<PAGE>
As filed with the Securities and Exchange Commission on October 11, 1996
1933 Act Registration No. 2-91362
1940 Act Registration No. 811-4040
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
-----
Pre-Effective Amendment No._____ [_____]
Post-Effective Amendment No. 47 [ X ]
----- -----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
-----
Amendment No. 40
-----
(Check appropriate box or boxes.)
PAINEWEBBER MANAGED INVESTMENTS TRUST
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212)713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ARTHUR J. BROWN, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue N.W.
2d Floor
Washington, D.C. 20036-1800
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)
- ----
60 days after filing pursuant to Rule 485(a)(i)
- ----
X On December 18, 1996 pursuant to Rule 485(a)(i)
- ---- -----------------
75 days after filing pursuant to Rule 485(a)(ii)
- ----
On pursuant to Rule 485(a)(ii)
- ---- -----------------
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 May 20, 1996.
<PAGE>
PaineWebber Managed Investments Trust
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Contents of Registration Statement
Form N-1A Cross Reference Sheet
Class Y Shares of
PaineWebber Asia Pacific Growth Fund
- -------------------------------------------
Part A- Prospectus
Part B- Statement of Additional Information
Part C- Other Information
Signature Page
Exhibits
This Post-Effective Amendment does not make any changes in the currently
effective prospectuses and statements of additional information for the other
series of PaineWebber Managed Investments Trust.
- 2 -
<PAGE>
PaineWebber Managed Investments Trust:
Class Y Shares of:
PaineWebber Asia Pacific Growth Fund
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<C> <S> <C>
1. Cover Page Cover Page
2. Synopsis The Fund at a Glance;
Expense Table
3. Condensed Financial Information Performance
4. General Description of Registrant The Fund at a Glance;
Investment Objective and
Policies; Investment
Philosophy and Process; The
Fund's Investments; General
Information
5. Management of the Fund Management; General Information
6. Capital Stock and Other Securities Cover Page; Dividends and Taxes;
General Information
7. Purchase of Securities Being How to Buy Shares; Determining the
Offered Shares' Net Asset Value
8. Redemption or Repurchase How to Sell Shares; Other Services
9. Pending Legal Proceeding Not Applicable
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
<C> <S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
<C> <S> <C>
13. Investment Objective and Policies Investment Policies and
Restrictions; Hedging Strategies;
Portfolio Transactions
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Trustees and Officers
Holders of Securities
16. Investment Advisory and Other Investment Advisory and
Services Distribution Arrangements; Other
Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Other Information
19. Purchase, Redemption and Pricing Additional Redemption Information;
of Securities Being Offered Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and
Distribution Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
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.
- 4 -
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER , 1996
- -------------------------------================---------------------------------
PaineWebber Asia Pacific Growth Fund
Class Y Shares
1285 Avenue of the Americas, New York, NY 10019
- --------------------------------------------------------------------------------
PaineWebber Asia Pacific Growth Fund ("Fund") is designed for investors who
want to expand their investment horizons by investing in the Asia Pacific Re-
gion (except Japan). The Fund, a series of PaineWebber Managed Investments
Trust, seeks long-term capital appreciation by investing primarily in equity
securities of Asia Pacific Region companies, including those in the following
countries: Australia, China, Hong Kong, India, Indonesia, Malaysia, New Zea-
land, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand. The Fund is not designed to provide current income. The Fund is newly
organized and has no operating history.
This Prospectus concisely sets forth information that a prospective investor
should know about the Fund before investing. Please read it carefully and re-
tain a copy of this Prospectus for future reference.
A Statement of Additional Information dated , 1996 has been filed with the
Securities and Exchange Commission and is legally part of this Prospectus. The
Statement of Additional Information can be obtained without charge, and further
inquiries can be made, by contacting the Fund, your investment executive at
PaineWebber or one of its correspondent firms or by calling toll-free 1-800-
647-1568.
The Class Y shares described in this Prospectus are offered for sale only to
limited groups of investors. See "How to Buy Shares."
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. 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.
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.
- --------------------------------===============--------------------------------
Prospectus Page 1
<PAGE>
- ----------------------------======================------------------------------
PaineWebber Asia Pacific Growth Fund
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund at a Glance....................................................... 3
Expense Table.............................................................. 4
Investment Objective and Policies.......................................... 6
Investment Philosophy & Process............................................ 7
Performance................................................................ 8
The Fund's Investments..................................................... 10
How to Buy Shares.......................................................... 13
How to Sell Shares......................................................... 14
Management................................................................. 15
Determining the Shares' Net Asset Value.................................... 16
Dividends & Taxes.......................................................... 16
General Information........................................................ 17
</TABLE>
- --------------------------------================--------------------------------
Prospectus Page 2
<PAGE>
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PaineWebber Asia Pacific Growth Fund
The Fund at a Glance
- --------------------------------------------------------------------------------
GOAL: To increase the value of your investment by investing primarily in equity
securities of Asia Pacific Region companies (as described below). As with any
mutual fund, there is no assurance that PaineWebber Asia Pacific Growth Fund
("Fund") will achieve its goals.
INVESTMENT OBJECTIVE: Long-term capital appreciation.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
Investors in the Fund should be able to assume the special risks of investing
in Asia Pacific Region securities, which include possible adverse political,
social and economic developments within the Asia Pacific Region and differing
characteristics of foreign economies and markets. These risks are greater with
respect to securities in emerging markets, which includes most of the markets
in the Asia Pacific Region. Most of the securities held by the Fund are denomi-
nated in foreign currencies, and the value of these investments thus can be ad-
versely affected by fluctuations in foreign currency values. The Fund may use
derivatives, such as options, futures and forward currency contracts and inter-
est rate or currency swaps, which may involve additional risks. Investors may
lose money by investing in the Fund; the investment is not guaranteed.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), an asset manage-
ment subsidiary of PaineWebber Incorporated ("PaineWebber"), is the Fund's in-
vestment adviser and administrator. Mitchell Hutchins has appointed Schroder
Capital Management International Inc. ("Schroder Capital") as the investment
sub-adviser for the Fund.
WHO SHOULD INVEST
The Fund is for investors who want long-term capital appreciation and can with-
stand market volatility. Accordingly, the Fund is designed for investors seek-
ing long-term growth who are able to bear risks that are not normally associ-
ated with investments in the United States and that come with investments in
the equity securities of Asia Pacific Region companies. Asia Pacific Region
countries have experienced among the highest real economic growth rates in the
world during the past 15 years. Schroder Capital believes that existing eco-
nomic conditions in the Asia Pacific Region may provide for high levels of eco-
nomic activity in the long term, offering the potential for long-term capital
appreciation from investment in equity securities of Asia Pacific Region compa-
nies. However, because value of these securities tends to be more volatile than
that of U.S. stocks, investors must be willing to tolerate greater fluctuations
in the value of the Fund's investments. These fluctuations may be caused by
events affecting the companies businesses, as well as market conditions, cur-
rency fluctuations, interest rate changes, liquidity concerns, and adverse
changes in economic, political and social conditions.
The Fund may be appropriate as a longer-term component of an investor's overall
portfolio, but it is not intended to provide current income or to constitute a
complete or balanced investment program. Some common reasons to invest in this
Fund are to finance college educations or retirement. When selling shares, in-
vestors should be aware that they may get more or less for their shares than
they originally paid for them.
HOW TO PURCHASE CLASS Y SHARES OF THE FUND
Class Y shares of the Fund will be offered during an initial subscription pe-
riod scheduled to end on December 20, 1996. The Fund does not intend to engage
in a continuous offering of its shares until approximately sixty days after the
end of the subscription period. Eligible investors may purchase Class Y shares
of the Fund as follows:
The price of the Fund's Class Y shares is net asset value. Investors do not pay
an initial sales charge when they buy Class Y shares. 100% of their purchase is
immediately invested. Investors also do not pay a redemption fee or contingent
deferred sales charge when they sell Class Y shares.
- ------------------------------=====================-----------------------------
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
Expense Table
- -------------------------------------------------------------------------------
The following table is intended to assist investors in understanding the ex-
penses associated with investing in the Class Y shares of the Fund. Because
the Fund has no operating history, expenses shown below represent those esti-
mated for the first year of operations.
<TABLE>
<CAPTION>
CLASS Y
SHAREHOLDER TRANSACTION EXPENSES -------
<S> <C>
Maximum Sales Charge on Purchases of Shares ............................ None
Sales Charge on Reinvested Dividends ................................... None
Maximum Contingent Deferred Sales Charge ............................... None
ANNUAL FUND OPERATING EXPENSES(1)(as a % of average net assets)
Management Fees......................................................... 1.20%
12b-1 Fees.............................................................. 0.00
Other Expenses.......................................................... 0.55
----
Total Fund Operating Expenses........................................... 1.75%
====
</TABLE>
- -------
(1) Class Y shares may be purchased by participants in the INSIGHT Investment
Advisory Program ("INSIGHT") sponsored by PaineWebber, when purchased
through that program. Participation in INSIGHT is subject to payment of an
advisory fee at the maximum annual rate of 1.50% of assets held through
INSIGHT (generally charged quarterly in advance), which may be charged to
the INSIGHT participant's PaineWebber account. This account charge is not
included in the table because non-INSIGHT participants are permitted to
purchase Class Y shares of the Fund.
The management fee payable to Mitchell Hutchins by the Fund is greater than
those paid by most funds due, in part, to the greater efforts and extra re-
search that is required to manage investments in multiple countries in the
Asia Pacific Region.
For more information, see "Management."
- ----------------------------------==========------------------------------------
Prospectus Page 4
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
Expense Table
(Continued)
- -------------------------------------------------------------------------------
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example should assist investors in understanding various costs
and expenses they would incur as shareholders of the Fund. The assumed 5% an-
nual return shown in the example is required by regulations of the Securities
and Exchange Commission ("SEC") applicable to all mutual funds. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES
OF THE FUND MAY BE MORE OR LESS THAN THOSE SHOWN.
An investor would pay the following expenses (excluding any INSIGHT advisory
fees), directly or indirectly, on a $1,000 investment in the Fund, assuming
(1) a 5% annual return, (2) reinvestment of all dividends and distributions
and (3) percentage amounts listed under "Annual Fund Operating Expenses" re-
main the same for years shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class Y.......................................................... $18 $55
</TABLE>
- -----------------------------=====================------------------------------
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
Investment Objective and Policies
- -------------------------------------------------------------------------------
The Fund's investment objective is long-term capital appreciation. The Fund's
investment objective may not be changed without shareholder approval. The
other investment policies, except where noted, are not fundamental and may be
changed by the Fund's board of trustees.
The Fund seeks to achieve its objective by investing primarily in equity secu-
rities of Asia Pacific Region companies. For purposes of this prospectus, the
"Asia Pacific Region" constitutes the region located south of the former So-
viet Union, east of Afghanistan and Iran and west of the International Date
Line (except Japan). The Fund defines Asia Pacific Region companies as compa-
nies that:
. are organized under the laws of countries in the Asia Pacific Region that
now or in the future permit foreign investors to participate in their stock
markets,
. regardless of where organized, and as determined by Schroder Capital, either
(A) derive at least 50% of their revenues from goods produced or sold, in-
vestments made or services performed in Asia Pacific Region countries or (B)
maintain at least 50% of their assets in Asia Pacific Region countries, or
. are traded on exchanges or over-the-counter ("OTC") markets in Asia Pacific
Region countries.
Schroder Capital believes that the Asia Pacific Region markets offer the po-
tential of superior returns through their ability to grow at rates substan-
tially in excess of the world overall. Under normal market conditions, the
Fund will invest at least 65% of its total assets in equity securities of Asia
Pacific Region companies. Most of the equity securities purchased by the Fund
are expected to be traded on a foreign stock exchange or in a foreign OTC mar-
ket. When Schroder Capital believes it is consistent with the Fund's invest-
ment objective, the Fund may invest up to 10% of its total assets in convert-
ible and non-convertible debt securities issued or guaranteed by Asia Pacific
Region issuers, including obligations of sovereign governmental issuers ("sov-
ereign debt.")
Under normal market conditions, the Fund will invest in a minimum of three
Asia Pacific Region countries. However, Schroder Capital expects that the
Fund's initial investments will be made in companies located in at least half
of the following Asia Pacific Region countries: Australia, China, Hong Kong,
India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore,
South Korea, Sri Lanka, Taiwan and Thailand.
- ----------------------------------==========------------------------------------
Prospectus Page 6
<PAGE>
- -----------------------------=====================-----------------------------
PaineWebber Asia Pacific Growth Fund
Investment Philosophy & Process
- -------------------------------------------------------------------------------
Stock selection is at the heart of Schroder Capital's investment philosophy.
Its approach to selecting investments emphasizes fundamental company analysis.
Schroder Capital seeks to identify those markets within the Asia Pacific Re-
gion where, based on its assessment of future economic activity, it believes
there is likely to be a favorable long-term business environment, and where a
company's growth is less likely to be impeded by adverse macroeconomic or po-
litical factors. Schroder Capital's stock selection then focuses on companies
within these markets which it believes have a sustainable competitive advan-
tage and whose growth potential is undervalued by these investors. In select-
ing companies for investment, Schroder Capital will consider historical growth
rates and future growth prospects, management capability, the ability of the
company to access capital, government regulation, market share, profit mar-
gins, competitive position in both domestic and export markets and other fac-
tors.
Schroder Capital is committed to maximizing risk adjusted returns for invest-
ors through comprehensive research conducted by its extensive network of lo-
cally-based analysts. This investment approach is consistent with the Fund's
overall strategy of taking a long-term view to investment based upon its as-
sessment of growth potential. Schroder Capital believes one of its key
strengths is its worldwide network of investment management affiliates and ac-
cess to its extensive network of research offices, many long established, in
the Asia Pacific Region, including Bangkok, Hong Kong, Singapore, Seoul, Syd-
ney, Jakarta and Kuala Lumpur, staffed by [ ] investment professionals in-
cluding [ ] analysts and a team of [ ] Asia Pacific Region specialists in
London.
Each year, the Schroder Group researches and screens for investment more than
1200 companies in the Asia Pacific Region countries. Of those companies, the
Schroder Group's investment professionals further develop extensive management
contacts, including on-site visits with approximately [500] companies. Schro-
der Capital's analysis includes small and medium-sized companies, as well as
the better-known larger capitalization companies. Schroder Capital believes
that small companies are analyzed by fewer investors and are less likely than
larger companies to be efficiently priced.
Asia Pacific Region countries have experienced among the highest real eco-
nomic growth rates in the world for the past 15 year period. Schroder Capital
believes that existing economic conditions in the Asia Pacific Region may pro-
vide for high levels of economic activity in the long term, offering the po-
tential for long-term capital appreciation from investment in equity
securities of Asia Pacific Region companies. These conditions include (1) the
increasing industrialization of Asia Pacific Region economies, (2) favorable
demographics and competitive wage rates, (3) high rates of domestic savings
available to fund investment, particularly in the area of infrastructure, (4)
the ability to attract foreign direct investment, (5) the emergence of a re-
gional trading zone and (6) rising per capita incomes available to support lo-
cal markets for consumer goods. See the Statement of Additional Information
for further information. There can be no assurance, however, that economic
growth in the Asia Pacific Region will occur, that the growth rate will be as
high on either an absolute or relative scale as in the past or that market
performance will reflect any actual economic growth in the Asia Pacific Region
overall.
- --------------------------------================-------------------------------
Prospectus Page 7
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
Performance
- --------------------------------------------------------------------------------
FUND 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 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 Fund or class has been in existence for a shorter
period. If so, returns will be shown for the period since inception. Total re-
turn calculations assume reinvestment of dividends and other distributions.
The Fund may use other total return presentations in conjunction with stan-
dardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.
Total return information reflects past performance and does not necessarily
indicate future results. The investment return and principal value of shares
of the Fund will fluctuate. The amount investors receive when selling shares
may be more or less than what they paid.
INDEX PERFORMANCE(3)
The Fund has no operating history. In future advertisements it may compare to
itself to the Morgan Stanley Capital International All Country Asia Pacific
Free ex Japan (Gross Dividends) Index ("MSCI Index"). The following tables set
forth the historical results of the MSCI Index and the Standard & Poor's Index
of 500 Common Stocks. This is a well-known, unmanaged index that reflects de-
veloped and developing markets throughout the Asia Pacific Region. The Index
results do not represent performance of the Fund nor are they intended to pre-
dict or suggest the returns that might be experienced by the Fund or an indi-
vidual investor investing in the Fund. It is illustrative of the historic per-
formance and volatility of these markets.
The Fund will not operate as an "index" fund and its performance will differ
from that of the Index. The composition of the Fund's portfolio in terms of
securities and countries will differ from the MSCI Index. The Fund will incur
transaction costs, including brokerage and other operating expenses, and may
assume dividends and income net of taxes. The Index results do not reflect any
of the foregoing elements.
ANNUAL RATES OF RETURN(1)
<TABLE>
<CAPTION>
YTD
1988 1989 1990 1991 1992 1993 1994 1995 9/96
----- ----- ------ ----- ---- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MSCI AC Asia Pacific
Free ex Japan (Gross
Dividends)............. 30.45 21.42 (11.85) 32.39 9.89 84.93 (12.29) 6.08 7.88
S&P 500 Daily Reinvest.. 16.61 31.69 (3.10) 30.47 7.82 10.08 1.32 37.58 13.50
</TABLE>
AVERAGE ANNUAL RATES OF RETURN(1)
(for period ended 9/30/96)
<TABLE>
<CAPTION>
12/31/87-
9/30/96 5 YEAR 3 YEARS 1 YEAR
--------- ------ ------- ------
<S> <C> <C> <C> <C>
MSCI AC Asia Pacific Free ex Japan (Gross
Dividends)(2)................................. 16.38 16.66 11.63 9.01
S&P 500 Daily Reinvest(1)...................... 15.91 15.23 17.42 20.34
</TABLE>
- -------
(1) Source: Lipper Analytical Services
(2) Source: Morgan Stanley
- ----------------------------------==========-----------------------------------
Prospectus Page 8
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
MSCI stands for Morgan Stanley Capital International. AC stands for All Coun-
try, both emerging and developed countries in that region, previously referred
to as "combined." Free stands for "investable" (i.e., free of foreign owner-
ship limits or legal restrictions at the security or country level). The MSCI
Index is market capitalization weighted and reflects the reinvestment of divi-
dends and returns of the MSCI Index are in U.S. dollars, without accounting
for any transaction costs or local withholding or other taxes on dividends.
Accordingly, the Index reflects a higher return than a U.S. investor would re-
ceive even if its investments precisely tracked the composition of the MSCI
Index. Taiwan and China were added to the Index as of September 1996, with a
total of 14 countries in this Index. The Index contained 12 countries as of
February 1994, 9 countries as of January 1992 and 8 countries as of January
1988.
The Standard & Poor's Index of 500 Common Stocks is a widely recognized index
of market activity based on the aggregate performance of a selected, unmanaged
portfolio of publicly traded common stocks. The performance data includes re-
invested dividends.
- --------------------------------================-------------------------------
Prospectus Page 9
<PAGE>
- -----------------------------=====================-----------------------------
PaineWebber Asia Pacific Growth Fund
The Fund's Investments
- -------------------------------------------------------------------------------
EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including common stock purchase warrants and
rights, equity interests in trusts, partnerships, joint ventures or similar
enterprises and depository receipts. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. While past perfor-
mance does not guarantee future results, common stocks historically have pro-
vided the greatest long-term growth potential in a company. However, their
prices generally fluctuate more than other securities, and reflect changes in
a company's financial condition and in overall market and economic conditions.
Preferred stock has certain fixed-income features, like a bond, but is actu-
ally equity in a company, like common stock. Depository receipts typically are
insured by banks or trust companies and evidence ownership of underlying secu-
rities.
DEBT SECURITIES, including bonds, debentures and notes, are used by corpora-
tions and governments to borrow money from investors. The issuer pays the in-
vestor a fixed or variable rate of interest and must repay the amount borrowed
at maturity. Debt securities have varying degrees of investment risk and vary-
ing levels of sensitivity to changes in interest rates.
RISKS
EQUITY SECURITIES. Equity securities historically have shown greater growth
potential than other types of securities. Common stocks generally represent
the riskiest investment in a company. It is possible that investors may lose
their entire investment.
FOREIGN INVESTING. Investing in foreign securitiesinvolves more risks than in-
vesting in the U.S. Their value is subject to economic and political develop-
ments in the countries where the companies operate and to changes in foreign
currency values. Values may also be affected by foreign tax laws, changes in
foreign economic or monetary policies, exchange control regulations and regu-
lations involving prohibitions on the repatriation of foreign currencies.
Transactions in foreign securities may be subject to less efficient settlement
practices. The costs of investing outside the United States frequently are
higher than those in the United States. These costs include relatively higher
brokerage commissions and foreign custody expenses.
Currency risk is the risk that changes in foreign exchange rates may reduce
the U.S. dollar value of the Fund's foreign investments. The Fund's share
value may change significantly when investments are denominated in foreign
currencies. Generally, currency exchange rates are determined by supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries. Currency exchange rates can also be affected by the
intervention of the U.S. and foreign governments or central banks, the imposi-
tion of currency controls or other political developments inside and outside
the United States.
ASIA PACIFIC REGION COUNTRIES. In general, less information is available about
Asia Pacific Region companies than about U.S. companies, and Asia Pacific Re-
gion companies are not subject to the same accounting, auditing and financial
reporting standards as are U.S. companies. Asia Pacific Region securities mar-
kets are less liquid and subject to less regulation than the U.S. securities
markets. Many of the countries within the Asia Pacific Region may experience
political, social or economic instability in the future.
INVESTING IN EMERGING MARKETS. Investing in securities issued by companies lo-
cated in emerging markets involves additional risks. These countries typically
have economic and political systems that are relatively less mature, and can
be expected to be less stable, than those of developed countries. The emerging
markets in which the Fund may invest include China, India, Indonesia, Paki-
stan, the Philippines, South Korea, Sri Lanka, Taiwan and Thailand. Emerging
markets located in the Asia Pacific Region may have policies that restrict in-
vestment by foreigners in those countries, and there is a risk of government
expropriation or nationalization of private property. The possibility of low
or nonexistent trading volume in the securities of Asia Pacific Region compa-
nies in developing countries may also result in a lack of liquidity and in
price volatility.
Included among the emerging markets countries in which the Fund may invest is
the People's Republic of China. Upon the accession to power of the regime, the
government of China expropriated a large amount of property. The claims of
many property owners against
- --------------------------------================-------------------------------
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
those governments were never finally settled. There can be no assurance that
the Fund's investment in China, if any, would not be expropriated, national-
ized or otherwise confiscated, in which case the Fund could lose its entire
investment in China. In addition, any change in the leadership or policies of
China may halt the expansion of or reverse the liberalization of foreign in-
vestment policies now occurring.
The Fund intends to invest in Hong Kong, which will revert to Chinese adminis-
tration in 1997. The Fund's investments in Hong Kong may be subject to the
same or similar risks as any investment in China upon the change in adminis-
tration. In addition, the reversion of Hong Kong also presents a risk that the
Hong Kong dollar will be devaluated and a risk of possible loss of investor
confidence in the Hong Kong dollars and its stock market and assets.
DEBT SECURITIES. The Fund may invest up to 10% of its net assets in convert-
ible and non-convertible debt securities, including sovereign debt. Debt secu-
rities are subject to interest rate risk and credit risk. Interest rate risk
is the risk that interest rates will rise and bonds prices will fall, lowering
the value of the Fund's bond investments. Credit risk is the risk that adverse
changes in economic conditions can affect an issuer's ability to pay principal
and interest. In addition, there is a risk that bonds will be downgraded by
rating agencies. For example, changes in economic conditions or other circum-
stances are more likely to lead to a weakened capacity to make principal and
interest payments than is the case for higher-rated debt instruments.
The debt securities in which the Fund may invest may be unrated or rated lower
than investment grade, that is, rated lower than BBB by Standard & Poor's, a
division of The McGraw Hill Companies, Inc. ("S&P") or Baa by Moody's Invest-
ors Service, Inc. ("Moody's"). Such securities, commonly referred to as "junk
bonds" are considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal and may involve major risk expo-
sure to adverse conditions. These securities may be rated as low as D by S&P
and may be in default.
Credit ratings attempt to evaluate the safety of principal and interest pay-
ments and do not evaluate the volatility of the bond's value or its liquidity
and do not guarantee the performance of the issuer. The rating agencies also
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. There is a risk that rating agencies will downgrade
bonds.
The sovereign debt in which the Fund may invest generally consists of obliga-
tions supported by national, state or provincial governments or similar polit-
ical subdivisions. Investments in sovereign debt involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Fund may have limited
legal recourse in the event of default. Political conditions, especially a
sovereign entity's willingness to meet the terms of its debt obligations, are
of considerable significance.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A con-
vertible security is a bond, debenture, note, preferred stock or other secu-
rity 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. A convertible security entitles the holder to
receive interest paid or accrued on debt or dividends paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
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 because they have fixed income characteris-
tics, and (3) provide the potential for capital appreciation if the market
price of the underlying common stock increases. While no securities investment
is without some risk, 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 convert-
ible security sells above its value as a fixed income security.
INVESTMENTS IN CLOSED-END FUNDS. The Fund may invest up to 10% of its total
assets in the shares of closed-end funds which are permitted to invest in mar-
kets in which the Fund is not otherwise permitted to invest or where the Fund
is significantly restricted from investing or in other markets in the Asia Pa-
cific Region when, in the opinion of Schroder Capital, those closed-end funds
represent attractive investment opportunities. As closed-end funds normally
have their own investment advisers and associated expenses, the Fund will ef-
fectively incur higher expenses by investing indirectly through these funds
than it would by investing directly.
- ----------------------------------==========------------------------------------
Prospectus Page 11
<PAGE>
- -----------------------------=====================-----------------------------
PaineWebber Asia Pacific Growth Fund
OTHER INVESTMENT TECHNIQUES AND STRATEGIES
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiq-
uid securities, including certain cover for OTC options and securities whose
disposition is restricted under the federal securities laws other than those
Schroder Capital has determined to be liquid pursuant to guidelines established
by the Fund's board. However, to the extent that securities are freely tradea-
ble in the country in which they are principally traded, they are not consid-
ered illiquid even if they are not freely tradeable in the United States. The
Fund does not consider securities that are eligible for resale pursuant to SEC
Rule 144A to be illiquid securities if Schroder Capital has determined such se-
curities to be liquid, based upon the trading markets for the securities under
procedures approved by the Fund's board.
DEFENSIVE POSITIONS. When Schroder Capital believes that unusual circumstances
warrant a defensive posture, the Fund may temporarily commit all or any portion
of its assets to cash (U.S. dollars or foreign currencies) or money market in-
struments, including repurchase agreements. Repurchase agreements are transac-
tions in which the Fund purchases securities from a bank or recognized securi-
ties dealer and simultaneously commits to resell the securities to the bank or
dealer at an agreed-upon date or on demand and at a price reflecting a market
rate of interest unrelated to the coupon rate or maturity of the purchased se-
curities. Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value of
the underlying securities and delays and costs to the Fund if the other party
to the repurchase agreement becomes insolvent. The Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
Mitchell Hutchins or Schroder Capital to present minimum credit risks in accor-
dance with guidelines established by the Fund's board of trustees.
LENDING PORTFOLIO SECURITIES. The Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of the
Fund's total assets taken at market value. Lending securities enables the Fund
to earn additional income, but could result in a loss or delay in recovering
these securities.
PORTFOLIO TURNOVER. The Fund does not anticipate that portfolio turnover will
exceed 100% during the Fund's first year of operations.
HEDGING STRATEGIES. The Fund may use certain strategies designed to adjust the
overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including options (on securities, futures and stock in-
dexes), futures contracts (on stock indexes and interest rates) and interest
rate swaps. The Fund also may use derivative contracts involving foreign cur-
rencies, including options and futures contracts on foreign currencies and for-
ward currency contracts and interest rate or currency swaps. New financial
products and risk management techniques continue to be developed and may be
used if consistent with the Fund's investment objectives and policies. The
Statement of Additional Information for the Fund contains further information
on these strategies.
The Fund might not use any hedging strategies, and there can be no assurance
that any strategy used will succeed. If Schroder Capital is incorrect in its
judgment on market values, interest rates or other economic factors in using a
hedging strategy, the Fund may have lower net income and a net loss on the in-
vestment. Each of these strategies involves certain risks, which include:
. the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Fund;
. the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
or currencies being hedged;
. possible constraints placed on the Fund's ability to purchase or sell portfo-
lio investments at advantageous times due to the need for the Fund to main-
tain "cover" or to segregate securities; and
. the possibility that the Fund is unable to close out or liquidate its hedged
position.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may also purchase securi-
ties on a when-issued basis or may purchase or sell securities for delayed de-
livery. The Fund generally would not pay for such securities or start earning
interest on them until they are delivered, but it would immediately assume the
risks of ownership, including the risk of price fluctuation.
OTHER INFORMATION. The Fund may borrow money for temporary or emergency purpos-
es, but not in excess of 33 1/3% of its total assets. The Fund may sell securi-
ties short "against the box" to defer realization of gains or losses for tax or
other purposes. When a security is sold against the box, the seller owns the
security. For liquidity purposes, such as clearance of portfolio transactions,
the payment of dividends, other distributions and expenses and payments to
selling (redeeming) shareholders, or pending investment, the Fund may commit up
to 35% of its total assets to cash (U.S. dollar-denominated or foreign), or
money market instruments, including repurchase agreements.
- --------------------------------================-------------------------------
Prospectus Page 12
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
How to Buy Shares
- --------------------------------------------------------------------------------
During an initial subscription period scheduled to end on December 20, 1996
(the "Offering Period"), Class Y shares of the Fund will be offered at a sub-
scription price equal to the Fund's initial net asset value per share of
$[12.50]. Payment of the purchase price will be due three business days after
the close of the Initial Offering Period, and must be made in the manner speci-
fied below. The Fund currently expects to commence investment operations on or
about December , 1996. Thereafter, the net asset value of Fund shares will
fluctuate, and the price of Fund shares will be determined in the manner de-
scribed above.
During the Offering Period, PaineWebber and selected dealers may obtain non-
binding indications of interest prior to actually confirming any orders.
Subscriptions for shares will be accepted through the last day of the Offering
Period. To the extent that payment is made to PaineWebber or selected dealers
prior to the Closing Date, such persons may benefit from the temporary use of
those payment monies. The Fund reserves the right to withdraw, cancel or modify
the offering of shares during the Offering Period without notice and the Fund
reserves the right to refuse any order in whole or in part, if the Fund deter-
mines that it is in its best interests.
The Fund currently does not intend to engage in a continuous offering of its
shares until approximately sixty days after the end of the Offering Period.
Prices are calculated for the Fund's Class Y shares once each Business Day, at
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). A "Business Day" is any day, Monday through Friday, on
which the New York Stock Exchange is open for business. Shares are purchased at
the next share price calculated after the purchase order is received. 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.
Class Y shares are sold to eligible investors at the net asset value next de-
termined after the purchase order is received at PaineWebber's New York City
offices or by PFPC Inc., the Fund's transfer agent ("Transfer Agent"). No ini-
tial or contingent deferred sales charge is imposed, nor are Class Y shares
subject to rule 12b-1 distribution or service fees. The Fund and Mitchell
Hutchins reserve the right to reject any purchase order and to suspend the of-
fering of Class Y shares for a period of time. Mitchell Hutchins, the distribu-
tor for the Fund's Class Y shares, has appointed PaineWebber to serve as the
exclusive dealer for the Fund's Class Y shares.
The following investors are eligible to buy Class Y shares:
. a participant in INSIGHT when Class Y shares are purchased through that pro-
gram;
. an investor who buys $10 million or more at any one time in any combination
of PaineWebber mutual funds in the Flexible PricingSM System;
. an employee benefit plan qualified under section 401 (including a salary re-
duction plan qualified under section 401(k)) or 403(b) of the Internal Reve-
nue Code that has either
5,000 or more eligible employees or
$50 million or more in assets; and
. an investment company advised by PaineWebber or an affiliate of PaineWebber.
The Fund is authorized to offer Class Y shares to employee benefit and retire-
ment plans of Paine Webber Group Inc. and its affiliates and certain other in-
vestment programs that are sponsored by PaineWebber and that may invest in
PaineWebber mutual funds. At present, however, INSIGHT participants are the
only purchasers in these two categories.
INSIGHT
An investor who purchases $50,000 or more of shares of the mutual funds that
are available to INSIGHT participants (which include the PaineWebber mutual
funds in the Flexible Pricing System and certain other specified mutual funds)
may take part in INSIGHT, a total portfolio asset allocation program sponsored
by PaineWebber, and thus become eligible to purchase Class Y shares. INSIGHT
offers comprehensive investment services, including a personalized asset allo-
cation
- ----------------------------------==========------------------------------------
Prospectus Page 13
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
investment strategy using an appropriate combination of funds, monitoring of
investment performance and comprehensive quarterly reports that cover market
trends, portfolio summaries and personalized account information.
Participating in INSIGHT is subject to payment of an advisory fee to
PaineWebber at the maximum annual rate of 1.50% of assets held through the
program (generally charged quarterly in advance), which covers all INSIGHT in-
vestment advisory services and program administration fees. Employees of
PaineWebber and its affiliates are entitled to a 50% reduction in the fee oth-
erwise payable for participation in INSIGHT. INSIGHT clients may elect to have
their INSIGHT fees charged to their PaineWebber accounts (by the automatic re-
demption of money market fund shares) or, if a qualified plan, invoiced.
Please contact your PaineWebber investment executive or PaineWebber correspon-
dent firm for more information concerning mutual funds that are available to
INSIGHT participants or for other INSIGHT program information.
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price as next calculated after the order is received and accepted. Share
prices are normally calculated at the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time).
If a shareholder wants to sell shares that were purchased recently, the Fund
may delay payment until it verifies that good payment was received. In the
case of purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's corre-
spondent firms can sell their shares by contacting their investment executive.
Investors who do not have an account and have bought their shares through the
Transfer Agent, may sell shares by writing a "letter of instruction." The let-
ter of instruction must include:
. the investor's name and address;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be sold; and
. a guarantee of each registered owner's signature by an eligible institu-
tion, such as a commercial bank, trust company or stock exchange member.
The letter of instruction must be mailed to PFPC Inc., Attn: PaineWebber Mu-
tual Funds, P.O. Box 8950, Wilmington, DE 19899.
Because the Fund incurs certain fixed costs in maintaining shareholder ac-
counts, it reserves the right to purchase back all Fund shares in any share-
holder account with a net asset value of less than $500. If the Fund elects to
do so, it will notify the shareholder of the opportunity to increase the
amount invested to $500 or more within 60 days of the notice. The Fund will
not purchase back accounts that fall below $500 solely due to a reduction in
net asset value per share.
- -----------------------------=====================------------------------------
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
Management
- --------------------------------------------------------------------------------
The Fund is governed by a board of trustees, which oversees the operations.
The Fund has appointed Mitchell Hutchins as investment adviser and administra-
tor responsible for the Fund's operations (subject to the authority of the
board). Mitchell Hutchins has appointed the investment sub-adviser, Schroder
Capital, to be responsible for day-to-day management of the Fund's invest-
ments.
The Fund's board has determined that brokerage transactions for the Fund may
be conducted through PaineWebber or its affiliates in accordance with proce-
dures adopted by the board.
Mitchell Hutchins and Schroder Capital personnel may engage in securities
transactions for their own accounts pursuant to each firm's code of ethics
that establishes procedures for personal investing and restricts certain
transactions.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber, which is wholly
owned by Paine Webber Group Inc., a publicly owned financial services holding
company. On August 30, 1996, Mitchell Hutchins was adviser or sub-adviser of
investment companies with separate portfolios and aggregate assets of over
$30 billion.
ABOUT THE INVESTMENT SUB-ADVISER
The investment sub-adviser, Schroder Capital, is located at 787 Seventh Ave-
nue, New York, New York 10019. It is a wholly owned U.S. subsidiary of
Schroders Incorporated, the wholly owned U.S. holding company subsidiary of
Schroders plc. Schroders plc, which is listed on the London Stock Exchange, is
the holding parent of a large worldwide group of banks and financial services
companies (referred to as the "Schroder Group"), with associated companies and
branch and representative offices located in 18 countries worldwide. The
investment management subsidiaries of the Schroder Group had approximately $130
billion in client assets under management as of June 30, 1996. As of June 30,
1996, Schroder Capital, together with its UK affiliate Schroder Capital
Management International Limited, had over $20 billion in assets under
management. Since its founding in 1980, Schroder Capital has developed an
expertise in Asia Pacific Region investments. Laura E. Luckyn-Malone, Louise
Croset and Heather Crighton, with the assistance of Asia Pacific Region
investment committee, are primarily responsible for the day-to-day management
of the Fund. Ms. Luckyn-Malone, Managing Director and Senior Vice President of
Schroder Capital Management International, Inc. is Co-Director of Schroder's
Global Emerging Markets group and Co-Head of the Pacific Basin team. She is
also Chairman and President of Schroder Fund Advisors Inc., a Director of the
Schroder Capital Funds, Inc. and a Director and President of the Schroder Asian
Growth Fund. She joined Schroder Capital in 1990. Ms. Croset has been a First
Vice President of Schroder Capital since October 1993. Previously, she was
Vice President of Wellington Management Co. Ms. Crighton has been a First Vice
President of Schroder Capital since April 1994, prior to which she was a fund
manager. Prior to 1993, she was a fund manager at Mercantile & General
Reinsurance Co.
MANAGEMENT FEES & OTHER EXPENSES
The Fund pays Mitchell Hutchins a monthly fee for its services at the annual
rate of 1.20% of its average daily net assets.
The Fund also pays PaineWebber an annual fee of $4.00 per active shareholder
account held at PaineWebber for services not provided by the Transfer Agent.
Mitchell Hutchins (not the Fund) pays Schroder Capital a fee for investment
sub-advisory services in an amount equal to .65% of the Fund's average daily
net assets up to $100 million and .55% of the Fund's average daily net assets
over $100 million.
- ----------------------------------==========------------------------------------
Prospectus Page 15
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of the Fund's shares fluctuates and is determined sepa-
rately for each class as of the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) each Business Day. The Fund's net
asset value per share is determined by dividing the value of the securities
held by the Fund, plus any cash or other assets, minus all liabilities, by the
total number of Fund shares outstanding.
The Fund values its assets based on their current market value when market
quotations are readily available. If that value is not readily available, as-
sets are valued at fair value as determined in good faith by or under the di-
rection of its board. The amortized cost method of valuation generally is used
to value debt obligations with 60 days or less remaining to maturity, unless
the board determines that this does not represent fair value. Investments de-
nominated in foreign currencies are valued daily in U.S. dollars based on the
then-prevailing exchange rates. It should be recognized that judgment plays a
greater role in valuing lower rated debt securities in which the Fund may in-
vest, because there is less reliable, objective data available.
- -------------------------------------------------------------------------------
Dividends & Taxes
- -------------------------------------------------------------------------------
DIVIDENDS
The Fund pays an annual dividend from its net investment income, net short-
term capital gain and net realized gains from foreign currency transactions,
if any. The Fund also distributes annually substantially all of its net capi-
tal gain (the excess of net long-term capital gain over net short-term capital
loss), if any. The Fund may make additional distributions, if necessary, to
avoid a 4% excise tax on certain undistributed income and capital gain.
Dividends and other distributions paid on Class Y shares are calculated at the
same time and in the same manner as dividends and other distributions on other
classes of the Fund's shares. See "General Information."
The Fund's dividends and other distributions are paid in additional Class Y
shares at net asset value, unless the shareholder has requested cash payments.
Shareholders who wish to receive dividends and other distributions in cash,
either mailed to 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 account appli-
cation.
TAXES
The Fund intends to qualify for treatment as a regulated investment company
under the Internal Revenue Code so that it will not have to pay federal income
tax on that part of its investment company taxable income (generally consist-
ing of net investment income, net short-term capital gain and net gains from
certain foreign currency transactions) and net capital gain that it distrib-
utes to its shareholders.
Dividends from the Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to its shareholders as ordi-
nary income. Distributions of the Fund's net capital gain (whether paid in
cash or additional shares) are taxable to its shareholders as a long-term cap-
ital gain, regardless of how long they have held their Fund shares. Sharehold-
ers who are not subject to tax on their income generally will not be required
to pay tax on distributions from the Fund.
YEAR-END TAX REPORTING
Following the end of each calendar year, the Fund notifies its shareholders of
the amounts of dividends and capital gain distributions paid (or deemed paid
that year), their share of any foreign taxes paid by the Fund that year and
any portion of those dividends that qualifies for special treatment.
BACKUP WITHHOLDING
The Fund is required to withhold 31% of all dividends, capital gain distribu-
tions and redemption pro-
- ----------------------------------==========------------------------------------
Prospectus Page 16
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
ceeds payable to individuals and certain other non-corporate shareholders who
do not provide the Fund with a correct taxpayer identification number. With-
holding at that rate also is required from dividends and capital gain distri-
butions payable to shareholders who otherwise are subject to backup withhold-
ing.
TAX ON THE SALE OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends on whether the shareholder receives more or less than the
adjusted basis for the shares. In addition, if the Fund's shares are bought
within 30 days before or after selling other shares of the Fund at a loss, all
or a portion of that loss will not be deductible and will increase the basis
of the newly purchased shares.
* * * *
The foregoing only summarizes some of the important tax considerations affect-
ing the Fund and its shareholders, see the Statement of Additional Information
for a further discussion. There may be other federal, state, local or foreign
tax considerations applicable to a particular investor. Accordingly, prospec-
tive shareholders are urged to consult their tax advisers.
- -------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------
ORGANIZATION
The Fund is a newly-created, diversified series of PaineWebber Managed Invest-
ments Trust (the "Trust"), an open-end management investment company that was
organized as a business trust under the laws of the Commonwealth of Massachu-
setts by Declaration of Trust dated November 21, 1986. The trustees have au-
thority to issue an unlimited number of shares of beneficial interest of sepa-
rate series, par value $0.001 per share.
SHARES
The shares of the Fund are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. A share of each class represents an iden-
tical interest in the Fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to
sales charges, if any, distribution and/or service fees, if any, other ex-
penses allocable exclusively to each class, voting rights on matters exclu-
sively affecting that class, and its exchange privilege, if any. The different
sales charges and other expenses applicable to the different classes of shares
of the Fund will affect the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on the other classes are
likely to be lower than for Class Y shares.
More information concerning Class A, Class B and Class C shares of the Fund
may be obtained from an investment executive at PaineWebber or one of its cor-
respondent firms or by calling 1-800-647-1568.
VOTING RIGHTS
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, as a result, the holders of more than 50% of all the shares of the Fund
(or the Trust, which has more than one series) may elect all of the board mem-
bers of the Fund or Trust. The shares of the different classes of the Fund
will be voted together, except that only the shareholders of a particular
class of the Fund may vote on matters affecting only that class. The shares of
all series of the Trust will be voted separately, except when an aggregate
vote of all the series is required by law.
SHAREHOLDER MEETINGS
The Fund does not intend to hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Fund may remove a board member through a declaration in writing or by vote
cast in person or by proxy at a meeting called for that purpose. A meeting
will be called to vote on the removal of a board member at the written request
of holders of 10% of the outstanding shares of the Fund, as applicable.
- ----------------------------------==========------------------------------------
Prospectus Page 17
<PAGE>
- -----------------------------=====================------------------------------
PaineWebber Asia Pacific Growth Fund
REPORTS TO SHAREHOLDERS
The Fund sends its shareholders audited annual and unaudited semi-annual re-
ports, each of which includes a list of the investment securities held by the
Fund as of the end of the period covered by the report. The Statement of Addi-
tional Information is available to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT
State Street Bank and Trust Company, located at One Monarch Drive, North Quin-
cy, Massachusetts, 02171, serves as the Fund's custodian and recordkeeping
agent and employs foreign sub-custodians approved by the Trust's board of
trustees in accordance with applicable requirements under the 1940 Act to pro-
vide custody of the Fund's foreign assets. PFPC Inc., a subsidiary of PNC
Bank, N.A., serves as the Fund's transfer and dividend disbursing agent. It is
located at 400 Bellevue Parkway, Wilmington, DE 19809.
- ----------------------------------==========------------------------------------
Prospectus Page 18
<PAGE>
- --------------------------------================--------------------------------
PaineWebber Asia Pacific Growth Fund
Class Y Shares
Prospectus -- , 1996
- --------------------------------------------------------------------------------
. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS
High Income Fund Capital Appreciation Fund
Investment Grade Income Fund Financial Services Growth Fund
Low Duration U.S. Growth Fund
Government Income Fund Growth and Income Fund
Strategic Income Fund Small Cap Fund
U.S. Government Income Fund Utility Income Fund
. PAINEWEBBER TAX-FREE BOND FUNDS . PAINEWEBBER GLOBAL FUNDS
California Tax-Free Income Fund Emerging Markets Equity Fund
Municipal High Income Fund Global Equity Fund
National Tax-Free Income Fund Global Income Fund
New York Tax-Free Income Fund
. PAINEWEBBER ASSET ALLOCATION . PAINEWEBBER MONEY MARKET
FUNDS FUND
Balanced Fund
Tactical Allocation Fund
A prospectus containing more complete information for any of these funds,
including charges and expenses, can be obtained from a PaineWebber invest-
ment executive or correspondent firm. Please read it carefully before in-
vesting. It is important you have all the information you need to make a
sound investment decision.
(C) 1996 PaineWebber Incorporated
- --------------------------------================--------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER , 1996
PAINEWEBBER ASIA PACIFIC GROWTH FUND
CLASS Y SHARES
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Asia Pacific Growth Fund ("Fund") is a diversified series of
PaineWebber Managed Investments Trust ("Trust"), a professionally managed,
open-end management investment company organized as a Massachusetts business
trust. The Fund seeks long-term capital appreciation; it invests primarily in
equity securities of Asia Pacific Region companies. The Fund is not designed to
provide current income.
The investment adviser, administrator and distributor for the Fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). As the Fund's
distributor, Mitchell Hutchins has appointed PaineWebber to serve as the
exclusive dealer for the sale of Fund shares. Schroder Capital Management
International Inc. ("Schroder Capital") serves as the Fund's investment sub-
adviser.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Fund's Prospectus for its Class Y shares,
dated , 1996. 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 , 1996.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations.
RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Investments in foreign
securities involve risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between
the regulations to which U.S. and foreign issuers and markets are subject.
These risks may include expropriation, confiscatory taxation, withholding taxes
on interest, limitations on the use of or transfer of Fund assets and political
or social instability or diplomatic developments. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Securities of many foreign companies may be less liquid and their prices more
volatile than securities of comparable U.S. companies. While the Fund will
generally invest only in securities that are traded on recognized exchanges or
in over-the-counter markets, from time to time foreign securities may be
difficult to liquidate rapidly without significantly depressing the price of
such securities. There may be less publicly available information concerning
foreign issuers of securities held by the Fund than is available concerning
U.S. companies. Foreign securities 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. Legal remedies for defaults and
disputes may have to be pursued in foreign courts, whose procedures differ
substantially from those of U.S. courts.
<PAGE>
Securities of foreign issuers 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"). The Fund also may purchase securities of foreign issuers in
foreign markets and purchase European Depository Receipts ("EDRs"), global
depository receipts ("GDRs") 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.
GDRs are similar to EDRs and are designed for use in several international
financial markets. EDRs are European receipts evidencing a similar
arrangement. For purposes of the Fund's investment policies, ADRs, EDRs and
GDRs are deemed to have the same classification as the underlying securities
they represent. Thus, an ADR, EDR or GDRs representing ownership of common
stock will be treated as common stock.
The Fund anticipates that its brokerage transactions involving foreign
securities of companies headquartered in countries other than the United
States will be conducted primarily on the principal exchanges of such
countries. Transactions on foreign exchanges are usually subject to fixed
commissions that are generally higher than negotiated commissions on U.S.
transactions, although the 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.
Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Fund may have limited
legal recourse in the event of default. Foreign government debt securities
differ from debt obligations issued by private entities in that, generally,
remedies for defaults must be pursued in the courts of the defaulting party.
Legal recourse is, therefore, somewhat limited. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance. Also, there can be no assurance
that the holders of commercial bank loans to the same sovereign entity may not
contest payments to the holders of foreign government debt securities in the
event of default under commercial bank loan agreements.
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. In addition, substantial limitations may
exist in certain countries with respect to the Fund's ability to repatriate
investment capital or the proceeds of sales of securities.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's, a division of The McGraw Hill Companies, Inc. ("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
2
<PAGE>
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.
The Fund is authorized to invest up to 10% of its net assets in non-
investment grade debt securities, including sovereign debt and convertible and
non-convertible 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 to be of comparable quality. Debt securities rated below investment
grade are commonly referred to as "junk bonds" and are deemed by the NRSROs to
be predominantly speculative and may involve significant risk exposure to
adverse conditions. Lower rated debt securities generally offer a higher
current yield than that available for investment grade issues; however, 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 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 foreign debt securities has expanded rapidly in
recent years, which has been a period of generally expanding economic growth
and lower inflation. These securities will be susceptible to greater risk when
economic growth slows or reverses and when inflation occurs. The market for
lower-rated debt issues generally is thinner and less active than that for
higher quality securities, which may limit the Fund's ability to sell such
securities at fair value in response 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.
FOREIGN SOVEREIGN DEBT. Investment by the Fund in debt securities issued by
foreign governments and their political subdivisions or agencies ("Sovereign
Debt") involves special risks. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal and/or interest when due in accordance with the terms of
such debt, and the Fund may have limited legal recourse in the event of a
default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same
sovereign entity may not contest payments to the holders of Sovereign Debt in
the event of default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the
3
<PAGE>
economy as a whole, the sovereign debtor's policy toward principal
international lenders and the political constraints to which a sovereign
debtor may be subject. Increased protectionism on the part of a country's
trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local
government or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Schroder Capital manages the Fund's portfolio in a
manner that is intended to minimize the exposure to such risks, there can be
no assurance that adverse political changes will not cause the Fund to suffer
a loss of interest or principal on any of its holdings.
FOREIGN CURRENCY TRANSACTIONS. Although the Fund will value 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. The 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, the Fund could suffer a loss of some or all of the amounts
deposited. The 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO ASIA PACIFIC REGION
INVESTMENTS
Investors should recognize that investing in non-U.S. securities involves
certain risks and special considerations, including those set forth below,
which are not typically associated with investing in securities of U.S.
companies.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Investment in other investment
companies may involve the payment of substantial premiums above the value of
such investment companies' portfolio securities, and is subject to limitations
under the Investment Company Act of 1940 ("1940 Act") and market availability.
The Fund does not intend to invest in such investment companies unless, in the
judgment of Schroder Capital the potential benefits of such investment justify
the payments of any applicable premiums or sale charges. As a shareholder in
an investment company, the Fund would bear its ratable share of the investment
company's expenses, including its advisory and administrative fees. At the
same time, the Fund would continue to pay its own management fees and other
expenses.
FOREIGN CURRENCY AND EXCHANGE RATES. The Fund's assets are invested in
foreign securities and substantially all income is received by the Fund in
foreign currencies. The value of the assets of the Fund as measured in U.S.
dollars also may be affected favorably or unfavorably by fluctuations in
currency rates and exchange control regulations. Certain of the risks
associated with international investments are heightened for investments in
Asia Pacific Region Countries (as defined in the Prospectus). For example,
some of the currencies of Asia Pacific Region countries have experienced
devaluations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain countries, such as India,
face serious exchange constraints. Further, the Fund may incur costs in
connection with conversions between various currencies. Currency exchange
dealers realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer normally will
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire immediately
4
<PAGE>
to resell that currency to the dealer. The Fund will conduct its currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward, futures or options contracts to purchase or sell foreign currencies.
The following table sets forth historical exchange rates per U.S. dollar for
the Asia Pacific Region currencies listed.
CURRENCY EXCHANGE RATES
PER U.S. DOLLAR
END OF PERIOD
<TABLE>
<CAPTION>
SOUTH
CHINA HONG KONG INDIA INDONESIA KOREA MALAYSIA NEW PAKISTAN PHILIPPINES SINGAPORE SRI LANKA
AUSTRALIA RMB HK$ RS RUPIAH W RM ZEALAND PRS P S$ SLRS
--------- ------ --------- ------ --------- ----- -------- ------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985............ 3.2015 7.811 12.166 1125 890.2 2.4265 15.98 19.032 2.1050 27,408
1986............ 3.7221 7.790 13.122 1641 861.4 2.6030 17.25 20.530 2.1750 28.520
1987............ 3.7221 7.760 12.877 1650 792.3 2.4928 17.45 20.800 1.9985 30.763
1988............ 3.7221 7.806 14.949 1731 684.1 2.7153 18.65 21.335 1.9462 33.033
1989............ 4.7221 7.807 17.035 1797 679.6 2.7033 21.42 22.440 1.8944 40.000
1990............ 5.2221 7.801 18.073 1901 716.4 2.7015 21.90 28.000 1.7445 40.240
1991............ 5.4342 7.781 25.834 1992 760.8 2.7240 24.72 26.650 1.6305 42.580
1992............ 5.7518 7.741 26.200 2062 788.4 2.6120 25.70 25.096 1.6449 46.000
1993............ 5.8000 7.726 31.380 2100 808.1 2.7015 30.120 27,699 1.6080 49.562
1994............ 8.4462 7.737 31.380 2200 788.7 2.5600 38.800 24.418 1.4607 49.980
1995............ 8.3179 7.733 35.055 2289 775.7 2.5413 34.216 26.235 1.4148 53.498
<CAPTION>
TAIWAN THAILAND
NT$ B
------ --------
<S> <C> <C>
1985............ 39.850 26.65
1986............ 35.500 26.13
1987............ 28.550 25.07
1988............ 28.170 25.24
1989............ 26.160 25.69
1990............ 27,108 25.29
1991............ 25.748 25.28
1992............ 25.403 25.52
1993............ 26.626 25.54
1994............ 26.240 25.09
1995............ 27,286 25.19
</TABLE>
- -------
Sources: International Monetary Fund, International Financial Statistics of
November 1995; Wall Street Journal, 30 December 1995.
INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the
securities markets of several of the Asia Pacific Region countries is
restricted or controlled to varying degrees. These restrictions may limit
investment in certain of the Asia Pacific Region countries and may increase
expenses of the Fund. For example, certain countries may require governmental
approval prior to investments by foreign persons in a particular company or
industry sector or limit investment by foreign persons to only a specific
class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the
Asia Pacific Region countries is subject to restrictions such as the need for
certain government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Fund. Although these restrictions may in the
future make it undesirable to invest in the countries to which they apply,
Schroder Capital does not believe that any current repatriation restrictions
would have a material impact on the Fund's ability to manage its assets.
If, because of restrictions on repatriation or conversion, the Fund were
unable to distribute substantially all of its net investment income (including
short-term capital gains) and long-term capital gains within applicable time
periods, the Fund could be subject to federal income and excise taxes which
would not otherwise be incurred and may cease to qualify for the favorable tax
treatment afforded to regulated investment companies under the Internal
Revenue Code ("Code"), in which case as it would become subject to federal
income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain Asia
Pacific Region countries, although these restrictions vary in form and
content. In India, Indonesia, Malaysia, the Philippines, Singapore, South
Korea and Thailand, the Fund may be limited by government regulation or a
company's charter to a maximum percentage of equity ownership in any one
company. South Korea generally prohibits foreign investment in Won-denominated
debt securities
5
<PAGE>
and Sri Lanka prohibits foreign investment in government debt securities. In
the Philippines, the Fund may generally invest in "B" shares of Philippine
issuers engaged in partly nationalized business activities, which shares are
made available to foreigners, and the market prices, liquidity and rights of
which may vary from shares owned by nationals. Similarly, in China, the Fund
may only invest in "B" shares of securities traded on The Shanghai Securities
Exchange and The Shenzhen Stock Exchange, currently the two officially
recognized securities exchanges in China. "B" shares traded on The Shanghai
Securities Exchange are settled in U.S. dollars and those traded on The
Shenzen Stock Exchange are generally settled in Hong Kong Dollars. In Hong
Kong, South Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percent of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, South Korea prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits its foreign
investment in mass media companies and companies providing certain
professional services.
From time to time, pooled investment funds may be the most effective
available means by which the Fund may invest in equity securities of certain
Asia Pacific Region countries. For example, prior to January 3, 1992, foreign
investment in South Korea was generally limited to a few investment funds that
had been granted a license from the government of South Korea, although since
that date direct foreign investment in individual stocks in South Korea has
been officially permitted within specified limits. Investment in such
investment funds may involve the payment of management expenses and in
connection with some purchases, sales loads, and payment of substantial
premiums above the value of such companies' portfolio securities. The Fund may
invest in such investment funds when, in the judgment of Schroder Capital, the
potential benefits of such investment outweigh the payment of any applicable
premium, sales load and expenses. In addition, the Fund's investments in such
investment funds are subject to limitations under the 1940 Act and market
availability, and may result in special federal income tax consequences.
MARKET CHARACTERISTICS. Differences Between the U.S. and Asia Pacific Region
Securities Markets. Most of the securities markets of the Asia Pacific Region
countries have substantially less volume than the New York Stock Exchange, and
equity securities of most companies in the Asia Pacific Region countries are
less liquid and more volatile than equity securities of U.S. companies of
comparable size. Some of the stock exchanges in the Asia Pacific Region
countries, such as those in China, are in the earliest stages of their
development. Many companies traded on securities markets in Asia Pacific
Region countries are smaller, newer and less seasoned than companies whose
securities are traded on securities markets in the United States. Investments
in smaller companies involve greater risk than is customarily associated with
investing in larger companies. Smaller companies may have limited product
lines, markets or financial or managerial resources and may be more
susceptible to losses and risks of bankruptcy. Additionally, market making and
arbitrage activities are generally less extensive in such markets, which may
contribute to increased volatility and reduced liquidity of such markets.
Accordingly, each of these markets may be subject to greater
6
<PAGE>
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the
United States. To the extent that any of the Asia Pacific Region countries
experiences rapid increases in its money supply and investment in equity
securities for speculative purposes, the equity securities traded in any such
country may trade at price-earning multiples higher than those of comparable
companies trading on securities markets in the United States, which may not be
sustainable.
Brokerage commissions and other transaction costs on securities exchanges in
the Asia Pacific Region countries are generally higher than in the United
States. In addition, security settlements may in some instances be subject to
delays and related administrative uncertainties.
Government Supervision of Asia Pacific Region Securities Markets; Legal
Systems. There is also less government supervision and regulation of
securities exchanges, listed companies and brokers in the Asia Pacific Region
countries than exists in the United States. Less information may, therefore,
be available to the Fund than with respect to investments in the United
States. Further, in certain Asia Pacific Region countries, less information
may be available to the Fund than to local market participants. Brokers in
Asia Pacific Region countries may not be as well capitalized as those in the
United States, so that they are more susceptible to financial failure in times
of market, political or economic stress. In addition, existing laws and
regulations are often inconsistently applied. As legal systems in some of the
Asia Pacific Region countries develop, foreign investors may be adversely
affected by new laws and regulations, changes to existing laws and regulations
and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain
swift and equitable enforcement of the law.
Financial Information and Standards. Issuers in Asia Pacific Region
countries generally are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from
those applicable to U.S. issuers. In particular, the assets and profits
appearing on the financial statements of an Asia Pacific Region issuer may not
reflect its financial position or results of operations in the way they would
be reflected had the financial statements been prepared in accordance with
U.S. generally accepted accounting principles. In addition, for an issuer that
keeps accounting records in local currency, inflation accounting rules may
require, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation accounting
may indirectly generate losses or profits. Consequently, financial data may be
materially affected by restatements for inflation and may not accurately
reflect the real condition of those issuers and securities markets. Moreover,
substantially less information may be publicly available about issuers in Asia
Pacific Region countries than is available about U.S. issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. Many of the Asia Pacific Region
countries may be subject to a greater degree of social, political and economic
instability than is the case in the United States. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, and changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions; (iii)
internal insurgencies; (iv) hostile relations with neighboring countries; and
(v) ethnic, religious and racial disaffection. Such social, political and
economic instability could significantly disrupt the principal financial
markets in which the Fund invests and adversely affect the value of the Fund's
assets. In addition, there may be the possibility of asset expropriations or
future confiscatory levels of taxation affecting the Fund.
Few of the Asia Pacific Region countries have Western-style or fully
democratic governments. Some governments in the region are authoritarian in
nature and influenced by security forces. For example, during
7
<PAGE>
the course of the last 25 years, governments in the region have been installed
or removed as a result of military coups, while others have periodically
demonstrated repressive police state characteristics. In several Asia Pacific
Region countries, the leadership ability of the government has suffered as a
result of recent corruption scandals. Disparities of wealth, among other
factors, have also led to social unrest in some of the Asia Pacific Region
countries accompanied, in certain cases, by violence and labor unrest. Ethnic,
religious and racial disaffection, as evidenced in India, Pakistan and Sri
Lanka, have created social, economic and political problems.
Several of the Asia Pacific Region countries have or in the past have had
hostile relationships with neighboring nations or have experienced internal
insurgency. Thailand has experienced border conflicts with Laos and Cambodia,
and India is engaged in border disputes with several of its neighbors,
including China and Pakistan. Tension between the Tamil and Sinhalese
communities in Sri Lanka has resulted in periodic outbreaks of violence. An
uneasy truce exists between North Korea and South Korea, and the recurrence of
hostilities remains possible. Reunification of North Korea and South Korea
could have a detrimental effect on the economy of South Korea. Also, China
continues to claim sovereignty over Taiwan and recently has conducted military
maneuvers near Taiwan. China is acknowledged to possess nuclear weapons
capability; North Korea is alleged to possess or be in the process of
developing such a capability.
In Hong Kong, China is scheduled to assume sovereignty over the colony in
1997. Although China has committed by treaty to preserve the economic and
social freedoms enjoyed in Hong Kong for 50 years after regaining control of
Hong Kong, the continuation of the current form of the economic system in Hong
Kong after the reversion will depend on the actions of the government of
China. In addition, such reversion has increased sensitivity in Hong Kong to
political developments and statements by public figures in China. Business
confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance.
In addition, the reversion of Hong Kong also presents a risk that the Hong
Kong dollar will be devaluated and a risk of possible loss of investor
confidence in the Hong Kong markets and dollar. However, factors exist that
are likely to mitigate this risk. First, China has stated its intention to
implement a "one country, two systems" policy, which would preserve monetary
sovereignty and leave control in the hands of the Hong Kong Monetary Authority
("HKMA"). Second, fixed rate parity with the U.S. dollar is seen as critical
to maintaining investors' confidence in the transition to Chinese rule and,
therefore, it is anticipated that, in the event international investors lose
confidence in Hong Kong dollar assets, the HKMA would intervene to support the
currency, though such intervention cannot be assured. Third, Hong Kong's and
China's sizable combined foreign exchange reserve may be used to support the
value of the Hong Kong dollar, provided that China does not appropriate such
reserves for other uses, which is not anticipated, but cannot be assured.
Finally, China would be likely to experience significant adverse political and
economic consequences if confidence in the Hong Kong dollar and the
territory's assets were to be endangered.
The economies of most of the Asia Pacific Region countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners,
principally the United States, Japan, China and the European Community. The
enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities markets of the Asia
Pacific Region countries. In addition, the economies of some of the Asia
Pacific Region countries, Australia, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
8
<PAGE>
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, purchased over-the-counter
("OTC") options, repurchase agreements maturing in more than seven days and
restricted securities other than those Schroder Capital has determined are
liquid pursuant to guidelines established by the Trust's board of trustees
("board"). The assets used as cover for OTC options written by the Fund will
be considered illiquid unless the OTC options are sold to qualified dealers
who agree that the Fund may repurchase any OTC options they write at a maximum
price to be calculated by a formula set forth in the option agreements. 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 board has delegated the function of making day-to-day determinations of
liquidity to Schroder Capital, pursuant to guidelines approved by the board.
Schroder Capital 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).
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Schroder Capital monitors the liquidity of restricted securities in the Fund's
portfolio and reports periodically on such decisions to the board.
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 or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Fund maintains custody of the 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 or Schroder Capital to
present minimal credit risks in accordance with guidelines established by the
board. Mitchell Hutchins or Schroder Capital 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 33 1/3% of the Fund's 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 or emergency 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. The Fund is authorized to lend portfolio
securities up to 33 1/3% of its total assets taken at market value to broker-
dealers or institutional investors that Mitchell Hutchins deems qualified, but
only when the borrower maintains with the Fund's custodian bank acceptable
collateral, marked to market daily, in an amount at least equal to the market
value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. The Fund will
retain authority to terminate any loans at any time. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash 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.
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SHORT SALES "AGAINST THE BOX." The Fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box") to defer realization of gains or losses for tax or other purposes. To
make delivery to the purchaser in a short sale, the executing broker borrows
the securities being sold short on behalf of the Fund, and the Fund is
obligated to replace the securities borrowed at a date in the future. When the
Fund sells short, it establishes a margin account with the broker effecting
the short sale and deposits collateral with the broker. In addition, the Fund
maintains with its custodian, in a segregated account, the securities that
could be used to cover the short sale. The Fund incurs transaction costs,
including interest expense, in connection with opening, maintaining and
closing short sales against the box. The Fund currently does not expect to
have obligations under short sales at any time during the coming year that
exceed 5% of its net assets.
The Fund might make a short sale "against the box" in order to hedge against
market risks when Schroder Capital believes that the price of a security may
decline, thereby causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for a security owned by
the Fund, or when Schroder Capital wants to sell a security that the Fund owns
at a current price, but also wishes to defer recognition of gain or loss for
federal income tax purposes. In such case, any loss in the Fund's long
position after the short sale should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which gains or losses in the long
position are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the Fund owns, either directly or
indirectly, and in the case where the Fund owns convertible securities,
changes in the investment values or conversion premiums of such securities.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions to make
future payments to third parties, it will maintain with an approved custodian
in a segregated account cash or liquid securities, marked to market daily, in
an amount at least equal to the Fund's obligation or commitment under such
transactions. As described below under "Hedging and Related Strategies,"
segregated accounts may also be required in connection with certain
transactions involving options or futures contracts and certain interest rate
protection transactions or forward currency contracts.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Fund may purchase securities on a "when-issued" or delayed delivery basis.
A security purchased on a when-issued or delayed delivery basis is recorded as
an asset on the commitment date and is subject to changes in market value,
generally based upon changes in the level of interest rates. Thus, fluctuation
in the value of the security from the time of the commitment date will affect
the Fund's net asset value. When the Fund agrees to purchase securities on a
when-issued or delayed delivery basis, its custodian segregates assets to
cover the amount of the commitment. See "Investment Policies and
Restrictions--Segregated Accounts." The Fund purchases when-issued securities
only with the intention of taking delivery, but may sell the right to acquire
the security prior to delivery if Schroder Capital deems it advantageous to do
so, which may result in a gain or loss to the Fund.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be
changed for the Fund without the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Fund or (2) 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
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portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5% of
the Fund's total assets would be invested in securities of that issuer or the
Fund would own or hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the Fund's total assets may be invested
without regard to this limitation, and except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment companies.
(2) purchase any security if, as a result of that purchase, 25% or more of
the Fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities.
(3) issue senior securities or borrow money, except as permitted under the
1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance or
borrowing, except that the Fund may borrow up to an additional 5% of its total
assets (not including the amount borrowed) for temporary or emergency
purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances
or similar instruments will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter under
the federal securities laws in connection with its disposition of portfolio
securities.
(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except that
the Fund may exercise rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be
liquidated in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell or
enter into financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions, which
apply to the Fund, are non-fundamental and may be changed by the vote of the
Trust's board without shareholder approval.
The Fund will not:
(1) purchase securities while borrowings in excess of 5% of its total assets
are outstanding.
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(2) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Fund may make
margin deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.
(3) engage in short sales of securities or maintain a short position, except
that the Fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts
or derivative instruments.
HEDGING AND RELATED STRATEGIES
HEDGING INSTRUMENTS. Schroder Capital 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.
OPTIONS ON EQUITY AND DEBT SECURITIES AND FOREIGN CURRENCIES--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 or currency 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 or currency 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 or currency 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 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 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 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, delivery of a
specified type of debt security or currency 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 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 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
or currency, at a specified price at any time during
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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.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by
the parties, at a price set at the time the contract is entered into.
GENERAL DESCRIPTION OF HEDGING STRATEGIES. 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 partially or fully to offset
potential declines in the value of one or more investments held in the Fund's
portfolio. Thus, in a short hedge the Fund takes a position in a 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 transaction costs. In the alternative,
because the value of the put option can be expected to increase as the value
of the underlying security declines, the Fund might be able to close out the
put option and realize a gain to offset the decline in the value of the
security.
Conversely, a long hedge is a purchase or sale of a 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 price is
expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the
exercise price of the call, the Fund could exercise the call and thus limit
its acquisition cost to the exercise price plus the premium paid and
transaction costs. Alternatively, the Fund might be able to offset the price
increase by closing out an appreciated call option and realizing a gain.
The Fund may purchase and write (sell) covered straddles on securities or
indices of securities. A long straddle is a combination of a call and a put
option purchased on the same security or on the same futures contract, where
the exercise price of the put is less than or equal to the exercise price of
the call. The Fund might enter into a long straddle when Schroder Capital
believes it likely that the prices of the securities will be more volatile
during the term of the option than the option pricing implies. A short
straddle is a combination of a call and a put written on the same security
where the exercise price of the put is less than or equal to the exercise
price of the call. The Fund might enter into a short straddle when Schroder
Capital believes it unlikely that the prices of the securities will be as
volatile during the term of the option as the option pricing implies.
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
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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, Schroder Capital expect to discover additional opportunities in
connection with options, futures contracts and other hedging techniques. These
new opportunities may become available as Schroder Capital develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, foreign currency contracts
or other techniques are developed. Schroder Capital 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 AND RELATED 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
Schroder Capital, 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 Schroder Capital 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.
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.
(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 Schroder Capital 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
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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 AND RELATED STRATEGIES. 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 liquid securities, with a value
sufficient at all times to cover its potential obligations to the extent not
covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so
require, set aside cash or liquid securities in a segregated account with its
custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding 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
and on 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 Fund would be considered illiquid to the extent described under
"Investment Policies and Restrictions-Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the 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.
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 the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund
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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 or foreign currency options used by the Fund
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears
to be a liquid secondary market. However, there can be no assurance that such
a market will exist at any particular time. Closing transactions can be made
for OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, the Fund might be unable to close out an OTC option
position at any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered put or
call option written by the Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.
The Fund may purchase and write put and call options on stock indices in
much the same manner as the more traditional options discussed above, except
the index options may serve as a hedge against overall fluctuations in the
equity securities market (or market sectors) rather than anticipated increases
or decreases in the value of a particular security.
LIMITATIONS ON THE USE OF OPTIONS. The Fund's use of options is governed by
the following guidelines, which can be changed by the Fund's board without
shareholder vote:
(1) The Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums
on all other options held by that Fund, does not exceed 5% of its total
assets.
(2) The aggregate value of securities underlying put options written by the
Fund determined as of the date the put options are written will not exceed 50%
of the Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock and 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 and foreign currency futures contracts. The
Fund may also purchase put and call options, and write covered put and call
options, on futures in which it is allowed to invest. The purchase of futures
or call options thereon can serve as a long hedge, and the sale of futures or
the purchase of put options thereon can serve as a short hedge. Writing
covered call options on futures contracts can serve as a limited short hedge,
and writing covered put options on futures contracts can serve as a limited
long hedge, using a strategy similar to that used for writing covered options
on securities or indices.
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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.
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
18
<PAGE>
speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The Fund's use of
futures and related options is governed by the following guidelines, which can
be changed by the Fund's board without shareholder vote:
(1) To the extent the Fund enters into futures contracts and options on
futures positions that are not for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed 5%
of that 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 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 its total assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Fund may
use options and futures on foreign currencies, as described above, and forward
currency contracts, as described below, to hedge against movements in the
values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security the 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.
The 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, the 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 Schroder Capital 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, the 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.
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.
19
<PAGE>
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the 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. The 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, the 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, the 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, the 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 Schroder Capital
believes will have a positive correlation to the values of the currency being
hedged. In addition, the Fund may use forward currency contracts to shift its
exposure to foreign currency fluctuations from one country to another. For
example, if the Fund owned securities denominated in a foreign currency and
Schroder Capital 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 the 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 the 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.
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, the Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by
20
<PAGE>
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. The 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 segregates with its custodian
cash or liquid securities 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.
INTEREST RATE PROTECTION TRANSACTIONS. The Fund may enter into interest rate
protection transactions, including interest rate swaps and interest rate caps,
collars and floors. Interest rate swap transactions involve an agreement
between two parties to exchange payments that are based, for example, on
variable and fixed rates of interest and that are calculated on the basis of a
specified amount of principal (the "notional principal amount") for a
specified period of time. Interest rate cap and floor transactions involve an
agreement between two parties in which the first party agrees to make payments
to the counterparty when a designated market interest rate goes above (in the
case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which payments are
made when a designated market interest rate either goes above a designated
ceiling level or goes below a designated floor level on predetermined dates or
during a specified time period. The Fund intends to use these transactions as
a hedge and not as a speculative investment. Interest rate protection
transactions are subject to risks comparable to those described above with
respect to other hedging strategies.
The Fund may enter into interest rate swaps, caps, collars and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate protection transactions are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, Schroder
Capital believes such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to the Fund's borrowing
restrictions. The net amount of the excess, if any, of the Fund's obligations
over its entitlements with respect to each interest rate swap will be accrued
on a daily basis and appropriate Fund assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account as described above in "Investment Policies and Restrictions--
Segregated Accounts." The Fund also will establish and maintain such
segregated accounts with respect to its total obligations under any interest
rate swaps that are not entered into on a net basis and with respect to any
interest rate caps, collars and floors that are written by the Fund.
The Fund will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by Schroder Capital to
present minimal credit risk in accordance with guidelines established by its
board. If there is a default by the other party to such a transaction, the
Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
21
<PAGE>
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Margo N. Alexander**; 49 Trustee and President Mrs. Alexander is president, chief
executive officer and a director of
Mitchell Hutchins (since January
1995) and also an executive vice
president and a director of
PaineWebber. Mrs. Alexander is
president and a director or trustee
of 30 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Richard Q. Armstrong; 61 Trustee Mr. Armstrong is chairman and prin-
78 West Brother Drive cipal of RQA Enterprises (manage-
Greenwich, CT 06830 ment consulting firm) (since April
1991 and principal occupation since
March 1995). Mr. Armstrong is also
a director of Hi Lo Automotive,
Inc. He was chairman of the board,
chief executive officer and co-
owner of Adirondack Beverages
(producer and distributor of soft
drinks and sparkling/still waters)
(October 1993-March 1995). Mr.
Armstrong was a partner of the New
England Consulting Group (manage-
ment consulting firm) (December
1992-September 1993). He was man-
aging director of LVMH U.S. Corpo-
ration (U.S. subsidiary of the
French luxury goods conglomerate,
Luis Vuitton Moet Hennessey Corpo-
ration) (1987-1991) and chairman of
its wine and spirits subsidiary,
Schieffelin & Somerset Company
(1987-1991). Mr. Armstrong is a
director or trustee of 29 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<S> <C> <C>
E. Garrett Bewkes, Trustee and Chairman of Mr. Bewkes is a director of Paine
Jr.**; 69 the Board of Trustees Webber Group Inc. ("PW Group")
(holding company of PaineWebber and
Mitchell Hutchins). Prior to Decem-
ber 1995, he was a consultant to PW
Group. Prior to 1988, he was chair-
man of the board, president and
chief executive officer of American
Bakeries Company. Mr. Bewkes is a
director of Interstate
Bakeries Corporation and NaPro
BioTherapeutics, Inc. Mr. Bewkes is
a director or trustee of 30 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Richard R. Burt; 49 Trustee Mr. Burt is chairman of Interna-
1101 Connecticut Avenue, tional Equity Partners (interna-
N.W. tional investments and consulting
Washington, D.C. 20036 firm) (since March 1994) and a
partner of McKinsey & Company (man-
agement consulting firm) (since
1991). He is also a director of
American Publishing Company. He was
the chief negotiator in the Strate-
gic Arms Reduction Talks with the
former Soviet Union (1989-1991) and
the U.S. Ambassador to the Federal
Republic of Germany (1985-1989).
Mr. Burt is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Mary C. Farrell**; 46 Trustee Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982.
She is a member of the Financial
Women's Association and Women's
Economic Roundtable, and is em-
ployed as a regular panelist on
Wall $treet Week with Louis
Rukeyser. She also serves on the
Board of Overseers of New York
University's Stern School of Busi-
ness. Ms. Farrell is a director
or trustee of 29 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Meyer Feldberg; 54 Trustee Dean 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 Institute
of Technology. Dean Feldberg is
also a director of AMSCO Interna-
tional Inc. (medical instruments
and supplies), Federated Department
Stores, Inc. and New World Commu-
nications Group Incorporated. Dean
Feldberg is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
George W. Gowen; 66 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 Fryer,
Ross & Gowen. Mr. Gowen is a di-
rector of Columbia Real Estate In-
vestments, Inc. Mr. Gowen is a di-
rector or trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Frederic V. Malek; 59 Trustee Mr. Malek is chairman of Thayer
901 15th Street, N.W. Capital Partners (investment bank)
Suite 300 and a co-chairman and director of
Washington, D.C. 20005 CB Commercial Group Inc. (real es-
tate). From January 1992 to Novem-
ber 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 Corporation (hotels,
restaurants, airline catering and
contract feeding), where he most
recently was an executive vice
president and president of Marriott
Hotels and Resorts. Mr. Malek is
also a director of American Man-
agement Systems, Inc. (management
consulting and computer-related
services), Automatic Data Process-
ing, Inc., Avis, Inc. (passenger
car rental), FPL Group, Inc.
(electric services), National Edu-
cation Corporation and Northwest
Airlines Inc. Mr. Malek is a di-
rector or trustee of 29 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ---------------------- ----------------------- --------------------
<S> <C> <C>
Carl W. Schafer; 60 Trustee Mr. Schafer is president of the At-
P.O. Box 1164 lantic Foundation (charitable foun-
Princeton, NJ 08542 dation supporting mainly oceano-
graphic exploration and research).
He also is a director of Roadway
Express, Inc. (trucking), The
Guardian Group of Mutual Funds, Ev-
ans Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd., Electronic Clearing House,
Inc. (financial transactions
processing), Wainoco Oil Corpora-
tion and Nutraceutix, Inc. (bio-
technology). Prior to January 1993,
Mr. Schafer was chairman of the In-
vestment Advisory Committee of the
Howard Hughes Medical Institute.
Mr. Schafer is a director or
trustee of 29 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
John R. Torell III; 57 Trustee Mr. Torell is chairman of Torell
767 Fifth Avenue Management, Inc. (financial advi-
Suite 4605 sory firm), chairman of Telesphere
New York, NY 10153 Corporation (electronic provider of
financial information) and a part-
ner of Zilkha & Company (merchant
banking and private investment com-
pany). He is the former chairman
and chief executive officer of For-
tune Bancorp (1990-1991 and 1990-
1994, respectively), the former
chairman, president and chief exec-
utive officer of CalFed, Inc. (sav-
ings association) (1988 to 1989)
and former president of Manufactur-
ers Hanover Corp. (bank) (prior to
1988). Mr. Torell is a director of
American Home Products Corp., New
Colt Inc. (armament manufacturer)
and Volt Information Sciences Inc.
Mr. Torell is a director or trustee
of 29 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; BUSINESS EXPERIENCE;
AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
------------------ ----------------------- --------------------
<C> <C> <S>
Julieanna Berry; 32 Vice President Ms. Berry is a vice president and a
portfolio manager of Mitchell
Hutchins. Ms. Berry is a vice
president of two investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Teresa M. Boyle; 37 Vice President Ms. Boyle is a first vice president
and manager--advisory administra-
tion of Mitchell Hutchins. Prior to
November 1993, she was compliance
manager of Hyperion Capital Man-
agement, Inc., an investment advi-
sory firm. Prior to April 1993, Ms.
Boyle was a vice president
and manager--legal administration
of Mitchell Hutchins. Ms. Boyle is
a vice president of 30 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Karen L. Finkel; 38 Vice President Mrs. Finkel is a first vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Mrs. Finkel is a
vice president of two investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ellen R. Harris; 49 Vice President Mrs. Harris is a managing director
and a portfolio manager of Mitchell
Hutchins. Mrs. Harris is a vice
president of three investment com-
panies for which Mitchell Hutchins
or PaineWebber serves as investment
adviser.
James F. Keegan; 35 Vice President Mr. Keegan is a senior vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Prior to March
1996, he was director of fixed in-
come strategy and research of
Merrion Group, L.P. From 1987 to
1994, he was a vice president of
global investment management of
Bankers Trust Company. Mr. Keegan
is a vice president of two invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Thomas J. Libassi; 37 Vice President Mr. Libassi is a senior vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Prior to May
1994, he was a vice president of
Keystone Custodian Funds Inc. with
portfolio management responsibili-
ty. Mr. Libassi is a vice president
of four investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
C. William Maher; 35 Vice President and Mr. Maher is a first vice president
Assistant Treasurer and a senior manager of the mutual
fund finance division of Mitchell
Hutchins. Mr. Maher is a vice
president and assistant treasurer
of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dennis McCauley; 49 Vice President Mr. McCauley is a managing director
and chief investment officer--fixed
income of Mitchell Hutchins. Prior
to December 1994, he was director
of fixed income investments of IBM
Corporation. Mr. McCauley is a vice
president of 19 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 39 Vice President and Ms. Moran is a vice president of
Assistant Treasurer Mitchell Hutchins. Ms. Moran is a
vice president and assistant trea-
surer of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dianne E. O'Donnell; 44 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general coun-
sel of Mitchell Hutchins. Ms.
O'Donnell is a vice president and
secretary of 29 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Emil Polito; 36 Vice President Mr. Polito is a senior vice presi-
dent and director of operations and
control for Mitchell Hutchins. From
March, 1991 to September, 1993 he
was director of the Mutual Funds
Sales Support and Service Center
for Mitchell Hutchins and
PaineWebber. Mr. Polito is also
senior vice president of 30 in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Victoria E. Schonfeld; 45 Vice President Ms. Schonfeld is a managing director
and general counsel of Mitchell
Hutchins. Prior to May 1994, she
was a partner in the law firm of
Arnold & Porter. Ms. Schonfeld is a
vice president of 30 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Paul H. Schubert; 33 Vice President and Mr. Schubert is a first vice presi-
Assistant Treasurer dent and a senior manager of the
mutual fund finance division of
Mitchell Hutchins. From August 1992
to August 1994, he was a vice
president of BlackRock Financial
Management Inc. Prior to August
1992, he was an audit manager with
Ernst & Young LLP. Mr. Schubert is
a vice president and assistant
treasurer of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Nirmal Singh; 39 Vice President Mr. Singh is a first vice president
and a portfolio manager of Mitchell
Hutchins. Prior to September 1993,
he was a member of the portfolio
management team at Merrill Lynch
Asset Management, Inc. Mr. Singh is
a vice president of five investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters; 36 Vice President and Mr. Sluyters is a senior vice pres-
Treasurer ident and the director of the mu-
tual fund finance division of
Mitchell Hutchins. Prior to 1991,
he was an audit senior manager with
Ernst & Young LLP. Mr. Sluyters is
a vice president and treasurer of
30 investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Mark A. Tincher; 40 Vice President Mr. Tincher is a managing director
and chief investment officer--eq-
uities of Mitchell Hutchins. Prior
to March 1995, he was a vice pres-
ident and directed the U.S. funds
management and equity research
areas of Chase Manhattan Private
Bank. Mr. Tincher is a vice presi-
dent of 14 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Craig M. Varrelman; 37 Vice President Mr. Varrelman is a first vice pres-
ident and a portfolio manager of
Mitchell Hutchins. Mr. Varrelman is
a vice president of five investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Keith A. Weller; 35 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to May
1995, he was an attorney in private
practice. Mr. Weller is a vice
president and assistant secretary
of 29 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.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of the
Fund as defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.
The Trust pays board members who are not "interested persons" of the Trust
$1,000 annually for each series and $150 for each board meeting and each
meeting of a board committee (other than committee meetings held on the same
day as a board meeting). The Trust presently has six series and thus pays each
such trustee $6,000 annually, plus any additional amounts due for board or
committee meetings. Messrs. Feldberg and Torell serve as chairmen of the audit
and contract review committees of individual funds within the PaineWebber fund
complex and receive additional annual compensation, aggregating $15,000 each,
from the relevant funds. All board members are reimbursed for any expenses
incurred in attending meetings. Board members own in the aggregate less than
1% of the outstanding shares of the Fund. Because PaineWebber and Mitchell
Hutchins perform substantially all the services necessary for the operation of
the Trust and the Fund, the Trust requires no employees. No officer, director
or employee of Mitchell Hutchins or PaineWebber presently receives any
compensation from the Trust for acting as a board member or officer.
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<PAGE>
The table below includes certain information relating to the compensation of
the current board members who held office with the Trust or with other
PaineWebber funds during the years indicated.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM THE
COMPENSATION TRUSTS
FROM THE FUND
NAME OF PERSON, POSITION THE TRUST* COMPLEX**
- ------------------------ ------------ ------------
<S> <C> <C>
Richard Q. Armstrong, Trustee......................... -- $ 9,000
Richard R. Burt, Trustee.............................. -- 7,750
Meyer Feldberg, Trustee............................... $7,250 106,375
George W. Gowen, Trustee.............................. 7,250 99,750
Frederic V. Malek, Trustee............................ 7,250 99,750
Carl W. Schafer, Trustee.............................. -- 118,175
John R. Torell III, Trustee........................... -- 28,125
</TABLE>
- --------
Only independent members of the board are compensated by the Trust and
identified above; board members who are "interested persons," as defined by
the 1940 Act, do not receive compensation.
* Represents fees paid to each board member during the fiscal year ended
November 30, 1995.
** Represents total compensation paid to each board member during the calendar
year ended December 31, 1995; no fund within the fund complex has a pension
or retirement plan.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator to the Fund pursuant to a separate contract (the
"Advisory Contract"), dated , 1996 with the Trust. Under the Advisory
Contract, the Fund pays Mitchell Hutchins a fee, computed daily and paid
monthly, at the annual rate of 1.20% of the Fund's average daily net assets.
Furthermore, under a service agreement with the Trust that is reviewed by the
board annually, PaineWebber provides certain services to the Fund not
otherwise provided by the Fund's transfer agent.
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 board members and officers who are not
"interested persons" (as defined in the 1940 Act) of the Trust or Mitchell
Hutchins; (6) all expenses incurred in connection with the board members'
services, including travel expenses; (7) taxes (including any income or
franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages
or other relief asserted against the Trust or Fund for violation of any law;
(10) legal, accounting and auditing expenses, including legal
30
<PAGE>
fees of special counsel for the independent board members; (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 board members 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 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, certain expenses attributable to investing outside the United States and
extraordinary items, are excluded from this 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 Fund's board or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.
The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers, but does not require Mitchell Hutchins to do so. Mitchell
Hutchins has entered into a separate contract with Schroder Capital, dated
("Sub-Advisory Contract"), pursuant to which Schroder Capital
determines what securities will be purchased, sold or held by the Fund. Under
the Sub-Advisory Contract, Mitchell Hutchins (not the Fund) pays Schroder
Capital a monthly fee of 0.65% of the Fund's average daily net assets up to
$100 million and .55% of the Fund's average daily net assets above $100
million. Schroder Capital bears all expenses incurred by it in connection with
its services under the Sub-Advisory Contract.
Under the Sub-Advisory Contract, Schroder Capital will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust, the
Fund, its shareholders or Mitchell Hutchins in connection with the Sub-
Advisory Contract, except any liability to the Trust, the Fund, its
shareholders or Mitchell Hutchins to which Schroder Capital would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under the Sub-Advisory Contract.
The Sub-Advisory Contract terminates automatically upon its assignment or
the termination of the Advisory Contract and is terminable at any time without
penalty by the board or by vote of the holders of a majority of the Fund's
outstanding voting securities on 60 days' notice to Schroder Capital, or by
Schroder Capital on 120 days' written notice to Mitchell Hutchins. The Sub-
Advisory Contract may also be terminated
31
<PAGE>
by Mitchell Hutchins (1) upon material breach by Schroder Capital of its
representations and warranties, which breach shall not have been cured within
a 20-day period after notice of such breach; (2) if the Sub-Adviser becomes
unable to discharge its duties and obligations under the Sub-Advisory Contract
or (3) on 120 days' notice to Schroder Capital.
NET ASSETS. The following table shows the approximate net assets as of ,
1996, sorted by category of investment objective, of the investment companies
as to which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
($ MIL)
INVESTMENT CATEGORY ----------
<S> <C>
Domestic (excluding Money Market).............................. $
Global.........................................................
Equity/Balanced................................................
Fixed Income (excluding Money Market)..........................
Taxable Fixed Income.........................................
Tax-Free Fixed Income........................................
Money Market Funds.............................................
</TABLE>
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins' advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must
be maintained at PaineWebber, personal trades in most securities require pre-
clearance and short-term trading and participation in initial public offerings
generally are prohibited. In addition, the code of ethics puts restrictions on
the timing of personal investing in relation to trades by PaineWebber funds
and other Mitchell Hutchins' advisory clients. Schroder Capital personnel may
also invest in securities for their own accounts pursuant to a comparable code
of ethics.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
Fund's Class Y shares under a distribution contract with the Fund dated
("Distribution Contract"), that requires Mitchell Hutchins to use its best
efforts, consistent with its other businesses, to sell the Fund's Class Y
shares. Shares of the Fund are offered continuously. Under an exclusive dealer
agreement between Mitchell Hutchins and PaineWebber dated , relating to
the Class Y shares ("Exclusive Dealer Agreement"), PaineWebber and its
correspondent firms sell the Fund's Class Y shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board, Schroder Capital is
responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
Schroder Capital seeks to obtain the best net results for the Fund, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved. While Schroder Capital generally
seeks reasonably competitive commission rates, payment of the lowest
commission is not necessarily consistent with obtaining the best net results.
Prices paid to dealers in principal transactions, through which 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
32
<PAGE>
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or
execution could be obtained by using a broker.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber. The board has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
PaineWebber are reasonable and fair. Specific provisions in the Advisory
Contract authorize Mitchell Hutchins and any of its affiliates that is a
member of a national securities exchange to effect portfolio transactions for
the Fund on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute their 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
board, Schroder Capital may cause the Fund to purchase and sell portfolio
securities through brokers who provide that Fund with research, analysis,
advice and similar services. In return for such services, the Fund may pay to
those brokers a higher commission than may be charged by other brokers,
provided that Schroder Capital determines in good faith that such commission
is reasonable in terms either of that particular transaction or of the overall
responsibility of Schroder Capital, to the Fund and its other clients and that
the total commissions paid by the Fund will be reasonable in relation to the
benefits to the Fund over the long term.
For purchases or sales with broker-dealer firms that act as principal,
Schroder Capital seeks best execution. Although Schroder Capital may receive
certain research or execution services in connection with these transactions,
it will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight was attributed to the
services provided by the executing dealer. Moreover, Schroder Capital will not
enter into any explicit soft dollar arrangements relating to principal
transactions and will not receive in principal transactions the types of
services that could be purchased for hard dollars. Schroder Capital may engage
in agency transactions in OTC equity and debt securities in return for
research and execution services. These transactions are entered into only in
compliance with procedures ensuring that the transaction (including
commissions) is at least as favorable as it would have been if effected
directly with a market-maker that did not provide research or execution
services. These procedures include Schroder Capital receiving multiple quotes
from dealers before executing the transactions on an agency basis.
Information and research services furnished by brokers or dealers through
which or with which the Fund effects securities transactions may be used by
Schroder Capital in advising other funds or accounts and, conversely, research
services furnished to Schroder Capital by brokers or dealers in connection
with other funds or accounts that either of them advises may be used in
advising the Fund. Information and research received from brokers or dealers
will be in addition to, and not in lieu of, the services required to be
performed by Schroder Capital under the Sub-Advisory Contract.
Investment decisions for the Fund and for other investment accounts managed
by Schroder Capital 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
33
<PAGE>
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated between the Fund and such other account(s)
as to amount according to a formula deemed equitable to the Fund and such
account(s). While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, or
upon their ability to complete their entire order, in other cases it is
believed that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.
The Fund will not purchase securities that are offered in underwritings in
which PaineWebber is a member of the underwriting or selling group, except
pursuant to procedures adopted by each board pursuant to Rule 10f-3 under the
1940 Act. Among other things, these procedures require that the spread or
commission paid in connection with such a purchase be reasonable and fair, the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offering and that PaineWebber
or any affiliate thereof not participate in or benefit from the sale to the
Fund.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rates may vary
greatly from year to year, but they will not be a limiting factor when
management deems portfolio changes appropriate. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of securities in the portfolio during the year.
VALUATION OF SHARES
The Fund determines its net asset values 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. and 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 or Schroder Capital as the primary
market. Securities traded in the OTC market and listed on The Nasdaq Stock
Market, Inc. ("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 board. 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 the 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. Investments in
U.S. government securities and other securities traded over-the-counter (other
than short-term investments that mature in 60 days or less) are valued at the
last quoted bid price in the over-the-counter market. The amortized cost
method of valuation generally is used to value debt obligations with 60 days
or less remaining until maturity unless the board determines that this does
not represent fair value.
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
34
<PAGE>
at which they are determined and the close of trading on the NYSE, which
events would not be reflected in a computation of the 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 board. The foreign currency exchange transactions of the 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.
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. 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.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare their
Standardized Return and/or their 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 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
(including Asia Pacific regional indexes) and changes in
35
<PAGE>
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund also may refer in such materials to mutual fund performance rankings and
other data, such as comparative asset, expense and fee levels, published by
Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance Advertisements also
may refer to discussions of the Fund and comparative mutual fund data and
ratings reported in independent periodicals, including THE WALL STREET
JOURNAL, MONEY MAGAZINE, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S,
FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST AND THE
KIPLINGER LETTERS. Comparisons in Performance Advertisements may be in graphic
form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Fund investment are
reinvested in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original
Fund investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase
more quickly than if dividends or other distributions had been paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs
of major banks published by Banxquote(R) Money Markets. In comparing the
Fund's performance to CD performance, investors should keep in mind that bank
CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that bank
CD yields may vary depending on the financial institution offering the CD and
prevailing interest rates. Shares of the Funds 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.
TAXES
In order 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, net short-term capital gain
and net gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. For the Fund
these requirements include the following: (1) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition
of securities or 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) the
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 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 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
36
<PAGE>
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.
If shares of the Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for any dividend or capital gain distribution, the shareholder
will pay full price for the shares and receive some portion of the price back
as a taxable distribution.
Dividends and interest received by the 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. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, it will be eligible to, and may, file an
election with the Internal Revenue Service that will enable its shareholders,
in effect, to receive the benefit of the foreign tax credit with respect to
any foreign and U.S. possessions income taxes paid by it. Pursuant to the
election, the Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him or her, his or her proportionate share of
those taxes; (2) treat his or her share of those taxes and of any dividend
paid by the Fund that represents income from foreign or U.S. possessions
sources as his or her own income from those sources; and (3) either deduct the
taxes deemed paid by him or her in computing his or her taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against his or her federal income tax. The Fund will report to its
shareholders shortly after each taxable year their respective shares of the
income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.
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"). 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 that 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" ("QEF"), 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 QEF's annual ordinary earnings and
net capital gain (the excess of net long-term capital gain
37
<PAGE>
over net short-term capital loss)--which may have to be distributed by the
Fund to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax--even if those earnings and gain are not distributed to the Fund by
the QEF. In most instances it will be very difficult, if not impossible, to
make this election because of certain requirements thereof.
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, 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 the Fund realizes
in connection therewith. Gains from the disposition of foreign currencies
(except certain gains that may be excluded by future regulations), and gains
from options, futures and forward currency contracts derived by the 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
also will be subject to the Short-Short Limitation if they are held for less
than three months and are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities).
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, futures, forward currency contracts and/or foreign currency
positions beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to qualify as a RIC.
OTHER INFORMATION
Prior to February 26, 1992, PaineWebber Managed Investments Trust was known
as "PaineWebber Fixed Income Portfolios."
The Trust 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 the Fund. However, the Trust's 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
38
<PAGE>
the Fund itself would be unable to meet its obligations, a possibility that
Mitchell Hutchins believes it 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 Fund's operations in such a way as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund.
ADDITIONAL REDEMPTION INFORMATION. If conditions exist that make cash
payments undesirable, the Fund reserves the right to honor any request for
redemption by making payment in whole or in part in securities chosen by the
Fund and valued in the same way as they would be valued for purposes of
computing the Fund's net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting these securities into
cash. The Fund 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 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.
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.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Fund.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Fund.
39
<PAGE>
APPENDIX A:
ASIA PACIFIC REGION ECONOMIES & STOCK MARKETS
The Asian continent covers approximately one-fifth of the earth's surface
and is home to over half the world's population. The Fund's investment focus
does not include the countries contained in the areas of Asia west of the
Pakistan border and north of the continent's southernmost border of the former
Soviet Union. The discussion and tables below focus on [12] of the primary
Asia Pacific Region countries in which the Fund may generally invest. Data on
the United States appears for comparative purposes.
ECONOMIES
Background
During the past 14 years, countries in the Asian region have experienced
real economic growth rates exceeding those experienced by many Western
industrialized countries. As Table 1 shows, all of the economies of the Asia
Pacific Region countries listed therein, except for that of the Philippines,
grew faster than that of the United States. The fastest growing economy in
Asia between 1980 and 1994 was China, with an average annual growth rate of
10.1%, followed by South Korea, with an annual average growth rate of 8.9%.
See "Certain Recent Developments in South Korea, China and Hong Kong" below in
this Appendix A.
TABLE 1
REAL GDP
<TABLE>
<CAPTION>
AVERAGE REAL GDP NOMINAL
GROWTH FOR THE PERIOD GDP
1980-1994 1993
--------------------- --------------
(%) (US$ BILLIONS)
<S> <C> <C>
Australia..................................
China...................................... 10.1 577
Hong Kong*................................. 6.7 105
India*..................................... 5.2 269
Indonesia.................................. 5.8 139
Malaysia*.................................. 6.2 60
New Zealand................................
Philippines................................ 1.3 55
Singapore.................................. 7.0 56
South Korea................................ 8.9 338
Taiwan*.................................... 7.4 222
Thailand*.................................. 8.0 123
United States.............................. 2.7 6,378
</TABLE>
- --------
Source: World Bank: World Development Report 1995; International Monetary
Fund, World Economic Outlook, October 1995.
* Source: Statistical Yearbook, 1994.
(a) China: GNP
Schroder Capital believes that existing economic conditions in the Asia
Pacific Region provide for high levels of economic activity in the long term,
offering the potential for long-term capital appreciation from investment in
equity securities of Asia Pacific companies. Among these conditions, discussed
in turn below,
A-1
<PAGE>
are the following: (1) the increasing industrialization of Asian economies,
(2) favorable demographics and competitive wage rates, (3) high rates of
domestic savings available to fund investment, particularly in the area of
infrastructure, (4) the ability to attract foreign direct investment, (5) the
emergence of a regional trading zone and (6) rising per capita incomes
available to support local markets for consumer goods.
Industrialization
The rapid ongoing shift from primary industries into industrial
manufacturing has contributed to high rates of economic activity, as shown in
Table 2. Between 1970 and 1993, there has been a significant shift in the
percentage of GDP accounted for by the agricultural sector in these markets
and a marked increase in output by the industrial sector, most markedly in
South Korea, Indonesia and Malaysia. In Japan and Hong Kong, the most
developed economies in the region, there has been a transition away from
industry in favor of the service sector which accounted for 57% and 79%,
respectively, of 1993's GDP, a trend also followed in the United States.
Generally in the Asia Pacific Region countries there is still potential for
further industrialization so as to reach the levels presently attained by the
countries of the industrialized world. For example, as shown in Table 2, in
China, India, Indonesia and the Philippines, agriculture accounted for an
average of approximately 23% of GDP in 1993. Even though agricultural output
accounts for a declining portion of overall GDP, over 40% of the world's total
cereal production came from countries in the Asia Pacific Region in 1992,
including 85% of total rice production. Therefore, the incidence of monsoon
and other weather-related conditions can have a significant positive or
negative impact on the annual GDP of the region's agriculture-based economies.
TABLE 2
BREAKDOWN OF GDP: PERCENTAGES FOR AGRICULTURE, INDUSTRY AND SERVICES
<TABLE>
<CAPTION>
AGRICULTURE (%) INDUSTRY (%) SERVICES (%)
---------------- -------------- --------------
1970 1993 1970 1993 1970 1993
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Australia.....................
China......................... 34 19 38 48 28 33
Hong Kong..................... 2 0 36 21 62 79
India......................... 45 31 22 27 33 41
Indonesia..................... 45 19 19 39 36 42
Malaysia...................... 29 16 25 44 46 40
New Zealand...................
Philippines................... 30 22 32 33 39 45
Singapore..................... 2 0 30 37 68 63
South Korea................... 26 7 29 43 46 50
Taiwan........................ 13 3 44 42 43 55
Thailand...................... 26 10 25 39 49 51
United States................. 3 1 54 44 43 55
</TABLE>
- --------
Sources: World Bank: World Development Report 1995; Asian Development Bank:
Key Indicators of Developing Asian and Pacific Economies 1995; United States
1991 statistics: U.S. Department of Commerce, National Income and Product
Accounts 1993; 1970 statistics: Aremos database.
Favorable Demographics and Competitive Wages
Based on favorable demographic statistics as to the Asia Pacific Region
countries relative to the United States and Western Europe and the existence
in the region of low relative wage rates, Schroder Capital
A-2
<PAGE>
believes that the competitive advantages of Asia, particularly access to a
large pool of disciplined and low cost (and in East Asia, well educated)
labor, will continue to lead to high levels of inward capital investment by
companies based in the industrialized world. Moreover, the demographic profile
of Asia Pacific Region countries, as shown in Table 3 below, shows a plentiful
potential supply of new labor force participants as indicated by the high
percentage of the populations under 15 years of age. In this respect, India,
Indonesia, Malaysia, the Philippines and Thailand are well positioned. The
larger this percentage, the lower the likelihood of significant upward
pressure on wage rates over the medium term, thus ensuring a continuation of
the current favorable cost structure these countries enjoy relative to the
United States and Japan. In addition, these countries in particular need to
maintain a sufficient level of overall economic activity in order to provide
employment opportunities to new entrants. If this cannot be achieved, as in
the case of the Philippines, the export of labor may occur. Direct investment
and the establishment of labor intensive industries, such as textiles, have
had a favorable impact on job creation in the Asia Pacific Region. However,
direct investment may be deterred by the absence of basic infrastructure, such
as energy, telephone lines, ports, roads and railways, as has occurred in the
Philippines with shortages of electricity.
TABLE 3
DEMOGRAPHIC STRUCTURE OF ASIA PACIFIC REGION COUNTRIES: 1993
<TABLE>
<CAPTION>
1995 AVERAGE
% OF % OF % OF MANUFACTURING
POPULATION POPULATION POPULATION HOURLY WAGE
UNDER 15-64 65 AND COST IN
15 YEARS YEARS ABOVE US$(B)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Australia........................
China............................ 27 66 7 0.57
Hong Kong........................ 21 66 9 4.89
India............................ 36 56 4 0.35
Indonesia........................ 36 59 4 0.75
Malaysia......................... 39 53 2 2.26
New Zealand......................
Philippines...................... 39 54 2 0.90
Singapore........................ 23 66 6 7.11
South Korea...................... 25 70 4 6.25
Taiwan(a)........................ 25 68 7 5.98
Thailand......................... 32 62 2 1.14
United States.................... 22 63 12 17.63
</TABLE>
- --------
Source: World Bank: World Development Report 1993. Based on latest census
(1991).
(a) Source: Statistical Yearbook, 1994.
(b) Source: Data Resources Inc.--McGraw-Hill
Savings and Infrastructure
There is a need in the Asia Pacific Region countries for substantial
investment in infrastructure. As shown in Table 4, a low penetration rate of
telephone lines per 1,000 population exists in each of China, India,
Indonesia, Malaysia and Thailand. Asia has the means to overcome the
deficiency in infrastructure given its high domestic savings rates, which are
also shown in Table 4. A high rate of savings is generally associated with
strong investment, rising productivity and faster GDP growth. Singapore, with
savings equal to 47% of GDP, followed by China at 40% and Malaysia at 38%, in
particular compare favorably with the United States in this regard. The
savings rates of India and the Philippines are the lowest in the region and,
in the opinion
A-3
<PAGE>
of the Schroder Capital, will have to be raised if investment, and hence
growth, is to accelerate in such countries. China is still in the process of
developing a network of financial intermediaries capable of channeling
available funds between savers and investors, the lack of which may constrain
growth in the short term.
TABLE 4
SAVINGS AND INFRASTRUCTURE
<TABLE>
<CAPTION>
1992
1993 TELEPHONE
SAVINGS AS LINES
% OF PER 1000
GDP* POPULATION**
---------- ------------
<S> <C> <C>
Australia...............................................
China................................................... 40 10
Hong Kong............................................... 31 485
India................................................... 24 8
Indonesia............................................... 31 8
Malaysia................................................ 38 112
New Zealand.............................................
Philippines............................................. 16 10
Singapore............................................... 47 415
South Korea............................................. 35 357
Taiwan.................................................. 27 449(a)
Thailand................................................ 36 31
United States........................................... 15 565
</TABLE>
- --------
* Source (except as hereinafter noted): World Bank: World Bank Development
Report 1993.
(a) 1991 Data Source: Statistical Yearbook of ROC 1992.
Ability to Attract Foreign Direct Investment
Foreign direct investment has underpinned economic growth in the Asia
Pacific Region. With the rapid appreciation of the Yen since the end of 1985,
Japanese investment flows have increased considerably. The Asian share of
Japanese foreign direct investment is growing: Asia attracted 21% of Japanese
outflows in the first half of 1994, up from 12% in 1989, a growing share of
which is manufacturing. In 1991 the number of offshore Japanese manufacturing
subsidiaries was higher in Asia (10,483) than in North America (5,272) and
Europe (2,216).
TABLE 5
DIRECT INVESTMENT IN ASIA FROM THE U.S. AND JAPAN
(US$ IN MILLIONS)
<TABLE>
<CAPTION>
1994
-------
<S> <C>
From the United States................................................. $46,500
% of U.S. total........................................................ 7.7%
From Japan............................................................. $76,216
% of Japanese total.................................................... 16.4%
From the European Community............................................ $
% of European Community Total.......................................... %
</TABLE>
- --------
Sources: United States data: U.S. Department of Commerce--Survey of Current
Business; Japan data: Ministry of Finance--June 1995 International Investment
Statistics; and European Community data:
Schroder Capital believes that in addition to increasing the foreign supply
of capital, direct foreign investment from Japan confers a number of benefits
which enhance the long-term growth potential of a
A-4
<PAGE>
recipient country, including, but not limited to, (1) the mobilization of
domestic savings for productive purposes in joint ventures between
multinational corporations and local companies, (2) the improvement of local
training and education as local employees are exposed to modern production
techniques and established training methods, (3) the modernization of
management and accounting, (4) a transfer of technology and (5) the promotion
of exports.
Trade and Exports
Most of the countries in the Asia Pacific Region have historically pursued
the Japanese development model of export-led growth. This, together with the
inflow of foreign manufacturing facilities, has led in general to strong
export sector performances. During the 1980s, a significant proportion of
Asian exports was shipped to the United States and Europe, which resulted in
severe trade account imbalances. The appreciation of the Japanese Yen since
the end of 1985, together with increasingly persistent attempts on the part of
various U.S. administrations to lower Asian trade barriers, has resulted in a
shift in the pattern of trade. Table 6 shows that in 1994, 48.0% of Asian
exports went to Asian markets, while 51.2% of total Asian imports were from
Asia. These trade figures suggest that Asia's importance as a market in its
own right is growing.
TABLE 6
THE SHAPE OF INTRA-ASIAN TRADE, 1994
(US$ IN MILLIONS)
EXPORTS FROM: TO:
<TABLE>
<CAPTION>
SOUTH HONG EXPORTS
JAPAN KOREA TAIWAN+ KONG SINGAPORE INDONESIA MALAYSIA PHILIPPINES THAILAND CHINA INDIA TO ASIA**
------- ------- ------- ------ --------- --------- -------- ----------- -------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Japan...........
South Korea..... 13,523 -- 2,732 8,015 4,152 2,540 1,652 1,212 1,835 6,293 1,160 44,414
Taiwan+......... 10,179 1,800 -- 13,885 3,936 1,316 5,063 1,270 2,560 14,034 268 52,361
Hong Kong....... 5,436 2,415 3,688 -- 4,214 921 1,156 1,868 1,291 49,639 522 77,483
Singapore....... 5,766 2,532 3,894 8,383 -- 1,793 19,029 1,577 5,355 2,098 1,231 55,578
Indonesia....... 11,751 2,584 1,919 1,150 1,793 -- 856 362 406 1,445 213 21,323
Malaysia........ 7,010 1,646 1,754 2,715 12,167 715 -- 611 2,216 1,933 527 32,973
Philippines..... 2,020 291 452 651 707 72 221 -- 167 164 13 5,067
Thailand........ 7,524 653 969 2,211 4,037 277 2,107 211 -- 914 166 19,674
China........... 21,490 4,376 2,242 32,366 2,563 1,052 2,118 476 1,159 -- 572 70,122
India........... 2,925 396 284 1,349 459 230 305 91 409 235 -- 6,880
544,271
Imports from
Asia........... 98,036 41,660 41,724 24,780 60,903 13,940 34,509 12,267 31,544 65,174 5,585 530,127
Total Imports... 275,235 102,348 85,359 61,770 102,670 30,500 59,581 22,531 54,324 114,563 20,762 1,035,643
Asia/World
Total(%)....... 35.6 40.7 48.9 77.1 59.3 45.7 57.9 54.4 58.0 56.9 20.9 51.18
<CAPTION>
ASIA/
TOTAL WORLD
EXPORTS TOTAL%
--------- ----------
<S> <C> <C>
Japan...........
South Korea..... 96,013 46.3
Taiwan+......... 93,056 56.0
Hong Kong....... 151,395 51.2
Singapore....... 96,826 57.4
Indonesia....... 40,054 53.2
Malaysia........ 58,756 56.1
Philippines..... 13,342 40.0
Thailand........ 41,757 47.1
China........... 119,816 58.5
India........... 25,057 27.5
1,133,077 48.0347761
Imports from
Asia...........
Total Imports...
Asia/World
Total(%).......
</TABLE>
- --------
Sources: IMF Directory of Trade Statistics 1995: Taiwan; Industry of Free
China November 1995. The Economist Intelligence Unit Country Report.
+ Taiwan Export data based on import statistics of trading partners. 1993 data
has been used where 1994 is not available.
A-5
<PAGE>
Rising Per Capital Incomes
Overall economic activity in the Asia Pacific Region has been supported by a
rising trend in per capita GDP. This trend is highly significant in light of
the fact that the Asian region contains three of the world's four most
populous nations, China (1.16 billion), India (876 million) and Indonesia (183
million). Consequently, in Schroder Capital's opinion, the prospects for the
establishment of substantial local markets for a wide range of consumer
products, both imported and locally manufactured, are attractive.
Table 7 shows 1993 per capita GDP and the potential for catch-up by the
poorer Asia Pacific Region countries, such as China, India, Indonesia, the
Philippines and Thailand. Although China was the fastest growing economy in
the region in 1992, Schroder Capital believes that on a per capita GDP basis
there remains great potential for future growth.
TABLE 7
GDP PER CAPITA
(U.S.$)
<TABLE>
<CAPTION>
1993
------
<S> <C>
Australia................................................................
China.................................................................... 490
Hong Kong................................................................ 18,060
India.................................................................... 300
Indonesia................................................................ 740
Malaysia................................................................. 3,140
New Zealand..............................................................
Philippines.............................................................. 850
Singapore................................................................ 19,850
South Korea.............................................................. 7,660
Taiwan (a)............................................................... 10,667
Thailand................................................................. 2,100
United States............................................................ 24,740
</TABLE>
- --------
Source: World Bank: World Development Report 1995.
(a) Source: 1980: Statistical Yearbook of ROC 1994.
Certain Recent Developments in South Korea, China and Hong Kong
South Korea. Although, in general, all the necessary conditions for
continuing growth exist throughout the Asian region, it is possible that those
economies that experienced the fastest growth in GDP (as shown in Table 1
above) may not continue to expand at such a strong pace in the future. For
example, in Schroder Capital's opinion, South Korea is unlikely to experience
such high rates of economic activity in the future. In 1992, the growth rate
slowed to 4.7% as a result of an austerity program implemented during 1991 to
combat a deteriorating trade account and rising inflation. This followed on a
surge of domestic construction spending, the purpose of which was to offset
the slowing trend of South Korean exports from 1989 onwards. The
competitiveness of the South Korean export sector had been affected by a
substantial increase in wage rates coinciding with South Korea's shift toward
a more democratic form of government and the concomitant relaxation of trade
union and press controls. Moreover, the establishment of lower cost production
bases, such
A-6
<PAGE>
as China, is providing intensifying competition. By the end of 1992, interest
rates had declined from a peak of 19% as of the third quarter of 1991 to
13.8%. Inflation had fallen from 9.3% in 1991 to 4.5% in 1992, and the current
account deficit had narrowed from $8.73 billion to $4.5 billion over the same
period. A tentative sign of rising consumer confidence was evident in a pick-
up in retail sales in May 1993. These factors, together with the significant
benefit brought to South Korean exporters by the appreciation of the Japanese
Yen in 1993, lead Schroder Capital to believe that the South Korean economy is
unlikely to slow further in the near term.
China. In 1978 China's then Premier, Deng Xiaoping, initiated an open door
policy which allowed for the establishment of special economic zones and the
acceptance of foreign direct investment. As a result, there has been a more
market oriented Chinese economy. This has included a shift by non-state
enterprises into China's industrial sector. As a result, by the end of 1992,
the share of the state sector in total production had steadily declined from a
peak of 90% in the 1960s to less than 50%. This program has accelerated over
the past two years, with the decontrol of most consumer prices. This policy
resulted in inflation rates rising to approximately a 17% annual rate by the
first quarter of 1993, and a run-down of China's exchange reserves from $45
billion at the beginning of 1992 to $21 billion at year-end. In June 1993, a
partial relaxation of currency controls was effected, which resulted in an
immediate devaluation of the Yuan Renminbi (Rmb) on the Shanghai swap market
from approximately Rmb 5 per U.S. dollar to Rmb 10 per U.S. dollar. The rate
has since recovered slightly to approximately Rmb 9 to the U.S. dollar. In
August 1993, in the light of further elements of overheating, an austerity
program was announced by Vice Premier Zhu Rongji, head of the People's Bank of
China, which included the calling in of bank loans and increases in interest
rates by 250 basis points between June and September 1993. It is uncertain if
this program is being strictly enforced, and whether it will be effective in
cooling down the Chinese economy. Schroder Capital believes, however, that it
is unlikely that in the long term the reform process in China will be
affected, although, in the short-term, there could be a breakdown of consensus
within the Chinese ruling party concerning the pace of reform.
Hong Kong. Hong Kong's economy is the most likely to be affected by reform
in China. Shenzhen, one of the earliest and most successful economic zones in
China, is located close to the Hong Kong/Chinese border. Hong Kong companies
have set up a broad range of manufacturing facilities in Southern China and
Hong Kong provides an array of services to Southern China, including finance,
telecommunications, energy and management knowhow. Between 1979 and 1992 Hong
Kong accounted for almost 60% of direct foreign investment into China. In 1992
Hong Kong's real growth accelerated to 5%, the fastest rate since 1988, led by
the boom in the neighboring Chinese provinces. Consequently Hong Kong's
inflation rate rose to 7.9% by September 1993.
SECURITIES MARKETS
Historical Development
There has been no set pattern to the historical developments of the stock
markets in the region. Some stock exchanges, such as that in Bombay, India,
have been operating since as early as 1875, while the Shenzhen Exchange in
China, the most recently established, has operated only since 1991.
Additionally, for a wide variety of historical and/or ideological reasons
foreign ownership restrictions have at some time been imposed over most stock
exchanges in the region. The discussion on the following page highlights those
Asia Pacific Region countries where foreign investment remains restricted.
A-7
<PAGE>
DEVELOPMENT OF STOCK MARKETS
1984--1993
<TABLE>
<CAPTION>
ANNUAL TRADING NUMBER OF MARKET CAP
VALUE LISTED DEC. 31,
U.S.$ MILLIONS COMPANIES U.S.$ BILLIONS
--------------- ----------- ----------------
EXCHANGE LOCAL INDEX 1984 1993 1984 1993 1984 1993
-------- ------------------ --------------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Australia......
China.......... N/A 43,395 N/A 183 N/A 40
Hong Kong...... Hang Seng 6,243 131,550 N/A 450 23 385
India.......... SE Bombay Index 3,916 21,879 3,882 6,800 6 98
Indonesia...... JSE Composite 2 9,158 24 174 0.1 33
Malaysia....... KLSE Composite 2,226 153,661 217 410 19 220
New Zealand....
Philippines.... ManilaCom/IndIndex 125 6,785 149 180 8 40
Singapore...... DDS 50 3,849 81,623 121 178 12 133
South Korea.... KOSPI 3,869 211,710 336 693 139
Taiwan......... TSE 8,194 346,487 123 285 10 195
Thailand....... SET 434 86,934 96 347 2 130
</TABLE>
- --------
Sources: Emerging Stock Markets Factbook 1994: International Finance Corp.
Up until 1987, investment in Indonesia was effectively closed to foreigners;
South Korea opened up 15% of equity ownership to foreigners by 1995; Taiwan
offers limited access to foreign investors; and India has authorized direct
access for approved international institutional investors in 1995. Many
companies in China, India, Indonesia, South Korea, Malaysia, the Philippines,
Singapore and Thailand have foreign investment restrictions which can result
in foreign owned stock trading at a substantial premium or discount to
locally-owned shares. Average daily volume can be much lower in these markets
than a typical day's trading volume in the United States, particularly in the
small and medium capitalization sectors of the less well developed stock
markets. In some of these markets, for example, Hong Kong, Taiwan and
Thailand, retail trading is comparatively more active and institutional
investment accounts for a lower proportion of total trading. A large volume of
retail trading can result in more volatile stock markets, although some
markets have daily price fluctuation limits.
Foreign investment restriction may in the future be subject to change. For
example, the Council of Ministers in Thailand has approved the establishment
of mutual fund management companies, to be called "Tai Trust Funds," managed
by the Stock Exchange of Thailand. Thai Trust Funds, expected to be
implemented by the end of 1996, would permit unlimited foreign shareholding of
Thai securities, subject to restrictions on voting. In addition, it is
expected that South Korea will increase the percentage of stock of a Korean
issuer that may be owned by foreigners. Such changes could have the effect of
reducing or eliminating the premium at which many foreign owned stocks
presently trade. This could have an adverse effect on the Fund if it had
previously purchased such stocks at a premium.
Since the mid 1980s, however, stock market development throughout the
region, both with respect to daily trading volume and the number of securities
traded, has gained momentum. In terms of market capitalization, after Japan,
Hong Kong is the largest stock market in Asia, capitalized at US$385 billion
as of December 1993, followed by Malaysia at US$220 billion. Over the period
from 1984 to 1993, Indonesia saw a 625% expansion in the number of listed
companies, coupled with an increase in market capitalization from $85 million
to $33 billion. The number of listed companies in South Korea, Taiwan and
Thailand increased 106%, 132% and 261%, respectively, over the same period,
while annual stock exchange turnover in these markets rose dramatically.
A-8
<PAGE>
STOCK MARKET RETURNS
<TABLE>
<CAPTION>
STOCK
AVERAGE ANNUAL MARKET RETURNS
STOCK MARKET RETURN (LOCAL CURRENCY %)
(LOCAL CURRENCY %) 1 MONTH TO END
1990-1995 JANUARY 1996
------------------- ------------------
<S> <C> <C>
Australia...........................
China............................... N/A N/A
Hong Kong........................... 25.3 12.9
India............................... 25.4 (a) (6.3)
Indonesia........................... 0.2 13.4
Malaysia............................ 13.9 4.5
New Zealand.........................
Philippines......................... 33.9 9.9
Singapore........................... 13.8 5.7
South Korea......................... 6.2 (1.2)
Taiwan.............................. 5.3 (6.6)
Thailand............................ 20.7 9.8
United States....................... 11.6 3.5
</TABLE>
- --------
Source: MSCI Price Indices.
(a) Source: F.E. Bombay Index, Emerging Stock Markets Factbook.
The Asia Pacific Region stock markets have seen positive returns over the
past five calendar years, although such returns cannot be assured in the
future. These markets in general do not move together. For example, during the
period 1990 to 1995, the best performing market was the Philippines and the
worst was Japan, while for the first two months of 1996 the best performing
market was Indonesia and the worst was Taiwan. The stock markets in most of
the Asia Pacific Region countries are at high levels which may not persist.
Accordingly, to the extent that the Fund purchases securities at present
levels in these and other high performing Asian stock markets, there may be a
greater risk that the value of such securities may decline.
A-9
<PAGE>
APPENDIX B
DESCRIPTION OF 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 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 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
B-1
<PAGE>
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.
B-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions....................................... 1
Hedging and Related Strategies............................................. 13
Trustees and Officers...................................................... 22
Investment Advisory and Distribution Arrangements.......................... 30
Portfolio Transactions..................................................... 32
Valuation of Shares........................................................ 34
Performance Information.................................................... 35
Taxes...................................................................... 36
Other Information.......................................................... 38
Appendix A................................................................. A-1
Appendix B ................................................................ B-1
</TABLE>
(C)1996 PaineWebber Incorporated
PaineWebber
Asia Pacific Growth Fund
Class Y Shares
- --------------------------------------------------------------------------------
Statement of Additional Information
November , 1996
- --------------------------------------------------------------------------------
[LOGO OF PAINEWEBBER APPEARS HERE]
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Included in Part A of this Registration Statement for PaineWebber Asia
Pacific Growth Fund:
Not Applicable
Included in Part B of this Registration Statement for PaineWebber Asia
Pacific Growth Fund:
Not Applicable
(b) Exhibits:
(1) (a) Declaration of Trust1/
-
(b) Amendment to Declaration of Trust effective January 28, 1988
2/
-
(c) Amendment to Declaration of Trust effective July 1, 1990 6/
-
(d) Amendment to Declaration of Trust effective March 21, 1991 7/
-
(e) Amendment to Declaration of Trust effective April 1, 1991 8/
-
(f) Amendment to Declaration of Trust effective July 1, 1991 11/
--
(g) Amendment to Declaration of Trust effective February 26, 1992
10/
--
(h) Amendment to Declaration of Trust effective January 25, 1993
12/
--
(i) Amendment to Declaration of Trust effective May 25, 1993 14/
--
(j) Amendment to Declaration of Trust effective July 30, 1993 14/
--
(k) Amendment to Declaration of Trust effective November 13, 1993
18/
--
(l) Amendment to Declaration of Trust effective July 20, 1995 20/
--
(m) Amendments to Declaration of Trust effective October 20,1995,
November 10, 1995 and November 29, 1995 21/
--
(n) Amendment to Declaration of Trust effective September 19, 1996
25/
--
(2) (a) By-Laws 1/
-
(b) Amendment to By-Laws effective March 19, 1991 7/
-
(c) Amendment to By-Laws effective September 28, 1994 18/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's share
of beneficial interest 19/
--
(5) (a) Investment Advisory and Administration Contract 4/
-
(b) Investment Advisory Fee Agreement with respect to PaineWebber
Utility Income Fund 15/
--
(c) Investment Advisory Fee Agreement with respect to PaineWebber
Low Duration U.S. Government Income Fund 15/
--
(d) Form of Investment Advisory Fee Agreement with respect to
PaineWebber Asia Pacific Growth Fund 25/
--
(e) Form of Sub-Advisory Contract with respect to PaineWebber Asia
Pacific Growth Fund 25/
--
(6) (a) Distribution Contract with respect to Class A Shares 15/
--
(b) Distribution Contract with respect to Class B Shares 15/
--
(c) Distribution Contract with respect to Class C Shares 21/
--
(d) Distribution Contract with respect to Class Y Shares 21/
--
(e) Exclusive Dealer Agreement with respect to Class A Shares 15/
--
(f) Exclusive Dealer Agreement with respect to Class B Shares 15/
--
(g) Exclusive Dealer Agreement with respect to Class C Shares 21/
--
(h) Exclusive Dealer Agreement with respect to Class Y Shares 21/
--
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 2/
-
(9) (a) Transfer Agency and Service Contract 6/
-
(b) Service Contract5/
-
C-1
<PAGE>
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class A and Class B shares of
U.S. Government Income Fund, Investment Grade Income Fund, and
High Income Fund 8/
-
(b) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class A and Class B shares of
PaineWebber Utility Income Fund 9/
-
(c) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class C Shares of the above-
referenced Funds 11/
--
(d) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to PaineWebber Low Duration U.S.
Government Income Fund 12/
--
(e) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class Y Shares of PaineWebber
Low Duration U.S. Government Income Fund 20/
--
(f) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class Y Shares of PaineWebber
Utility Income Fund 22/
--
(g) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class Y Shares of PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund
23/
--
(h) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class A, Class B and Class C
Shares of PaineWebber Asia Pacific Growth Fund 25/
--
(i) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to
the Registrant, with respect to Class Y Shares of PaineWebber
Asia Pacific Growth Fund (filed herewith)
(11) Auditor's Consent - Not applicable
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent 3/
-
(14) Prototype Retirement Plan 10/
--
(15) (a) Plan pursuant to Rule 12b-1 with respect to Class A Shares 9/
-
(b) Plan pursuant to Rule 12b-1 with respect to Class B Shares 9/
-
(c) Plan pursuant to Rule 12b-1 with respect to Class C Shares 12/
--
(d) Distribution Fee Addendum with respect to Class C Shares of
PaineWebber Low Duration U.S. Government Income Fund 15/
--
(e) Distribution Fee Addendum with respect to Class C Shares of
PaineWebber Asia Pacific Growth Fund 25/
--
(16) Schedule for Computation of Performance Quotations 8/
-
(a) Schedule for Computation of Performance Quotations for Class A
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund 7/
-
(b) Schedule for Computation of Performance Quotations for Class B
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund 10/
--
(c) Schedule for Computation of Performance Quotations for Class Y
shares of U.S. Government Income Fund 10/
--
(d) Schedule for Computation of Performance Quotations For Class C
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund 13/
--
(e) Schedule for Computation of Performance Quotations for Class
A, Class B and Class C shares of PaineWebber Utility Income
Fund 16/
--
(f) Schedule for Computation of Performance Quotations for Class
A, Class B, and Class C shares of PaineWebber Low Duration
U.S. Government Income Fund 16/
--
(17) Financial Data Schedule - none
(18) Plan Pursuant to Rule 18f-3 24/
--
- ------------------
1/ Incorporated by reference from Post-Effective Amendment No. 5 to the
- - registration statement, SEC File No. 2-91362, filed January 30, 1987.
C-2
<PAGE>
2/ Incorporated by reference from Post-Effective Amendment No. 8 to the
- - registration statement, SEC File No. 2-91362, filed March 31, 1988.
3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
- - registration statement, SEC File No. 2-91362, filed July 18, 1984.
4/ Incorporated by reference from Post-Effective Amendment No. 10 to the
- - registration statement, SEC File No. 2-91362, filed March 6, 1989.
5/ Incorporated by reference from Post-Effective Amendment No. 12 to the
- - registration statement, SEC File No. 2-91362, filed January 31, 1990.
6/ Incorporated by reference from Post-Effective Amendment No. 15 to the
- - registration statement, SEC File No. 2-91362, filed January 31, 1991.
7/ Incorporated by reference from Post-Effective Amendment No. 16 to the
- - registration statement, SEC File No. 2-91362, filed March 28, 1991.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
- - registration statement, SEC File No. 2-91362, filed May 2, 1991.
9/ Incorporated by reference from Post-Effective Amendment No. 19 to the
- - registration statement, SEC File No. 2-91362, filed March 2, 1992.
10/ Incorporated by reference from Post-Effective Amendment No. 20 to the
- -- registration statement, SEC File No. 2-91362, filed April 1, 1992.
11/ Incorporated by reference from Post-Effective Amendment No. 21 to the
- -- registration statement, SEC File No. 2-91362, filed May 1, 1992.
12/ Incorporated by reference from Post-Effective Amendment No. 23 to the
- -- registration statement, SEC File No. 2-91362, filed January 26, 1993.
13/ Incorporated by reference from Post-Effective Amendment No. 24 to the
- -- registration statement, SEC File No. 2-91362, filed April 1, 1993.
14/ Incorporated by reference from Post-Effective Amendment No. 25 to the
- -- registration statement, SEC File No. 2-91362, filed August 10, 1993.
15/ Incorporated by reference from Post-Effective Amendment No. 26 to the
- -- registration statement, SEC File No. 2-91362, filed October 4, 1993.
16/ Incorporated by reference from Post-Effective Amendment No. 28 to the
- -- registration statement, SEC File No. 2-91362, filed April 1, 1994.
17/ Incorporated by reference from Post-Effective Amendment No. 30 to the
- -- registration statement, SEC File No. 2-91362, filed July 1, 1994.
18/ Incorporated by reference from Post-Effective Amendment No. 34 to the
- -- registration statement, SEC File No. 2-91362, filed January 27, 1995.
19/ Incorporated by reference from Articles III, VIII, IX, X and XI of
- -- Registrant's Declaration of Trust, as amended effective January 28, 1988,
July 1, 1990, March 21, 1991, April 1, 1991, July 1, 1991, February 26,
1992, January 25, 1993, July 30, 1993, November 13, 1993, July 20, 1995,
October 20, 1995, November 10, 1995, November 29, 1995 and September 19,
1996 and from Articles II, VII and X of Registrant's By-Laws, as amended
March 19, 1993 and September 28, 1994.
20/ Incorporated by reference from Post-Effective Amendment No. 38 to the
- -- registration statement, SEC File No. 2-91362, filed September 5, 1995.
C-3
<PAGE>
21/ Incorporated by reference from Post-Effective Amendment No. 39 to the
- -- registration statement, SEC File No. 2-91362, filed February 14, 1996.
22/ Incorporated by reference from Post-Effective Amendment No. 41 to the
- -- registration statement, SEC File No. 2-91362, filed May 30, 1996.
23/ Incorporated by reference from Post-Effective Amendment No. 42 to the
- -- registration statement, SEC File No. 2-91362, filed June 3, 1996.
24/ Incorporated by reference from Post-Effective Amendment No. 43 to the
- -- registration statement, SEC File No. 2-91362, filed July 31, 1996.
25/ Incorporated by reference from Post Effective Amendment No. 46 to the
- -- registration statement, SEC File No. 2-91362, filed October 4, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant - None
-------------------------------------------------------------
Item 26. Number of Holders of Securities
-------------------------------
Number of Record
Title of Class Shareholders as of
-------------- August 30, 1996
------------------
Shares of beneficial interest, par
value $0.001 per share, in
U.S. Government Income Fund
- ---------------------------
4,576 Class A Shares 25,778
4,527 Class B Shares 4,862
4,572 Class C Shares 2,833
4,584 Class Y Shares 164
Investment Grade Income Fund
- ----------------------------
4,577 Class A Shares 15,659
4,520 Class B Shares 3,459
4,573 Class C Shares 1,874
N/A Class Y Shares ---
High Income Fund
- ----------------
4,578 Class A Shares 15,383
4,529 Class B Shares 11,437
4,574 Class C Shares 5,747
N/A Class Y Shares ---
C-4
<PAGE>
PaineWebber Utility Income Fund
- -------------------------------
2,546 Class A Shares 850
2,516 Class B Shares 2,734
2,556 Class C Shares 965
2,536 Class Y Shares 0
PaineWebber Low Duration
U.S. Government Income Fund
- ---------------------------
2,548 Class A Shares 922
2,518 Class B Shares 756
2,558 Class C Shares 14,830
2,538 Class Y Shares 34
PaineWebber Asia Pacific Growth Fund
- ------------------------------------
N/A Class A Shares ---
N/A Class B Shares ---
N/A Class C Shares ---
N/A Class Y Shares ---
Item 27. Indemnification
---------------
Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the Registrant will indemnify its trustees and officers to the
fullest extent permitted by law against claims and expenses asserted against or
incurred by them by virtue of being or having been a trustee or officer;
provided that no such person shall be indemnified where there has been an
adjudication or other determination, as described in Article 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; 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, the
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.
C-5
<PAGE>
Article XI 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 (the
"Contract") between Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") and the Trust provides that Mitchell Hutchins shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Registrant in connection with the matters to which the Contract relates, except
for a loss resulting from willful misfeasance, bad faith, or gross negligence of
Mitchell Hutchins in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 10 of the
Contract provides that the trustees shall not be liable for any obligations of
the Trust under the Contract and that Mitchell Hutchins shall look only to the
assets and property of the Trust in settlement of such right or claim and not to
the assets and property of the trustees.
Section 6 of the Sub-Investment Advisory Contract ("Sub-Advisory
Contract") between Mitchell Hutchins and Schroder Capital Management
International Inc. ("Schroder Capital") with respect to PaineWebber Asia Pacific
Growth Fund ("Asia Pacific Growth Fund") provides that Schroder Capital shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by Asia Pacific Growth Fund, the Registrant, or its shareholders or by
Mitchell Hutchins in connection with the matters to which that contract relates.
Section 6, however, expressly excepts from this limitation of liability a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations under the contract.
Section 9 of each Distribution Contract provides that the Trust will
indemnify Mitchell Hutchins and its officers, directors or 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 each Distribution Contract.
C-6
<PAGE>
Section 9 of each Exclusive Dealer Agreement contains provisions similar
to Section 9 of each 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 Service Contract.
Section 10 of each Distribution Contract and Section 7 of the Service
Contract contain provisions similar to that of 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 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
----------------------------------------------------
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV, as
filed with the Securities and Exchange Commission (registration number
801-13219), and is incorporated herein by reference.
Schroder Capital serves as investment sub-adviser for Asia Pacific Growth
Fund. Schroder Capital, a New York corporation, is a registered investment
adviser and a wholly-owned U.S. subsidiary of Schroder Incorporated, the wholly-
owned U.S. holding company subsidiary of Schroders plc. Schroder Capital is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Schroder Capital is included on its Form ADV filed on
August 6, 1996, with the Securities and Exchange Commission (registration number
801-15834) and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following other investment companies:
. ALL-AMERICAN TERM TRUST INC.
. GLOBAL HIGH INCOME DOLLAR FUND INC.
. GLOBAL SMALL CAP FUND INC.
. INSURED MUNICIPAL INCOME FUND INC.
. INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
. MANAGED HIGH YIELD FUND INC.
. PAINEWEBBER AMERICA FUND
C-7
<PAGE>
. PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
. PAINEWEBBER INVESTMENT SERIES
. PAINEWEBBER INVESTMENT TRUST
. PAINEWEBBER INVESTMENT TRUST II
. PAINEWEBBER MANAGED ASSETS TRUST
. PAINEWEBBER MANAGED INVESTMENTS TRUST
. PAINEWEBBER MASTER SERIES, INC.
. PAINEWEBBER MUNICIPAL SERIES
. PAINEWEBBER MUTUAL FUND TRUST
. PAINEWEBBER OLYMPUS FUND
. PAINEWEBBER SECURITIES TRUST
. PAINEWEBBER SERIES TRUST
. STRATEGIC GLOBAL INCOME FUND, INC.
. TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
. 2002 TARGET TERM TRUST INC.
(b) Mitchell Hutchins is the principal underwriter for the Registrant.
PaineWebber acts as exclusive dealer for the shares of the Registrant. The
directors and officers of Mitchell Hutchins, their principal business addresses
and their positions and offices with Mitchell Hutchins are identified in its
Form ADV, as filed with the Securities and Exchange Commission (registration
number 801-13219). The directors and officers of PaineWebber, their principal
business addresses and their positions and offices with PaineWebber are
identified in its Form ADV, as filed with the Securities and Exchange Commission
(registration number 801-7163). The foregoing information is hereby incorporated
by reference. The information set forth below is furnished for those directors
and officers of Mitchell Hutchins or PaineWebber who also serve as trustees or
officers of the Registrant:
<TABLE>
<CAPTION>
Position and Offices
Name and Principal Position With With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ ------------- --------------------
<S> <C> <C>
Margo N. Alexander President and Director, President
1285 Avenue of the Americas Trustee and Chief Executive
New York, New York 10019 Officer of Mitchell
Hutchins and Director
and Executive Vice
President of PaineWebber
Mary C. Farrell Trustee Managing Director,
1285 Avenue of the Americas Senior Investment
New York, New York 10019 Strategist and Member
of Investment Policy
Committee of PaineWebber
Julianna Berry Vice President Vice President and a
1285 Avenue of the Americas Portfolio Manager of
New York, New York 10019 Mitchell Hutchins
Teresa M. Boyle Vice President First Vice President
1285 Avenue of the Americas and Manager - Advisory
New York, New York 10019 Administration of
Mitchell Hutchins
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Position and Offices
Name and Principal Position With With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ ------------- --------------------
<S> <C> <C>
Karen L. Finkel Vice President First Vice President
1285 Avenue of the Americas and a Portfolio Manager
New York, New York 10019 of Mitchell Hutchins
Ellen R. Harris Vice President Managing Director and a
1285 Avenue of the Americas Portfolio Manager of
New York, New York 10019 Mitchell Hutchins
James F. Keegan Vice President Senior Vice President
1285 Avenue of the Americas and a Portfolio Manager
New York, New York 10019 of Mitchell Hutchins
Thomas J. Libassi Vice President Senior Vice President
1285 Avenue of the Americas and a Portfolio Manager
New York, New York 10019 of Mitchell Hutchins
C. William Maher Vice President First Vice President
1285 Avenue of the Americas and Assistant and a Senior Manager of
New York, New York 10019 Treasurer the Mutual Fund Finance
Division of Mitchell
Hutchins
Dennis McCauley Vice President Managing Director
1285 Avenue of the Americas and Chief Investment
New York, New York 10019 Officer -- Fixed
Income of Mitchell
Hutchins
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 President
1285 Avenue of the Americas and Secretary and Deputy General
New York, New York 10019 Counsel of Mitchell
Hutchins
Victoria E. Schonfeld Vice President Managing Director and
1285 Avenue of the Americas General Counsel of
New York, New York 10019 Mitchell Hutchins
Paul H. Schubert Vice President First Vice President
1285 Avenue of the Americas and Assistant and a Senior Manager of
New York, New York 10019 Treasurer the Mutual Fund Finance
Division of Mitchell
Hutchins
Nirmal Singh Vice President First Vice President
1285 Avenue of the Americas and a Portfolio Manager
New York, New York 10019 of Mitchell Hutchins
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
Position and Offices
Name and Principal Position With With Underwriter or
Business Address Registrant Exclusive Dealer
- ------------------ ------------- --------------------
<S> <C> <C>
Julian F. Sluyters Vice President Senior Vice President
1285 Avenue of the Americas and Treasurer and Director of the
New York, New York 10019 Mutual Fund Finance
Division of Mitchell
Hutchins
Mark A. Tincher Vice President Managing Director and
1285 Avenue of the Americas Chief Investment Officer
New York, New York 10019 -- U.S. Equity Investments
of Mitchell Hutchins
Craig M. Varrelman Vice President First Vice President
1285 Avenue of the Americas and a Portfolio Manager
New York, New York 10019 of Mitchell Hutchins
Keith A. Weller Vice President First Vice President and
1285 Avenue of the Americas and Assistant Associate General Counsel
New York, New York 10019 Secretary of Mitchell Hutchins
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and (d)
of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Mitchell Hutchins, 1285 Avenue of the Americas, New York,
New York 10019. All other accounts, books and documents required by Rule 31a-1
are maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 11th day of October, 1996.
PAINEWEBBER MANAGED INVESTMENTS TRUST
By: /s/ Dianne E. O'Donnell
---------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee Oct. 10, 1996
- -------------------------- (Chief Executive
Margo N. Alexander * Officer)
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman Oct. 10, 1996
- -------------------------- of the Board of
E. Garrett Bewkes, Jr. * Trustees
/s/ Richard Q. Armstrong Trustee Oct. 10, 1996
- --------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee Oct. 10, 1996
- --------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee Oct. 10, 1996
- --------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee Oct. 10, 1996
- --------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee Oct. 10, 1996
- --------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee Oct. 10, 1996
- --------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee Oct. 10, 1996
- --------------------------
Carl W. Schafer *
/s/ John R. Torell III Trustee Oct. 10, 1996
- --------------------------
John R. Torell III *
/s/ Julian F. Sluyters Vice President and Oct. 10, 1996
- -------------------------- Treasurer (Chief
Julian F. Sluyters Financial and
Accounting Officer)
</TABLE>
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Robert A. Wittie pursuant to power of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the registration statement of PaineWebber Managed Municipal
Trust, SEC File No. 2-89016, filed June 27, 1996.
<PAGE>
PAINEWEBBER MANAGED INVESTMENTS TRUST
EXHIBIT INDEX
-------------
Exhibit
Number
- -------
(1) (a) Declaration of Trust 1/
-
(b) Amendment to Declaration of Trust effective January 28, 1988 2/
-
(c) Amendment to Declaration of Trust effective July 1, 1990 6/
-
(d) Amendment to Declaration of Trust effective March 21, 1991 7/
-
(e) Amendment to Declaration of Trust effective April 1, 1991 8/
-
(f) Amendment to Declaration of Trust effective July 1, 1991 11/
--
(g) Amendment to Declaration of Trust effective February 26, 1992 10/
--
(h) Amendment to Declaration of Trust effective January 25, 1993 12/
--
(i) Amendment to Declaration of Trust effective May 25, 1993 14/
--
(j) Amendment to Declaration of Trust effective July 30, 1993 14/
--
(k) Amendment to Declaration of Trust effective November 13, 1993 18/
--
(l) Amendment to Declaration of Trust effective July 20, 1995 20/
--
(m) Amendments to Declaration of Trust effective October 20,1995,
November 10, 1995 and November 29, 1995 21/
--
(n) Amendment to Declaration of Trust effective September 19, 1996 25/
--
(2) (a) By-Laws 1/
-
(b) Amendment to By-Laws effective March 19, 1991 7/
-
(c) Amendment to By-Laws effective September 28, 1994 18/
--
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's share of
beneficial interest 19/
--
(5) (a) Investment Advisory and Administration Contract 4/
-
(b) Investment Advisory Fee Agreement with respect to PaineWebber
Utility Income Fund 15/
--
(c) Investment Advisory Fee Agreement with respect to PaineWebber Low
Duration U.S. Government Income Fund 15/
--
(d) Form of Investment Advisory Fee Agreement with respect to
PaineWebber Asia Pacific Growth Fund 25/
--
(e) Form of Sub-Advisory Contract with respect to PaineWebber Asia
Pacific Growth Fund 25/
--
(6) (a) Distribution Contract with respect to Class A Shares 15/
--
(b) Distribution Contract with respect to Class B Shares 15/
--
(c) Distribution Contract with respect to Class C Shares 21/
--
(d) Distribution Contract with respect to Class Y Shares 21/
--
(e) Exclusive Dealer Agreement with respect to Class A Shares 15/
--
(f) Exclusive Dealer Agreement with respect to Class B Shares 15/
--
(g) Exclusive Dealer Agreement with respect to Class C Shares 21/
--
(h) Exclusive Dealer Agreement with respect to Class Y Shares 21/
--
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 2/
-
(9) (a) Transfer Agency and Service Contract 6/
-
(b) Service Contract 5/
-
(10) (a) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class A and Class B shares of U.S.
Government Income Fund, Investment Grade Income Fund, and High
Income Fund 8/
-
(b) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class A and Class B shares of
PaineWebber Utility Income Fund 9/
-
(c) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class C Shares of the above-referenced
Funds 11/
--
- 1 -
<PAGE>
(d) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to PaineWebber Low Duration U.S.
Government Income Fund 12/
--
(e) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y Shares of PaineWebber Low
Duration U.S. Government Income Fund 20/
--
(f) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y Shares of PaineWebber Utility
Income Fund 22/
--
(g) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y Shares of PaineWebber
Investment Grade Income Fund and PaineWebber High Income Fund 23/
--
(h) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class A, Class B and Class C Shares
of PaineWebber Asia Pacific Growth Fund 25/
--
(i) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant, with respect to Class Y Shares of PaineWebber Asia
Pacific Growth Fund (filed herewith)
(11) Auditor's Consent - Not applicable
(12) Financial Statements Omitted from Prospectus - none
(13) Letter of Investment Intent 3/
-
(14) Prototype Retirement Plan 10/
--
(15) (a) Plan pursuant to Rule 12b-1 with respect to Class A Shares 9/
-
(b) Plan pursuant to Rule 12b-1 with respect to Class B Shares 9/
-
(c) Plan pursuant to Rule 12b-1 with respect to Class C Shares 12/
--
(d) Distribution Fee Addendum with respect to Class C Shares of
PaineWebber Low Duration U.S. Government Income Fund 15/
--
(e) Distribution Fee Addendum with respect to Class C Shares of
PaineWebber Asia Pacific Growth Fund 25/
--
(16) Schedule for Computation of Performance Quotations 8/
-
(a) Schedule for Computation of Performance Quotations for Class A
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund 7/
-
(b) Schedule for Computation of Performance Quotations for Class B
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund 10/
--
(c) Schedule for Computation of Performance Quotations for Class Y
shares of U.S. Government Income Fund 10/
--
(d) Schedule for Computation of Performance Quotations For Class C
shares of U.S. Government Income Fund, Investment Grade Income
Fund, and High Income Fund 13/
--
(e) Schedule for Computation of Performance Quotations for Class A,
Class B and Class C shares of PaineWebber Utility Income Fund 16/
--
(f) Schedule for Computation of Performance Quotations for Class A,
Class B, and Class C shares of PaineWebber Low Duration U.S.
Government Income Fund 16/
--
(17) Financial Data Schedule - none
(18) Plan Pursuant to Rule 18f-3 24/
--
- ------------------
1/ Incorporated by reference from Post-Effective Amendment No. 5 to the
- - registration statement, SEC File No. 2-91362, filed January 30, 1987.
2/ Incorporated by reference from Post-Effective Amendment No. 8 to the
- - registration statement, SEC File No. 2-91362, filed March 31, 1988.
3/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
- - registration statement, SEC File No. 2-91362, filed July 18, 1984.
4/ Incorporated by reference from Post-Effective Amendment No. 10 to the
- - registration statement, SEC File No. 2-91362, filed March 6, 1989.
- 2 -
<PAGE>
5/ Incorporated by reference from Post-Effective Amendment No. 12 to the
- - registration statement, SEC File No. 2-91362, filed January 31, 1990.
6/ Incorporated by reference from Post-Effective Amendment No. 15 to the
- - registration statement, SEC File No. 2-91362, filed January 31, 1991.
7/ Incorporated by reference from Post-Effective Amendment No. 16 to the
- - registration statement, SEC File No. 2-91362, filed March 28, 1991.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
- - registration statement, SEC File No. 2-91362, filed May 2, 1991.
9/ Incorporated by reference from Post-Effective Amendment No. 19 to the
- - registration statement, SEC File No. 2-91362, filed March 2, 1992.
10/ Incorporated by reference from Post-Effective Amendment No. 20 to the
- -- registration statement, SEC File No. 2-91362, filed April 1, 1992.
11/ Incorporated by reference from Post-Effective Amendment No. 21 to the
- -- registration statement, SEC File No. 2-91362, filed May 1, 1992.
12/ Incorporated by reference from Post-Effective Amendment No. 23 to the
- -- registration statement, SEC File No. 2-91362, filed January 26, 1993.
13/ Incorporated by reference from Post-Effective Amendment No. 24 to the
- -- registration statement, SEC File No. 2-91362, filed April 1, 1993.
14/ Incorporated by reference from Post-Effective Amendment No. 25 to the
- -- registration statement, SEC File No. 2-91362, filed August 10, 1993.
15/ Incorporated by reference from Post-Effective Amendment No. 26 to the
- -- registration statement, SEC File No. 2-91362, filed October 4, 1993.
16/ Incorporated by reference from Post-Effective Amendment No. 28 to the
- -- registration statement, SEC File No. 2-91362, filed April 1, 1994.
17/ Incorporated by reference from Post-Effective Amendment No. 30 to the
- -- registration statement, SEC File No. 2-91362, filed July 1, 1994.
18/ Incorporated by reference from Post-Effective Amendment No. 34 to the
- -- registration statement, SEC File No. 2-91362, filed January 27, 1995.
19/ Incorporated by reference from Articles III, VIII, IX, X and XI of
- -- Registrant's Declaration of Trust, as amended effective January 28, 1988,
July 1, 1990, March 21, 1991, April 1, 1991, July 1, 1991, February 26,
1992, January 25, 1993, July 30, 1993, November 13, 1993, July 20, 1995,
October 20, 1995, November 10, 1995, November 29, 1995 and September 19,
1996 and from Articles II, VII and X of Registrant's By-Laws, as amended
March 19, 1993 and September 28, 1994.
20/ Incorporated by reference from Post-Effective Amendment No. 38 to the
- -- registration statement, SEC File No. 2-91362, filed September 5, 1995.
21/ Incorporated by reference from Post-Effective Amendment No. 39 to the
- -- registration statement, SEC File No. 2-91362, filed February 14, 1996.
22/ Incorporated by reference from Post-Effective Amendment No. 41 to the
- -- registration statement, SEC File No. 2-91362, filed May 30, 1996.
- 3 -
<PAGE>
23/ Incorporated by reference from Post-Effective Amendment No. 42 to the
- -- registration statement, SEC File No. 2-91362, filed June 3, 1996.
24/ Incorporated by reference from Post-Effective Amendment No. 43 to the
- -- registration statement, SEC File No. 2-91362, filed July 31, 1996.
25/ Incorporated by reference from Post-Effective Amendment No. 46 to the
- -- registration statement, SEC File No. 2-91362, filed October 4, 1996.
- 4 -
<PAGE>
Exhibit 10(i)
Robert A. Wittie
(202) 778-9066
[email protected]
October 11, 1996
PaineWebber Managed Investments Trust
1285 Avenue of the Americas
New York, New York 10019
Dear Sir/Madam:
PaineWebber Managed Investments Trust ("Trust") is an unincorporated
voluntary association organized under the laws of the Commonwealth of
Massachusetts on November 21, 1986. You have requested our opinion regarding
certain matters in connection with the Trust's issuance of Class Y shares of
beneficial interest (the "Class Y Shares") in the series designated as
PaineWebber Asia Pacific Growth Fund.
We have, as counsel, participated in various business and other proceedings
relating to the Trust. We have examined copies, either certified or otherwise
proved to be genuine, of the Declaration of Trust and By-Laws of the Trust, the
minutes of meetings of its board of trustees and other documents relating to its
organization and operation, and we are generally familiar with its business
affairs. Based upon the foregoing, it is our opinion that the unlimited number
of Class Y Shares of PaineWebber Asia Pacific Growth Fund that are currently
being registered may be legally and validly issued in accordance with the
Trust's Declaration of Trust and By-Laws and subject to compliance with the
Securities Act of 1933, the Investment Company Act of 1940, and applicable state
laws regulating the offer and sale of securities; and when so issued, the Class
Y Shares will be legally issued, fully paid and non-assessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that creditors of, contractors with, and claimants
against the Trust or any series thereof shall look only to the assets of the
Trust or the appropriate series for payment. It also requires that notice of
such disclaimer be given in each note, bond, contract, certificate, undertaking
or
<PAGE>
PaineWebber Managed Investments Trust
October 11, 1996
Page 2
instrument made or issued by the officers or the trustees of the Trust on behalf
of the Trust. The Declaration of Trust further provides (i) for indemnification
from the assets of the appropriate series for all loss and expense of any
shareholder held personally liable for the obligations of the Trust or any
series by virtue of ownership of shares of such series and (ii) for the
appropriate series to assume the defense of any claim against the shareholder
for any act or obligation of such series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust or series would be unable to meet its
obligations.
We hereby consent to the filing of this opinion in connection with Post-
Effective Amendment No. 47 to the Trust's Registration Statement on Form N-1A
(File No. 33-55374) to be filed with the Securities and Exchange Commission. We
also consent to the reference to our firm under the caption "Counsel" in the
Statement of Additional Information filed as part of the Registration Statement.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Robert A. Wittie
-----------------------
Robert A. Wittie
