICs, such as the Funds, would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-
to-market," in this context, means recognizing as gain for each taxable year
the excess, as of the end of that year, of the fair market value of each such
PFIC's stock over the owner's adjusted basis in that stock (including mark-to-
market gain for each prior year for which an election was in effect).
The use of hedging strategies, such as writing ("selling") and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Income from foreign currencies (except certain gains
therefrom that may be excluded by future regulations), and income from
transactions in options, futures and forward currency contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures contracts (other
than those on foreign currencies) will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition of
foreign currencies, and options, futures and forward contracts on foreign
currencies, that are not directly related to a Fund's principal business of
investing in securities (or options and futures with respect to securities)
also will be subject to the Short-Short Limitation if they are held for less
than three months.
If a Fund satisfies certain requirements, any increase in value of a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the Short-
Short Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. Each Fund
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent a Fund does not qualify for this treatment,
it may be forced to defer the closing out of certain options, futures and
forward currency contracts beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
OTHER INFORMATION
Effective July 1, 1991, the names of Atlas Fund and Growth Fund were changed
from "PaineWebber Classic Atlas Fund" and "PaineWebber Classic Growth Fund" to
their current names. Growth and Income Fund's name was changed from
"PaineWebber Classic Growth and Income Fund" to PaineWebber Dividend Growth
Fund effective May 17, 1991 and to its current name effective April 3, 1995.
Effective on May 17, 1991, the fund currently referred to as PaineWebber Growth
and Income Fund was combined in a tax-free reorganization with PaineWebber
Classic Dividend Growth Fund, which was at that time another series of
PaineWebber America Fund. As a result of the reorganization, each shareholder
of PaineWebber Classic Dividend Growth Fund became a shareholder of PaineWebber
Growth and Income Fund.
34
<PAGE>
Each Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a Fund could, under
certain circumstances, be held personally liable for the obligations of the
Trust or Fund. However, each Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust or its Funds and requires that
notice of such disclaimer be given in each note, bond, contract, instrument,
certificate or undertaking made or issued by the trustees or by any officers or
officer by or on behalf of the Trust or the Fund, the trustees or any of them
in connection with the Trust. Each Declaration of Trust provides for
indemnification from a Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations, a possibility that 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, the shareholder paying
such liability will be entitled to reimbursement from the general assets of a
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 Fund.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street, N.W.,
Washington, D.C., 20036-5891, counsel to each Fund, has passed upon the
legality of the shares offered by the Prospectus. 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 each Fund.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended August 31,
1994 and Growth and Income Fund's Semi-Annual Report to Shareholders for the
six months ended February 28, 1995 are separate documents supplied with this
Statement of Additional Information, and the financial statements, accompanying
notes and (with respect to the Annual Report to Shareholders) reports of
independent auditors appearing therein are incorporated by reference in this
Statement of Additional Information.
35
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE BOND
RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; Aa. Bonds which are
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities; A. Bonds which are
rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future; Baa. Bonds which are
rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small; Caa. Bonds which are rated
Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest; Ca. Bonds which are
rated Ca represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C. Bonds which
are rated C are the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the higher
rated issues only in small degree; A. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher
36
<PAGE>
rated categories; BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than in higher rated categories;
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions; C1. The rating C1 is reserved for income bonds on which no interest
is being paid; D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
37
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - 96.91%
<C> <S> <C>
Aerospace - 3.09%
169,500 Martin Marietta Corporation........................... $ 8,623,313
27,000 McDonnell Douglas Corporation......................... 3,192,750
134,100 Loral Corporation..................................... 5,598,675
------------
17,414,738
------------
Auto - Truck - 0.25%
38,200 General Motors Corporation............................ 1,432,500
------------
Banking - 13.18%
166,600 Ahmanson H.F. and Co.................................. 3,727,675
184,912 Banc One Corporation.................................. 6,425,692
97,900 BankAmerica........................................... 4,833,813
53,900 Bank of New York...................................... 1,751,750
152,700 Central Fidelity Banks, Inc........................... 5,077,275
55,300 The Chase Manhattan Corporation....................... 2,087,575
282,000 Comerica Incorporated................................. 8,565,750
26,100 First Empire State Corporation........................ 4,110,750
87,200 First Union Corporation............................... 4,022,100
162,330 KeyCorp............................................... 5,336,599
495,900 Marshall and Ilsley Corporation....................... 10,041,975
24,500 Michigan National Corporation......................... 1,911,000
153,600 NationsBank Corporation............................... 8,563,200
56,800 Norwest Corporation................................... 1,512,300
24,600 Old Kent Financial Corporation........................ 867,150
26,900 Shawmut National Corporation.......................... 605,250
93,100 State Street Boston Corporation....................... 3,724,000
39,200 UJB Financial Corporation............................. 1,136,800
------------
74,300,654
------------
Chemical - 1.01%
335,200 Methanex Corporation.................................. 5,698,400
------------
Computer - 6.04%
184,200 COMPAQ Computer Corporation*+......................... 6,884,475
179,600 Computer Associates International Incorporated........ 7,206,450
167,400 Informix Corporation.................................. 3,954,825
126,100 International Business Machines Corporation+.......... 8,653,613
77,200 Micron Technology Inc................................. 3,107,300
99,300 Oracle Systems Corporation*........................... 4,238,869
------------
34,045,532
------------
Conglomerates - 1.33%
24,500 E.I. dupont de Nemours and Company+................... 1,482,250
97,200 General Electric Company.............................. 4,835,700
19,800 Proctor & Gamble Co.+................................. 1,205,325
------------
7,523,275
------------
</TABLE>
10
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Conglomerates - Diversified - 0.29%
198,000 Laidlaw Inc........................................... $ 1,608,750
------------
Construction & Engineering - 1.96%
80,500 Fluor Corporation..................................... 4,266,500
190,900 Louisiana Pacific Corporation......................... 6,776,950
------------
11,043,450
------------
Drugs & Medical Products - 5.49%
192,200 Abbott Laboratories................................... 5,766,000
110,300 American Cyanamid..................................... 10,643,950
76,000 American Home Products Corporation.................... 4,512,500
200,000 Johnson & Johnson..................................... 10,025,000
------------
30,947,450
------------
Electronics & Instrumentation - 4.91%
39,200 Altera Corporation.................................... 1,195,600
126,900 Circuit City Stores Inc............................... 3,013,875
28,900 Texas Instruments Incorporated........................ 2,250,588
140,700 Raytheon Company...................................... 9,514,838
102,600 Reliance Electric Co.................................. 2,629,125
185,900 Reynolds & Reynolds Co................................ 4,903,113
294,000 Westinghouse Electric Corporation..................... 4,152,750
------------
27,659,889
------------
Environmental Services - 2.70%
73,500 Molten Metal Technology Inc........................... 1,855,875
107,900 Safety Kleen Corporation.............................. 1,820,813
385,300 WMX Technologies, Inc................................. 11,559,000
------------
15,235,688
------------
Financial Services - 2.83%
39,500 Beneficial Corporation................................ 1,698,500
160,200 Federal National Mortgage Association................. 14,237,775
------------
15,936,275
------------
Foods - 1.37%
236,500 ConAgra, Inc.......................................... 7,745,375
------------
Healthcare - 2.93%
76,500 Foundation Health Corporation......................... 2,897,438
90,800 Humana Inc............................................ 1,929,500
317,100 National Medical Enterprises Inc...................... 5,787,075
136,900 U.S. Healthcare, Inc.................................. 5,920,925
------------
16,534,938
------------
</TABLE>
11
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Household & Consumer Products - 3.50%
63,700 The Gillette Company.................................. $ 4,610,288
70,966 Lancaster Colony Corporation.......................... 2,572,518
117,100 Nike Inc.............................................. 7,538,313
243,800 Rite Aid Corporation.................................. 5,028,375
------------
19,749,494
------------
Industrial & Electronic Products - 12.29%
20,600 AMP Incorporated...................................... 1,496,075
111,700 Atmel Corporation..................................... 3,071,750
77,500 Corning Inc........................................... 2,392,813
186,800 Donaldson Inc......................................... 4,786,750
125,000 Dover Corporation..................................... 7,234,375
117,600 Emerson Electric Co................................... 7,305,900
161,100 Federal Signal Corporation............................ 3,201,863
46,800 Foster Wheeler Corporation............................ 1,907,100
57,900 General Dynamics Corporation.......................... 2,612,738
50,000 Genuine Parts Co...................................... 1,837,500
107,200 Inland Steel Industries............................... 4,435,400
168,500 Integrated Device Technology.......................... 3,938,688
39,200 Molex Inc............................................. 1,675,800
91,800 Nucor Corporation..................................... 6,334,200
129,600 Pentair Inc........................................... 5,281,200
44,100 Symbol Technologies................................... 1,311,975
485,250 Worthington Industries, Inc........................... 10,432,875
------------
69,257,002
------------
Insurance - 6.99%
112,600 AFLAC Incorporated.................................... 4,039,525
63,700 American International Group Inc...................... 5,987,800
90,800 Equitable of Iowa Companies........................... 3,541,200
35,600 General Re Corporation................................ 3,973,850
85,800 Lincoln National Corporation.......................... 3,303,300
78,700 NWNL Companies........................................ 2,479,050
230,700 Providian Corporation................................. 7,757,288
103,400 St. Paul Companies, Inc............................... 4,472,050
62,800 The Progressive Corporation........................... 2,370,700
41,200 U.S. Life Corporation................................. 1,478,050
------------
39,402,813
------------
Machinery - Machine Tools - 1.03%
34,000 Illinois Tool Works Inc............................... 1,470,500
67,100 W.W. Grainger, Inc.................................... 4,361,500
------------
5,832,000
------------
</TABLE>
12
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
Medical Equipment - 0.98%
56,100 Medtronic, Inc........................................ $ 5,539,875
------------
Metals & Mining - 0.63%
228,400 Echo Bay Mines Ltd.................................... 2,912,100
50,000 Hecla Mining.......................................... 612,500
------------
3,524,600
------------
Oil & Gas - 4.57%
78,200 Amoco Corporation..................................... 4,525,825
114,700 Chevron Corporation................................... 4,860,413
131,700 Duke Power Co......................................... 5,103,375
67,500 Mobil Corporation..................................... 5,686,875
29,400 Texaco Inc............................................ 1,815,450
311,700 Weatherford International............................. 3,779,363
------------
25,771,301
------------
Printing & Publishing - 2.07%
197,000 Banta Corporation..................................... 6,648,750
100,100 Gannett Company Inc................................... 5,005,000
------------
11,653,750
------------
Retail - 2.01%
235,700 American Stores Co.................................... 5,951,425
52,900 Caldor Corporation*................................... 1,686,188
198,600 Waban Inc............................................. 3,674,100
------------
11,311,713
------------
Retail Food Chains - 1.30%
176,300 Albertson's, Inc...................................... 5,090,663
79,200 McDonald's Corporation................................ 2,237,400
------------
7,328,063
------------
Security Services - 0.36%
73,000 Pittson Services Group................................ 2,034,875
------------
Specialty Chemicals - 2.79%
200,000 Hanna M.A. Co......................................... 5,425,000
166,800 Lubrizol Corporation.................................. 5,212,500
245,900 Pall Corporation...................................... 4,426,200
30,000 Praxair Inc........................................... 682,500
------------
15,746,200
------------
</TABLE>
13
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCKS - (CONCLUDED)
<C> <S> <C>
Specialty Retail - 6.91%
90,100 Dayton Hudson Corporation............................. $ 7,635,975
107,100 Diebold Incorporated.................................. 4,618,688
72,800 Leggett & Platt Inc................................... 2,693,600
80,400 Loctite Corporation................................... 3,648,150
23,900 Lowes Companies, Inc.................................. 863,388
107,700 Nordstrom Inc......................................... 5,061,900
286,100 The Pep Boys--Manny, Moe & Jack....................... 9,977,738
72,800 The Sherwin-Williams Company.......................... 2,411,500
92,900 United States Shoe Corporation........................ 2,043,800
------------
38,954,739
------------
Telecommunications - Services - 1.02%
101,900 Sprint Corporation.................................... 4,037,788
41,100 Tellabs............................................... 1,731,338
------------
5,769,126
------------
Telephone Companies - 1.16%
138,100 Century Telephone Enterprises Incorporated............ 4,160,263
38,000 Telefonos de Mexico, S.A. de C.V., ADS+............... 2,384,500
------------
6,544,763
------------
Tobacco - 1.55%
142,800 Philip Morris Companies Inc........................... 8,710,800
------------
Transportation - 0.37%
32,100 Norfolk Southern Corporation.......................... 2,062,425
------------
Total Common Stocks (cost - $520,423,286)........................ 546,320,453
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- -------------------- --------------
CORPORATE BOND - 0.42%
<C> <S> <C> <C> <C>
$2,400 Developers Diversified
Realty Corporation
(cost - $2,396,496).... 08/15/99 7.000% 2,370,000
------------
U.S. GOVERNMENT OBLIGATIONS - 4.43%
U.S. Treasury Bills
25,000 (cost - $24,971,417)... 09/08/94 to 09/22/94 4.125 to 4.300 24,971,417
------------
REPURCHASE AGREEMENT - 1.47%
8,265 Repurchase Agreement
dated 08/31/94 with
State Street Bank &
Trust Co.,
collateralized by
$8,334,000 U.S.
Treasury Notes, 5.875%,
due 05/31/96; proceeds:
$8,266,079 (cost -
$8,265,000)........... 09/01/94 4.700 8,265,000
------------
Total Investments (cost -
$556,056,199)-103.23%............. 581,926,870
Liabilities in excess of other
assets-(3.23%)..................... (18,227,407)
------------
Net Assets-100.00%................. $563,699,463
============
</TABLE>
14
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 1994
WRITTEN OPTIONS OPEN (SEE OPTIONS NOTE TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION EXERCISE UNREALIZED
OPTIONS UNDERLYING CONTRACT DATE PRICE GAIN/LOSS
--------- ------------------- ---------- -------- ----------
<C> <S> <C> <C> <C>
Call: 750 Compaq Computer Corporation........ Sep 94 $35 $(124,128)
Call: 97 Dover Corporation.................. Sep 94 60 1,654
Call: 245 E.I. dupont de Nemours and Company. Sep 94 60 (675)
Call: 120 International Business Machines
Corporation........................ Sep 94 65 (35,610)
Call: 23 Nucor Corporation.................. Sep 94 75 2,518
Call: 198 Proctor & Gamble Co................ Sep 94 60 (10,495)
Call: 290 Telefonos de Mexico, S.A. de C.V.,
ADS................................ Sep 94 65 36,284
Call: 28 Texas Instruments Incorporated..... Sep 94 85 4,529
---------
$(125,923)
=========
</TABLE>
- -------
* Non-income producing security
ADS - American Depository Shares
+ A portion of these securities are held in a segregated account in order to
cover the written call options.
See accompanying notes to financial statements
15
<PAGE>
PAINEWEBBER
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1994
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Investments at value (cost -
$451,946,512, $556,056,199 and
$245,453,003, respectively)........... $486,225,696 $581,926,870 $301,683,466
Cash................................... 1,696,130 -- --
Cash denominated in foreign currencies
(cost - $2,157,820)................... 2,162,243 -- --
Receivable for investments sold........ 78,708,726 39,197,307 630,713
Receivable for shares of beneficial
interest sold......................... 2,034,218 523,469 778,016
Dividends and interest receivable...... 987,591 1,381,695 285,853
Other assets........................... 86,207 83,215 49,267
------------ ------------ ------------
Total assets........................... 571,900,811 623,112,556 303,427,315
------------ ------------ ------------
Liabilities
Payable for investments purchased...... 73,463,410 54,104,047 3,791,573
Payable for shares of beneficial
interest repurchased.................. 2,102,868 3,939,157 1,407,278
Payable to affiliates.................. 551,392 670,109 327,942
Payable to custodian................... -- 13,210 --
Outstanding options written, at value
(premium received-$240,683)........... -- 366,606 --
Accrued expenses and other liabilities. 283,382 319,964 203,827
------------ ------------ ------------
Total liabilities...................... 76,401,052 59,413,093 5,730,620
------------ ------------ ------------
Net Assets
Beneficial interest shares of $0.001
par value outstanding (unlimited
amount authorized).................... 450,623,732 514,398,491 241,366,969
Accumulated undistributed
(overdistributed) net investment
income (loss)......................... (39,139) 816,845 --
Accumulated net realized gains from
investments, futures contracts and
other assets and liabilities
denominated in foreign currencies..... 10,713,772 22,739,394 99,263
Net unrealized appreciation of
investments, other assets, liabilities
and forward contracts denominated in
foreign currencies.................... 34,201,394 25,744,733 56,230,463
------------ ------------ ------------
Net assets............................. $495,499,759 $563,699,463 $297,696,695
============ ============ ============
Class A:
Net assets............................. $213,412,735 $222,432,020 $141,341,994
------------ ------------ ------------
Shares outstanding..................... 13,067,673 10,886,403 7,051,464
------------ ------------ ------------
Net asset value and redemption value
per share............................. $16.33 $20.43 $20.04
============ ============ ============
Maximum offering price per share (net
asset value plus sales charge of 4.50%
of offering price).................... $17.10 $21.39 $20.99
============ ============ ============
Class B:
Net assets............................. $166,038,652 $289,290,474 $ 97,272,378
------------ ------------ ------------
Shares outstanding..................... 10,374,074 14,200,805 4,980,331
------------ ------------ ------------
Net asset value and offering price per
share................................. $16.01 $20.37 $19.53
============ ============ ============
Class C:
Net assets............................. $ 38,912,003 $ 14,690,138 $ 30,520,964
------------ ------------ ------------
Shares outstanding..................... 2,371,031 719,186 1,509,546
------------ ------------ ------------
Net asset value, offering price and
redemption value per share............ $16.41 $20.43 $20.22
============ ============ ============
Class D:
Net assets............................. $ 77,136,369 $ 37,286,831 $ 28,561,359
------------ ------------ ------------
Shares outstanding..................... 4,792,503 1,825,598 1,452,038
------------ ------------ ------------
Net asset value, offering price and
redemption value per share............ $16.10 $20.42 $19.67
============ ============ ============
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
PAINEWEBBER
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
ATLAS
GLOBAL DIVIDEND
GROWTH GROWTH GROWTH
FUND FUND FUND
----------- ------------ ----------
<S> <C> <C> <C>
Investment income:
Interest and dividends (net of foreign
withholding taxes)...................... $ 6,361,747 $ 17,328,492 $3,596,961
----------- ------------ ----------
Expenses:
Investment advisory and administration
fees.................................... 3,143,778 4,892,163 2,069,033
Distribution fees--Class A............... 398,327 637,190 294,533
Distribution fees--Class B............... 1,271,219 3,590,435 837,161
Distribution fees--Class D............... 631,019 476,859 259,279
Custody fees............................. 938,623 189,428 132,881
Transfer agency and service fees......... 441,359 911,264 274,152
Legal and audit fees..................... 141,975 158,567 93,806
Reports and notices to shareholders...... 105,508 467,045 79,070
Federal and state registration fees...... 91,469 82,534 59,658
Trustees' fees........................... 23,013 21,513 8,125
Other expenses........................... 80,935 16,243 23,234
----------- ------------ ----------
7,267,225 11,443,241 4,130,932
----------- ------------ ----------
Net investment income (loss)............. (905,478) 5,885,251 (533,971)
----------- ------------ ----------
Realized and unrealized gains (losses)
from investment activities:
Net realized gains (losses) from:
Investment transactions................. 46,878,125 39,114,080 5,195,790
Foreign currency transactions........... (26,960,620) -- --
Net change in unrealized
appreciation/depreciation on:
Investments............................. 100,618 (55,515,214) (2,125,984)
Other assets, liabilities and forward
contracts denominated in foreign
currencies............................. 1,495,014 -- --
----------- ------------ ----------
Net realized and unrealized gains (loss-
es) from investment activities.......... 21,513,137 (16,401,134) 3,069,806
----------- ------------ ----------
Net increase (decrease) in net assets re-
sulting from operations................. $20,607,659 $(10,515,883) $2,535,835
=========== ============ ==========
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
From operations:
Net investment income............................ $ 5,885,251 $ 8,312,022
Net realized gains (losses) from investment
transactions.................................... 39,114,080 (4,504,035)
Net change in unrealized appreciation
(depreciation) of investments................... (55,515,214) 12,485,667
------------- -------------
Net increase (decrease) in net assets resulting
from operations................................. (10,515,883) 16,293,654
------------- -------------
Dividends and distributions to shareholders from:
Net investment income--Class A................... (3,856,398) (4,917,875)
Net investment income--Class B................... (1,961,819) (2,409,908)
Net investment income--Class C................... (252,881) (216,900)
Net investment income--Class D................... (271,483) (287,189)
Net realized gains from investment transactions--
Class A......................................... (465,992) --
Net realized gains from investment transactions--
Class B......................................... (609,981) --
Net realized gains from investment transactions--
Class C......................................... (23,298) --
Net realized gains from investment transactions--
Class D......................................... (82,066) --
------------- -------------
(7,523,918) (7,831,872)
------------- -------------
From beneficial interest transactions:
Net proceeds from the sale of shares............. 42,483,056 357,184,036
Cost of shares repurchased....................... (367,026,971) (242,079,223)
Proceeds from dividends reinvested............... 6,947,309 7,272,418
------------- -------------
Net increase (decrease) in net assets derived
from beneficial interest transactions........... (317,596,606) 122,377,231
------------- -------------
Net increase (decrease) in net assets............ (335,636,407) 130,839,013
Net assets:
Beginning of period.............................. 899,335,870 768,496,857
------------- -------------
End of period (including undistributed net
investment income of $816,845 and $1,272,598
respectively)................................... $ 563,699,463 $ 899,335,870
============= =============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Atlas Global Growth Fund ("Atlas Global Growth Fund"), PaineWebber
Dividend Growth Fund ("Dividend Growth Fund") and PaineWebber Growth Fund
("Growth Fund") (collectively, the "Funds") are diversified series of
PaineWebber Atlas Fund, PaineWebber America Fund and PaineWebber Olympus Fund
(the "Trusts"), respectively. PaineWebber Olympus Fund also includes
PaineWebber Communications & Technology Growth Fund of which the financial
statements are not included herein. The three Trusts were organized under
separate Declarations of Trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended ("1940 Act"),
as diversified open-end investment companies. The trustees have authority to
issue an unlimited number of shares of beneficial interest of separate series
par value $0.001.
Prior to July 1, 1991, each Fund issued only Class A shares. Subsequent to that
date each Fund issued Class A and Class B shares. On August 25, 1991, Growth
Fund and Atlas Global Growth Fund and on February 12, 1992, Dividend Growth
Fund commenced issuing Class C Shares. Class C shares are available only to the
trustee of the PaineWebber Savings Investment Plan on behalf of that Plan. On
July 2, 1992, each Fund commenced issuing Class D shares. Each class represents
interests in the same assets of the applicable Fund and the classes are
identical except for differences in their sales charge structure, ongoing
distribution charges and transfer agency expenses. In addition, Class B shares,
along with their pro-rata reinvested dividends shares, automatically convert to
Class A shares approximately six years after initial issuance. All classes of
shares have equal rights as to voting privileges, except that each class has
exclusive voting rights with respect to its distribution plan.
Valuation of Investments - Securities which are listed on U.S. and foreign
stock exchanges are valued at the last sales price on the day the securities
are being 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 designated by Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), an affiliate and wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser,
administrator and distributor of the Funds, and Mitchell Hutchins Institutional
Investors Inc., ("MHII") the Sub-Adviser to Dividend Growth Fund, as the
primary market. Securities traded in the over-the-counter ("OTC") market and
listed on the National Association of Securities Dealers Quotation System
("NASDAQ") are valued at the last trade price on NASDAQ prior to the time of
valuation; other OTC securities are valued at the last bid price available in
the OTC market prior to the time of valuation. The amortized cost method of
valuation is used to value short term debt instruments with sixty days or less
remaining to maturity. Securities and assets for which market quotations are
not
26
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
readily available (including restricted securities subject to limitations as to
their sale) are valued at fair value as determined in good faith by or under
the direction of each Trust's Board of Trustees. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is
determined by each Fund's custodian.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange, Inc. ("NYSE"). Occasionally events affecting the
value of foreign investments and such exchange rates occur between the time at
which they are determined and the close of the NYSE, which in the case of Atlas
Global Growth Fund, would not be reflected in a computation of the Funds' net
asset value. If events materially affecting the value of such securities or
currency exchange rates occurred during such time period, the securities will
be valued at their fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
Investment Transactions and Investment Income - Investment transactions are
recorded on the trade date. Realized gains and losses on sales of investments,
futures contracts and foreign exchange transactions are calculated using the
identified cost method. Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date (except in the case of
Atlas Global Growth Fund, for certain foreign securities which are recorded as
soon after the ex-date as the Fund becomes aware of such dividend).
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains (losses) are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of dividend-
eligible shares, as appropriate) of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).
Class specific expenses are charged directly to the applicable class of shares.
Foreign Currency Translation - The books and records of Atlas Global Growth
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) market value of investment securities, other assets and liabilities--at
the exchange rates prevailing at the end of the period.
(2) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Atlas Global Growth Fund are
presented at the foreign exchange rates at the end of the period, Atlas Global
Growth Fund does not generally isolate the effect of unrealized fluctuations in
foreign exchange rates from the effect of the changes in market prices of
securities. However, Atlas Global Growth Fund does isolate the effect of
realized
27
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fluctuations in foreign exchange rates when determining the realized gain or
loss upon the sale or maturity of foreign currency-denominated debt obligations
pursuant to federal income tax regulations. Foreign security and currency
transactions may involve certain considerations and risks not typically
associated with investing in U.S. companies and the U.S. Government. These
risks include re-evaluation of currencies and future adverse political and
economic developments, which could cause securities and their markets to be
less liquid and prices more volatile than those of comparable U.S. companies
and the U.S. Government.
Forward Foreign Currency Contracts - Atlas Global Growth Fund may enter into
forward foreign currency exchange contracts ("forward contracts") in connection
with planned purchases or sales of securities or to hedge the U.S. dollar value
of portfolio securities denominated in a particular currency.
Atlas Global Growth Fund has no specific limitation on the percentage of assets
which may be committed to such contracts. Atlas Global Growth Fund may enter
into forward contracts or maintain a net exposure to forward contracts only if
(1) the consummation of the contracts would not obligate Atlas Global Growth
Fund to deliver an amount of foreign currency in excess of the value of the
positions being hedged by such contracts or (2) Atlas Global Growth Fund
maintains cash, U.S. Government securities or liquid, high-grade debt
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the forward contracts.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their forward contracts and
from unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Futures Contracts - Each of the Funds is permitted to use financial futures
contracts to hedge its portfolio. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash and/or
U.S. Government securities equal to a certain percentage of the contract
amount. This amount is known as the "initial margin." Subsequent payments,
known as "variation margin," are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying financial
futures contract. Such variation margin is recorded for financial statement
purposes on a daily basis as unrealized gain or loss, until the financial
futures contract is closed, at which time the gain or loss is reclassified to
realized.
Using financial futures contracts involves various market risks. The Fund is
subject to a number of guidelines which reduce this risk by seeking to ensure
that financial futures contracts are used solely for hedging purposes and not
for leverage. However, imperfect correlations between financial futures and the
instruments being hedged or market disruptions do not normally permit full
control of these risks at all times. Financial futures contracts in which the
Fund invests does not represent exposure to default or other credit risk.
28
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Option Writing - When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statements of Assets
and Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option written. If an option which the Fund has written either expires
on its stipulated expiration date or the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from the
sale are increased by the premium originally received. If a put option which
the Fund has written is exercised, the amount of the premium originally
received reduces the cost of the security which the Fund purchases upon
exercise of the option.
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.
Repurchase Agreements - Each Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. Each Fund occasionally
participates in joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
29
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Federal Tax Status - Each Fund intends to distribute all of its taxable income
and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, each Fund intends not to be subject to any
federal excise tax.
During the fiscal year ended August 31, 1994, Dividend Growth Fund utilized all
prior fiscal year's carryover losses of $11,391,318 to offset a portion of net
realized gains during the year.
Dividends - The Funds record dividends and distributions to their shareholders
on the ex-date.
Change in Accounting for Distributions to Shareholders - During the year ended
August 31, 1994, the Funds adopted Statement of Position 93-2, Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital. For the year ended August 31, 1994 the effects of such
permanent differences totalled $1,126,972, $10,625 and $304,392 for the Atlas
Global Growth Fund, Dividend Growth Fund and Growth Fund, respectively.
INVESTMENT ADVISER AND ADMINISTRATOR
Each of the Funds has entered into an Investment Advisory and Administration
Contract ("Advisory Contract") with Mitchell Hutchins. In accordance with the
Advisory Contract each Fund pays Mitchell Hutchins an investment advisory and
administration fee, which is accrued daily and paid monthly, in accordance with
the following schedule:
<TABLE>
<CAPTION>
ATLAS
GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
<S> <C> <C> <C>
As a % of Average Daily Net Assets.......... 0.750% 0.700% 0.750%
</TABLE>
At August 31, 1994, Atlas Global Growth Fund, Dividend Growth Fund and Growth
Fund owed Mitchell Hutchins $302,957, $331,372 and $186,949, respectively, in
investment advisory and administration fees.
30
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended August 31, 1994, Atlas Global Growth Fund paid $22,858,
Dividend Growth Fund paid $47,142 and Growth Fund paid $9,326 in brokerage
commissions to PaineWebber for transactions executed on behalf of the Funds.
Under a separate contract Mitchell Hutchins (not the Fund) pays MHII, the Sub-
Adviser, a monthly fee, at an annual rate of 0.25% of the average daily net
assets.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Funds if and to the extent that the aggregate operating expenses
in any fiscal year, exclusive of taxes, distribution fees, interest, brokerage
fees and extraordinary expenses, exceed limitations imposed by various state
regulations. Currently, the most restrictive limitation applicable to the Funds
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of any excess over $100 million. For the year ended August
31, 1994, no reimbursements were required pursuant to the above limitation for
any of the Funds.
DISTRIBUTION PLANS
Mitchell Hutchins is the distributor of each 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 and Class D
shares ("Class A Plan", "Class B Plan" and "Class D Plan", collectively
"Plans"), each class of shares of each Fund pays Mitchell Hutchins monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
of Class A, Class B and Class D shares and monthly distribution fees at the
annual rate of up to 0.75% of the average daily net assets on Class B and Class
D shares. At August 31, 1994, Atlas Global Growth Fund, Dividend Growth Fund
and Growth Fund owed Mitchell Hutchins $232,142, $317,151 and $131,464,
respectively, in service and distribution fees.
Mitchell Hutchins also receives the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the contingent deferred sales charges
paid upon certain redemptions of Class B shares. Mitchell Hutchins has informed
each Fund that for the year ended August 31, 1994, it earned the following
amounts in sales charges:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ----------- -----------
<S> <C> <C> <C>
Initial sales charges--Class A............ $900,089 $ 186,333 $367,454
======== ========== ========
Contingent deferred sales charges--Class
B........................................ $345,680 $2,384,664 $235,285
======== ========== ========
</TABLE>
TRANSFER AGENCY SERVICE FEES
Each Fund pays PaineWebber an annual fee of $4.00 per active PaineWebber
shareholder account for certain services not provided by the Fund's transfer
agent. For these services during the year ended August 31, 1994, PaineWebber
earned $169,521, $303,496 and $103,435 from Atlas Global Growth Fund, Dividend
31
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Growth Fund and Growth Fund, respectively. At August 31, 1994, PaineWebber was
owed $16,293, $21,586 and $9,529 by Atlas Global Growth Fund, Dividend Growth
Fund and Growth Fund, respectively, for transfer agency service fees.
TRANSACTION WITH AFFILIATED COMPANY
An affiliated company represents ownership of at least 5% of the voting
securities of the issuer during the period, as defined in the Investment
Company Act of 1940.
At August 31, 1994, Growth Fund owned 330,000 shares of common stock of The
Right Start, Inc. with an original cost of $1,679,943 and a market value of
$1,237,500. Additionally, Growth Fund owned 280,000 shares of common stock of
TDX Corporation with an original cost of $1,429,375 and a market value of
$630,000 at August 31, 1994.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1994, was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1994, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
<S> <C> <C> <C>
Gross appreciation (investments
having an excess of value over
cost)............................... $ 61,827,954 $32,579,873 $68,719,273
Gross depreciation (investments
having an excess of cost over
value).............................. (27,548,770) (6,835,140) (12,488,810)
------------ ------------ ------------
Net unrealized appreciation of
investments......................... $ 34,279,184 $25,744,733 $56,230,463
============ =========== ===========
For the year ended August 31, 1994, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
<CAPTION>
ATLAS GLOBAL DIVIDEND
GROWTH FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
<S> <C> <C> <C>
Purchases............................ $885,073,201 $615,827,471 $115,515,291
Sales................................ $720,924,925 $884,095,619 $ 55,057,720
</TABLE>
WRITTEN OPTION ACTIVITY
Written option activity for the year ended August 31, 1994 for the Dividend
Growth Portfolio were as follows:
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
--------- ---------
<S> <C> <C>
Options outstanding at August 31, 1993..................... -- --
Options written during the year ended August 31, 1994...... 3,419 $(447,072)
Options cancelled in closing purchase transactions......... (794) 38,659
Options expired prior to exercise.......................... (52) 30,431
Options exercised.......................................... (822) 137,299
----- ---------
Options outstanding at August 31, 1994..................... 1,751 $(240,683)
----- ---------
</TABLE>
32
<PAGE>
PAINEWEBBER
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount $.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------------------- ---------------------- ------------------ ----------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas Global Growth Fund
Shares sold............. 4,374,615 2,062,053 8,462,152 3,368,472 1,277,510 558,621 5,544,502 2,476,773
Shares repurchased...... (2,546,254) (3,252,930) (2,070,066) (354,428) (16,493) (15,300) (2,942,263) (446,313)
Shares converted from
Class B to Class A..... 234,710 73,207 (238,599) (73,969) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 447,367 -- 233,092 -- 69,872 -- 121,480 --
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. 2,510,438 (1,117,670) 6,386,579 2,940,075 1,330,889 543,321 2,723,719 2,030,460
========== ========== ========== ========== ========= ======= ========== ==========
Dividend Growth Fund
Shares sold............. 484,780 3,649,956 1,075,994 9,598,413 165,180 349,190 355,387 3,363,139
Shares repurchased...... (7,207,269) (5,129,795) (8,992,340) (5,457,981) (274,997) (59,757) (1,515,548) (1,042,586)
Shares converted from
Class B to Class A..... 199,102 969,178 (199,711) (972,092) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 193,794 216,385 116,857 107,714 13,616 10,374 16,282 12,903
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
Net increase (decrease)
in shares outstanding.. (6,329,593) (294,276) (7,999,200) 3,276,054 (96,201) 299,807 (1,143,879) 2,333,456
========== ========== ========== ========== ========= ======= ========== ==========
Growth Fund
Shares sold............. 1,549,566 1,057,760 2,917,179 1,676,649 461,518 339,355 1,795,537 888,972
Shares repurchased...... (1,255,407) (1,274,682) (985,658) (700,517) (8,765) (53,240) (1,207,404) (226,889)
Shares converted from
Class B to Class A..... 106,274 227,587 (108,639) (230,281) -- -- -- --
Dividends reinvested
resulting in sale of
Fund shares............ 322,249 201,137 180,416 75,417 57,056 25,434 55,665 10,332
---------- ---------- ---------- ---------- --------- ------- ---------- ----------
Net increase in shares
outstanding............ 722,682 211,802 2,003,298 821,268 509,809 311,549 643,798 672,415
========== ========== ========== ========== ========= ======= ========== ==========
</TABLE>
33
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $20.86 $20.48 $19.26 $15.87 $16.50
-------- -------- -------- -------- -------
Income (loss) from
investment operations:
Net investment income....... 0.28 0.28 0.24 0.19 0.51
Net realized and unrealized
gains (losses) from
investment transactions.... (0.41) 0.37 1.25 3.50 (0.61)
-------- -------- -------- -------- -------
Total income (loss) from
investment operations...... (0.13) 0.65 1.49 3.69 (0.10)
-------- -------- -------- -------- -------
Less dividends and
distributions:
Dividends from net
investment income.......... (0.27) (0.27) (0.27) (0.30) (0.53)
Distributions from net
realized gains on
investments................ (0.03) -- -- -- --
-------- -------- -------- -------- -------
Total dividends and
distributions.............. (0.30) (0.27) (0.27) (0.30) (0.53)
-------- -------- -------- -------- -------
Net asset value, end of
period..................... $20.43 $20.86 $20.48 $19.26 $15.87
======== ======== ======== ======== =======
Total return(1)............. (0.58)% 3.15% 7.78% 23.62% (0.72)%
======== ======== ======== ======== =======
Ratios/Supplemental Data:
Net assets, end of period
(000's).................... $222,432 $359,073 $358,643 $232,555 $58,649
Ratio of expenses to average
net assets................. 1.20% 1.13% 1.22% 1.42% 1.41%
Ratio of net investment
income to average net
assets..................... 1.29% 1.33% 1.26% 1.79% 3.11%
Portfolio turnover.......... 94.32% 36.52% 15.57% 52.00% 32.10%
</TABLE>
- -------
* Annualized.
+ Commencement of offering of shares.
(1) Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends and capital gain
distributions at net asset value on the payable date, and a sale at net
asset value on the last day of each period reported. The figures do not
include sales charges; results for Class A and Class B shares would be
lower if sales charges were included. Total return information for periods
less than one year is not annualized.
36
<PAGE>
PAINEWEBBER
DIVIDEND GROWTH FUND
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D
- ----------------------------------------- ----------------------------------- ---------------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEARS ENDED JULY 1, FOR THE YEARS ENDED FEBRUARY 12, FOR THE YEARS ENDED JULY 2,
AUGUST 31, 1991+ TO AUGUST 31, 1992+ TO AUGUST 31, 1992+ TO
- ----------------------------- AUGUST 31, --------------------- AUGUST 31, --------------------- AUGUST 31,
1994 1993 1992 1991 1994 1993 1992 1994 1993 1992
- -------- -------- -------- ---------- --------- --------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$20.78 $20.41 $19.23 $18.04 $20.86 $20.48 $20.95 $20.83 $20.47 $20.95
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
0.10 0.12 0.13 0.02 0.33 0.33 0.16 0.11 0.11 0.02
(0.37) 0.36 1.20 1.17 (0.40) 0.37 (0.49) (0.38) 0.37 (0.44)
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
(0.27) 0.48 1.33 1.19 (0.07) 0.70 (0.33) (0.27) 0.48 (0.42)
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
(0.11) (0.11) (0.15) -- (0.34) (0.32) (0.14) (0.11) (0.12) (0.06)
(0.03) -- -- -- (0.03) -- -- (0.03) -- --
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
(0.14) (0.11) (0.15) -- (0.37) (0.32) (0.14) (0.14) (0.12) (0.06)
- -------- -------- -------- ------- --------- --------- ------- --------- --------- -------
$20.37 $20.78 $20.41 $19.23 $20.42 $20.86 $20.48 $20.42 $20.83 $20.47
======== ======== ======== ======= ========= ========= ======= ========= ========= =======
(1.31)% 2.34% 6.99% 6.60% (0.31)% 3.44% (1.15)% (1.29)% 2.35% 2.85%
======== ======== ======== ======= ========= ========= ======= ========= ========= =======
$289,290 $461,389 $386,275 $57,539 $ 14,690 $ 17,005 $10,560 $ 37,287 $ 61,869 $13,019
1.97% 1.90% 1.97% 2.10%* 0.90% 0.86% 0.93%* 1.94% 1.87% 1.73%*
0.51% 0.57% 4.90% 1.18%* 1.60% 1.62% 1.56%* 0.54% 0.61% 0.94%*
94.32% 36.52% 15.57% 52.00% 94.32% 36.52% 15.57% 94.32% 36.52% 15.57%
</TABLE>
37
<PAGE>
PAINEWEBBER
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
PaineWebber Atlas Global Growth Fund
PaineWebber Dividend Growth Fund
PaineWebber Growth Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of the PaineWebber Atlas Global Growth
Fund, PaineWebber Dividend Growth Fund and PaineWebber Growth Fund as of August
31, 1994, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of each Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at August 31, 1994, by correspondence with the custodians and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
PaineWebber Atlas Global Growth Fund, PaineWebber Dividend Growth Fund and
PaineWebber Growth Fund as of August 31, 1994 and the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
October 26, 1994
40
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
PaineWebber Growth and Income Fund (Formerly PaineWebber Dividend
Growth Fund)
Included in Part A of the Registration Statement:
Selected per share data and ratios for one Class A share of the
Fund for each of the ten years in the period ended August 31,
1994.
Selected per share data and ratios for one Class B share of the
Fund for each of the three years in the period ended August 31,
1994 and for the period July 1, 1991 (commencement of offering)
to August 31, 1991.
Selected per share data and ratios for one Class C share of the
Fund for each of the two years in the period ended August 31,
1994 and for the period February 12, 1992 (commencement of
offering) to August 31, 1992.
Selected per share data and ratios for one Class D share of the
Fund for each of the two years in the period ended August 31,
1994 and for the period July 2, 1992 (commencement of offering)
to August 31, 1992.
Selected per share data and ratios for one Class A share of the
Fund for the six months ended February 28, 1995 (unaudited).
Selected per share data and ratios for one Class B share of the
Fund for the six months ended February 28, 1995 (unaudited).
Selected per share data and ratios for one Class C share of the
Fund for the six months ended February 28, 1995 (unaudited).
Selected per share data and ratios for one Class D share of the
Fund for the six months ended February 28, 1995 (unaudited).
Included in Part B of the Registration Statement through
incorporation by reference from the Annual Report to Shareholders
filed with the Securities and Exchange Commission on November 7, 1994
[File No. 811-3502] and included as an attachment:
C-1
<PAGE>
Portfolio of Investments at August 31, 1994
Statement of Assets and Liabilities at August 31, 1994
Statement of Operations for the year ended August 31, 1994
Statement of Changes in Net Assets for the years ended
August 31, 1994 and August 31, 1993
Notes to Financial Statements
Selected Per Share Data and Ratios for one Class A
share of the Fund for each of the five years in
the period ended August 31, 1994
Selected Per Share Data and Ratios for one Class B share of the
Fund for each of the three years in the period ended August
31, 1994 and for the period July 1, 1991 (commencement of
offering) through August 31, 1991
Selected Per Share Data and Ratios for one Class
C share of the Fund for each of the two years in the period
ended August 31, 1994 and for the period February 12, 1992
(commencement of offering) through August 31, 1992
Selected Per Share Data and Ratios for one Class
D share of the Fund for each of the two years in the period
ended August 31, 1994 and for the period July 2, 1992
(commencement of offering) through August 31, 1992
Report of Ernst & Young LLP, Independent Auditors, dated
October 26, 1994
Included in Part B of the Registration Statement through
incorporation by reference from the Semi-Annual Report to Shareholders
filed with the Securities and Exchange Commission on April 28, 1995
[File No. 811-03502][Accession No. 0000703887-95000001]:
Portfolio of Investments at February 28, 1995 (unaudited)
Statement of Assets and Liabilities at February 28, 1995
(unaudited)
Statement of Operations for the six months ended February 28, 1995
(unaudited)
Statement of Changes in Net Assets for the six months ended
February 28, 1995 (unaudited) and the years ended
August 31, 1994 and August 31, 1993
Notes to Financial Statements
Selected Per Share Data and Ratios for one Class A
share of the Fund for the six months ended February 28, 1995
(unaudited), and for each of the five years in
the period ended August 31, 1994
Selected Per Share Data and Ratios for one Class B share of the
Fund for the six months ended February 28, 1995 (unaudited),
for each of the three years in the period ended August
31, 1994 and for the period July 1, 1991 (commencement of
offering) through August 31, 1991
Selected Per Share Data and Ratios for one Class
C share of the Fund for the six months ended February 28,
1995 (unaudited), for each of the two years in the period
ended August 31, 1994 and for the period February 12, 1992
(commencement of offering) through August 31, 1992
C-2
<PAGE>
Selected Per Share Data and Ratios for one Class
D share of the Fund for the six months ended February 28,
1995 (unaudited), for each of the two years in the period
ended August 31, 1994 and for the period July 2, 1992
(commencement of offering) through August 31, 1992
Report of Ernst & Young LLP, Independent Auditors, dated
October 26, 1994
(b) Exhibits:
(1) (a) Declaration of Trust 1/
(b) Amendment effective January 28, 1988 4/
(c) Amendment effective January 23, 1990 6/
(d) Amendment effective December 21, 1990 8/
(e) Amendment effective May 17, 1991 9/
(f) Amendment effective July 1, 1991 9/
(g) Amendment effective August 31, 1991 9/
(h) Amendment effective July 1, 1992 12/
(2) (a) By-laws 1/
(b) Amendment to By-Laws dated March 19, 1991 8/
(c) Amendment to By-Laws
dated September 28, 1994 15/
(3) Voting trust agreement - none
(4) Specimen Security - none
(5) (a) Investment Advisory and
Administration Contract 5/
(b) Sub-Advisory Contract 14/
(6) (a) Distribution Contract with respect to
Class A shares 13/
(b) Distribution Contract with respect to
Class B shares 13/
(c) Distribution Contract with respect to
Class C shares 9/
(d) Distribution Contract with respect to
Class D shares 13/
(e) Exclusive Dealer Agreement with respect to
Class A shares 13/
(f) Exclusive Dealer Agreement with respect to
Class B shares 13/
(g) Exclusive Dealer Agreement with respect to
Class C shares 9/
(h) Exclusive Dealer Agreement with respect to
Class D shares 13/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 2/
(9) (a) Transfer Agency and Service Contract 7/
(b) Service Contract 5/
(10) (a) Opinion and consent of Kirkpatrick & Lockhart
with respect to Class A and Class B shares 8/
(b) Opinion and consent of Kirkpatrick & Lockhart
with respect to Class C shares 9/
C-3
<PAGE>
(c) Opinion and consent of Kirkpatrick & Lockhart
with respect to Class D shares 11/
(11) Other opinions, appraisals, rulings and consents:
Independent Auditor's Consent (filed herewith)
(12) Financial statements omitted from prospectus-none
(13) Letter of investment intent 3/
(14) Prototype Retirement Plan 10/
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class A shares 9/
(b) Plan of Distribution pursuant to Rule 12b-1
with respect to Class B shares 9/
(c) Plan of Distribution pursuant to Rule
12b-1 with respect to Class D shares12/
(16) (a) Schedule for Computation of Performance
Quotations with respect to Class A and Class B
Shares 9/
(b) Schedule for Computation of Performance
Quotations with respect to Class C and Class D
Shares 12/
1/ Incorporated by reference from Post-Effective Amendment No. 10 to
the registration statement, SEC File No. 2-78626, filed February 25,
1987.
2/ Incorporated by reference from Post-Effective Amendment No. 11 to the
registration statement, SEC File No. 2-78626, filed December 22,
1987.
3/ Incorporated by reference from Pre-Effective Amendment No. 2 to the
registration statement, SEC File No. 2-78626, filed September 26,
1983.
4/ Incorporated by reference from Post-Effective Amendment No.
12 to the registration statement, SEC File No. 2-78626, filed
November 3, 1988.
5/ Incorporated by reference from Post-Effective Amendment No.
16 to the registration statement, SEC File No. 2-78626, filed
December 29, 1989.
6/ Incorporated by reference from Post-Effective Amendment No. 18 to the
registration statement, SEC File No. 2-78626, filed August 30, 1990.
7/ Incorporated by reference from Post-Effective Amendment No. 19 to the
registration statement, SEC File No. 2-78626, filed November 2, 1990.
8/ Incorporated by reference from Post-Effective Amendment No. 21 to the
registration statement, SEC File No. 2-78626, filed May 3, 1991.
9/ Incorporated by reference from Post-Effective Amendment No. 23 to the
registration statement, SEC File No. 2-78626, filed December 24,
1991.
C-4
<PAGE>
10/ Incorporated by reference from Post-Effective Amendment No.
20 to the registration statement of PaineWebber Managed
Investments Trust, SEC File No. 2-91362, filed April 1, 1992.
11/ Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement, SEC File No. 2-78626, filed June 23, 1992.
12/ Incorporated by reference from Post-Effective Amendment No. 27 to the
registration statement, SEC File No. 2-78626, filed December 21,
1992.
13/ Incorporated by reference from Post-Effective Amendment No. 28 to the
registration statement, SEC File No. 2-78626, filed December 29,
1993.
14/ Incorporated by reference from Post-Effective Amendment No.
29 to the registration statement, SEC File No. 2-78626, filed
November 2, 1994.
15/ Incorporated by reference from Post-Effective Amendment No.
31 to the registration statement, SEC File No. 2-78626, filed
December 28, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
Number of Record
Shareholders as
Title of Class of April 28, 1995
-------------- --------------------
Shares of Beneficial Interest,
par value $0.001 per share
PaineWebber Growth and Income
Fund (Formerly PaineWebber Dividend
Growth Fund)
Class A shares 20,982
Class B shares 28,098
Class C shares 1
Class D shares 4,013
Item 27. Indemnification
Section 2 of "Indemnification" in Article X of the Declaration of
Trust provides that the appropriate series of the Registrant will
indemnify its Trustees and officers to the fullest extent permitted by law
C-5
<PAGE>
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 X, 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 or her action was in the best interest of the
Registrant. Section 2 of "Indemnification" in Article X also provides
that the Registrant may maintain insurance policies covering such rights
of indemnification.
Additionally, "Limitation of Liability" in Article X of the
Declaration of Trust 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 Trust or a particular
series thereof; 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 or
investment adviser of the Registrant.
Section 2 of Article XI of the Declaration of Trust additionally
provides that, subject to the provisions of Section 1 of Article XI and to
Article X, Trustees shall not be liable for errors of judgment or mistakes
of fact or law, or for any act or omission in accordance with advice of
counsel or other experts, or failing to follow such advice, with respect
to the meaning and operation of the Declaration of Trust.
Article IX of the By-laws provides that the Registrant may purchase
and maintain insurance on behalf of any person who is or was a Trustee,
officer or employee of the Trust, or is or was serving at the request of
the Trust as a Trustee, officer or employee of a corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Registrant
would have the power to indemnify him or her against such liability,
provided that the Registrant may not acquire insurance protecting any
Trustee or officer against liability to the Registrant or its shareholders
to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office.
Section 9 of the Investment Advisory and Administration Contract with
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") provides
that Mitchell Hutchins shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any series of the Registrant in
connection with the matters to which the Contract relates, except for a
loss resulting from the willful misfeasance, bad faith, or gross
negligence of Mitchell Hutchins in the performance of its duties or from
its reckless disregard of its obligations and duties under the Contract.
Section 10 of the Contract provides that the Trustees shall not be liable
C-6
<PAGE>
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 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of the Distribution Contract, with respect to
PaineWebber Incorporated ("PaineWebber").
Section 6 of the Service Contract provides that PaineWebber shall be
indemnified and held harmless by the Trust against all liabilities, except
those arising out of bad faith, gross negligence, willful misfeasance or
reckless disregard of its duties under the Contract.
Section 10 of each Distribution Contract and Section 7 of the Service
Contract contain provisions similar to Section 10 of the Investment
Advisory and Administration Contract, with respect to Mitchell Hutchins
and PaineWebber, as appropriate.
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 Trust, pursuant to the foregoing provisions
or otherwise, the Trust 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 Trust of expenses incurred or paid by a Trustee,
officer or controlling person of the Trust in connection with the
C-7
<PAGE>
successful defense of any action, suit or proceeding or payment pursuant
to any insurance policy) is asserted against the Trust by such Trustee,
officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
I. Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn,
a wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to
the officers and directors of Mitchell Hutchins is included in its Form
ADV filed on August 22, 1994 with the Securities and Exchange Commission
(registration number 801-13219) and is incorporated herein by reference.
Item 29. Principal Underwriters
a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following investment companies:
ALL-AMERICAN TERM TRUST INC.
GLOBAL INCOME PLUS FUND, INC.
INSTITUTIONAL SERIES TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
MITCHELL HUTCHINS/KIDDER, PEABODY GOVERNMENT INCOME FUND, INC.
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
PAINEWEBBER AMERICA FUND
PAINEWEBBER ATLAS FUND
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER PREMIER HIGH INCOME TRUST INC.
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
PAINEWEBBER SECURITIES TRUST
PAINEWEBBER SERIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
TRIPLE A AND GOVERNMENT SERIES - 1995, INC.
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
2002 TARGET TERM TRUST INC.
C-8
<PAGE>
GLOBAL HIGH INCOME DOLLAR FUND INC.
GLOBAL SMALL CAP FUND 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 filed August 22, 1994 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
filed March 31, 1994 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:
Position and
Name and Offices With
Principal Business Position With Underwriter or
Address Registrant Exclusive Dealer
------------------ ------------ -----------------
Margo N. Alexander President Director, President
1285 Avenue of the Americas and Chief Executive
New York, New York 10019 Officer of Mitchell
Hutchins
Frank P. L. Minard Trustee Director and
1285 Avenue of the Americas Chairman
New York, New York 10019 of Mitchell
Hutchins
Teresa M. Boyle Vice President Vice President
1285 Avenue of the Americas and Manager --
New York, New York 10019 Advisory Admin-
istration of
Mitchell Hutchins
Joan L. Cohen Vice President Vice President
1285 Avenue of the Americas and Assistant and Attorney of
New York, New York 10019 Secretary Mitchell Hutchins
Ellen R. Harris Vice President Managing Director
1285 Avenue of the Americas and Chief Invest-
New York, New York 10019 ment Officer --
Domestic of
Mitchell Hutchins
C-9
<PAGE>
Position and
Name and Offices With
Principal Business Position With Underwriter or
Address Registrant Exclusive Dealer
------------------ ------------ -----------------
Ann E. Moran Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, New York 10019 Treasurer
Dianne E. O'Donnell Vice President Senior Vice
1285 Avenue of the Americas and Secretary President and
New York, New York 10019 Senior Associate
General Counsel of
Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director
1285 Avenue of the Americas and General
New York, New York 10019 Counsel of
Mitchell Hutchins
Paul H. Schubert Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, New York 10019 Treasurer
Martha J. Slezak Vice President Vice President of
1285 Avenue of the Americas and Assistant Mitchell Hutchins
New York, New York 10019 Treasurer
Julian F. Sluyters Vice President Senior Vice
1285 Avenue of the Americas and Treasurer President and
York, New York 10019 Director of Mutual
Fund Finance
Division of
Mitchell Hutchins
Gregory K. Todd Vice President First Vice
1285 Avenue of the Americas and Assistant President and
New York, New York 10019 Secretary Associate General
Counsel of
Mitchell Hutchins
(c) None.
C-10
<PAGE>
PAGE WHERE GRAPHICS APPENDIX LIST
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
35 (C) Stocks, Bonds, Bills and Inflation 1994 Yearbook/TM/,
Ibbotson Associates, Chicago (annually updates work by Roger
G. Ibbotson and Rex A. Sinquefield). Used with permission.
All rights reserved.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PAINEWEBBER AMERICA FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 174,592
<INVESTMENTS-AT-VALUE> 180,209
<RECEIVABLES> 9,094
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24
<TOTAL-ASSETS> 189,327
<PAYABLE-FOR-SECURITIES> 6,522
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,988
<TOTAL-LIABILITIES> 8,510
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174,636
<SHARES-COMMON-STOCK> 9,442
<SHARES-COMMON-PRIOR> 10,886
<ACCUMULATED-NII-CURRENT> 130
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 434
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,616
<NET-ASSETS> 180,817
<DIVIDEND-INCOME> 2,080
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1,579)
<NET-INVESTMENT-INCOME> 501
<REALIZED-GAINS-CURRENT> 3,263
<APPREC-INCREASE-CURRENT> (4,397)
<NET-CHANGE-FROM-OPS> (633)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (93)
<DISTRIBUTIONS-OF-GAINS> (1,668)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 162
<NUMBER-OF-SHARES-REDEEMED> (2,261)
<SHARES-REINVESTED> 654
<NET-CHANGE-IN-ASSETS> (27,930)
<ACCUMULATED-NII-PRIOR> 322
<ACCUMULATED-GAINS-PRIOR> 8,973
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 669
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,579
<AVERAGE-NET-ASSETS> 193,944
<PER-SHARE-NAV-BEGIN> 20.43
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.15
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> PAINEWEBBER AMERICA FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 231,143
<INVESTMENTS-AT-VALUE> 238,578
<RECEIVABLES> 12,040
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 31
<TOTAL-ASSETS> 250,649
<PAYABLE-FOR-SECURITIES> 8,635
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,631
<TOTAL-LIABILITIES> 11,266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 231,201
<SHARES-COMMON-STOCK> 12,534
<SHARES-COMMON-PRIOR> 14,201
<ACCUMULATED-NII-CURRENT> 173
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 574
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,435
<NET-ASSETS> 239,383
<DIVIDEND-INCOME> 2,754
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2,091)
<NET-INVESTMENT-INCOME> 663
<REALIZED-GAINS-CURRENT> 4,320
<APPREC-INCREASE-CURRENT> (5,822)
<NET-CHANGE-FROM-OPS> (839)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (458)
<DISTRIBUTIONS-OF-GAINS> (15,519)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 225
<NUMBER-OF-SHARES-REDEEMED> (2,714)
<SHARES-REINVESTED> 822
<NET-CHANGE-IN-ASSETS> (50,620)
<ACCUMULATED-NII-PRIOR> 419
<ACCUMULATED-GAINS-PRIOR> (11,670)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 886
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,091
<AVERAGE-NET-ASSETS> 255,397
<PER-SHARE-NAV-BEGIN> 20.37
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.10
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> DIVIDEND GROWTH FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 14,043
<INVESTMENTS-AT-VALUE> 14,495
<RECEIVABLES> 731
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2
<TOTAL-ASSETS> 15,228
<PAYABLE-FOR-SECURITIES> 525
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160
<TOTAL-LIABILITIES> 684
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,047
<SHARES-COMMON-STOCK> 760
<SHARES-COMMON-PRIOR> 719
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 35
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 452
<NET-ASSETS> 14,544
<DIVIDEND-INCOME> 167
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (127)
<NET-INVESTMENT-INCOME> 40
<REALIZED-GAINS-CURRENT> 262
<APPREC-INCREASE-CURRENT> (354)
<NET-CHANGE-FROM-OPS> (51)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (102)
<DISTRIBUTIONS-OF-GAINS> (828)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 81
<NUMBER-OF-SHARES-REDEEMED> (91)
<SHARES-REINVESTED> 51
<NET-CHANGE-IN-ASSETS> (3,036)
<ACCUMULATED-NII-PRIOR> 21
<ACCUMULATED-GAINS-PRIOR> 593
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 54
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127
<AVERAGE-NET-ASSETS> 13,732
<PER-SHARE-NAV-BEGIN> 20.42
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.14
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> DIVIDEND GROWTH FUND CLASS D
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 28,898
<INVESTMENTS-AT-VALUE> 29,827
<RECEIVABLES> 1,505
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 31,336
<PAYABLE-FOR-SECURITIES> 1,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 329
<TOTAL-LIABILITIES> 1,409
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,905
<SHARES-COMMON-STOCK> 1,562
<SHARES-COMMON-PRIOR> 1,826
<ACCUMULATED-NII-CURRENT> 22
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 930
<NET-ASSETS> 29,928
<DIVIDEND-INCOME> 344
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (261)
<NET-INVESTMENT-INCOME> 83
<REALIZED-GAINS-CURRENT> 540
<APPREC-INCREASE-CURRENT> (728)
<NET-CHANGE-FROM-OPS> (105)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (54)
<DISTRIBUTIONS-OF-GAINS> (1,953)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52
<NUMBER-OF-SHARES-REDEEMED> (421)
<SHARES-REINVESTED> 106
<NET-CHANGE-IN-ASSETS> (6,338)
<ACCUMULATED-NII-PRIOR> 54
<ACCUMULATED-GAINS-PRIOR> 1,504
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 261
<AVERAGE-NET-ASSETS> 32,354
<PER-SHARE-NAV-BEGIN> 20.42
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.15
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our report for the
PaineWebber Growth and Income Fund dated October 26, 1994 in this Registration
Statement (Form N-1A No. 2-78626) of PaineWebber America Fund.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
May 5, 1995
