<PAGE>
As filed with the Securities and Exchange Commission on October 4, 1996
1933 Act Registration No. 2-91362
1940 Act Registration No. 811-4040
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 46 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 39
(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)
____ On _______________ pursuant to Rule 485(a)(i)
_X__ 75 days after filing pursuant to Rule 485(a)(ii)
____ On _______________ pursuant to Rule 485(a)(ii)
<PAGE>
Registrant has filed a declaration pursuant to Rule 24f-2 under
the Investment Company Act of 1940 and filed the notice required by such
Rule for its most recent fiscal year on May 20, 1996.
-2-
<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 A, B and C 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.
-3-
<PAGE>
PaineWebber Managed Investments Trust:
Class A, B and C Shares of:
PaineWebber Asia Pacific Growth Fund
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<S> <C> <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; Flexible Pricing;
Dividends and Taxes; General Information
7. Purchase of Securities How to Buy Shares; Other Services;
Being Offered Determining the Share's 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
--------------- -----------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
<S> <C> <C>
13. Investment Objective Investment Policies and Restrictions; Hedging
and Policies Strategies; Portfolio
Transactions
14. Management of the Fund Trustees and Officers
15. Control Persons and Trustees and Officers
Principal Holders of Securities
16. Investment Advisory and Investment Advisory and
Other Services Distribution Arrangements;
Other Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Conversion of Class B Shares;
Securities Other Information
19. Purchase, Redemption and Pricing of Securities Reduced Sales Charges,
Being Offered Additional Exchange and
Redemption Information and
Other Services; Valuation of
Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and
Distribution Arrangements
22. Calculation of
Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
Part C
------
Information required to be included in Part C is set forth
under the appropiate item, so numbered, in Part C of this
Registration Statement.
-5-
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER , 1996
----------------
PaineWebber Asia Pacific Growth Fund
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.
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THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of six broad categories, which
are presented here. Generally, investors seeking to maximize return must assume
greater risk. The Fund is in the GLOBAL FUNDS category.
. Money Market Fund . Asset Allocation Funds for
for income and long-term
stability by growth and income
investing in high by investing in stocks and bonds.
quality, short-term
investments.
. Bond Funds for . Stock Funds for long-term
income by investing growth by investing mainly
mainly in bonds. in equity securities.
. Tax-Free Bond Funds . Global Funds for long-term growth
for income exempt by investing mainly
from federal income in foreign stocks or high
taxes and, in some current income by investing
cases, state and mainly in global debt instruments.
local income taxes,
by investing in
municipal bonds.
A complete listing of the PaineWebber Family of Mutual Funds is found on the
back cover of this Prospectus.
- --------------------------------------------------------------------------------
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.
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.
-------
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.............................................................. 5
Investment Objective and Policies.......................................... 6
Investment Philosophy & Process............................................ 7
Performance................................................................ 8
The Fund's Investments..................................................... 10
Flexible Pricing (SM)...................................................... 13
How to Buy Shares.......................................................... 15
How to Sell Shares......................................................... 17
Other Services............................................................. 18
Management................................................................. 18
Determining the Shares' Net Asset Value.................................... 20
Dividends & Taxes.......................................................... 20
General Information........................................................ 21
</TABLE>
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Prospectus Page 2
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
The Fund at a Glance
- -------------------------------------------------------------------------------
GOAL: To increase the value of your investment by investing primarily in eq-
uity 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. Be-
cause 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 in-
vesting in Asia Pacific Region securities, which include possible adverse po-
litical, 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 denominated in foreign currencies, and the value of these investments
thus can be adversely affected by fluctuations in foreign currency values. The
Fund may use derivatives, such as options, futures and forward currency con-
tracts and interest 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 man-
agement subsidiary of PaineWebber Incorporated ("PaineWebber"), is the Fund's
investment adviser and administrator. Mitchell Hutchins has appointed Schroder
Capital Management International Inc. ("Schroder Capital") as the investment
sub-adviser for the Fund.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors
need only $100.
WHO SHOULD INVEST
The Fund is for investors who want long-term capital appreciation and can
withstand market volatility. Accordingly, the Fund is designed for investors
seeking long-term growth who are able to bear risks that are not normally as-
sociated 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
economic activity in the long term, offering the potential for long-term capi-
tal appreciation from investment in equity securities of Asia Pacific Region
companies. However, because value of these securities tends to be more vola-
tile 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 condi-
tions, currency 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 over-
all portfolio, but it is not intended to provide current income or to consti-
tute a complete or balanced investment program. Some common reasons to invest
in this Fund are to finance college educations or retirement. When selling
shares, investors should be aware that they may get more or less for their
shares than they originally paid for them.
HOW TO PURCHASE SHARES OF THE FUNDS
Class A, B and C shares of the Fund will be offered during an initial sub-
scription period scheduled to end on December 20, 1996. The Fund does not in-
tend to engage in a continuous offering of its shares until approximately
sixty days after the end of the subscription period. Investors may select
among these classes of shares:
CLASS A SHARES
The price is net asset value plus the initial sales charge (the maximum is
4.5% of the public offering price). Although investors pay an initial sales
charge when they buy Class A shares, the ongoing expenses for this Class are
lower than the ongoing expenses of Class B and Class C shares.
CLASS B SHARES
The price is net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is immedi-
ately invested. However, Class B shares have higher ongoing expenses than
Class A shares. Depending upon how long they own the shares, investors may
have to pay a sales charge when they sell Class B shares. This sales charge is
called a "contingent deferred sales charge" and applies when investors sell
their Class B shares within six years after purchase. After six years, Class B
shares convert to Class A shares, which have lower ongoing expenses and no
contingent deferred sales charge.
CLASS C SHARES
The price is net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a result, 100% of their purchase is immedi-
ately invested. However, Class C shares have higher ongoing expenses than
Class A shares. A contingent deferred sales charge of 1% is charged on shares
sold within one year of purchase. Class C shares never convert to any other
class of shares.
----------
Prospectus Page 3
<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 Class A, B and C shares of the Fund. Be-
cause the Fund has no operating history, expenses shown below represent those
estimated for the first year of operations.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases of Shares (as a % of
offering price)...................................... 4.50% None None
Sales Charge on Reinvested Dividends (as a % of
offering price)...................................... None None None
Maximum Contingent Deferred Sales Charge (as a % of
net asset value at the time of purchase or sale,
whichever is less) .................................. None 5% 1%
Exchange Fee.......................................... $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES (as a % of average net
assets)
Management Fees....................................... 1.20% 1.20% 1.20%
12b-1 Fees............................................ 0.25 1.00 1.00
Other Expenses........................................ 0.55 0.55 0.55
----- ----- -----
Total Fund Operating Expenses......................... 2.00% 2.75% 2.75%
===== ===== =====
</TABLE>
CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase
plan are available. Purchases of $1 million or more are not subject to
an initial sales charge. However, if such shares are sold within one
year after purchase, a contingent deferred sales charge of 1% is imposed
on the net asset value of the shares at the time of purchase or sale,
whichever is less.
CLASS B SHARES: Sales charge waivers are available. The maximum 5% con-
tingent deferred sales charge applies to sales of shares during the
first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years.
CLASS C SHARES: If shares are sold within one year after purchase, a
contingent deferred sales charge of 1% is imposed on the net asset value
of the shares at the time of purchase or sale, whichever is less.
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. 12b-1 distribution fees are asset-based sales charges.
Long-term Class B and Class C shareholders may pay more in direct and indirect
sales charges (including 12b-1 distribution fees) than the economic equivalent
of the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
12b-1 service fees...................................... 0.25% 0.25% 0.25%
12b-1 distribution fees................................. 0.00 0.75 0.75
</TABLE>
For more information, see "Management" and "Flexible Pricing (SM)."
----------
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, directly or indirectly, on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A.......................................................... $64 $105
Class B (Assuming sale of all shares at end of period)........... $78 $115
Class B (Assuming no sale of shares)............................. $28 $ 85
Class C (Assuming sale of all shares at end of period)........... $38 $ 85
Class C (Assuming no sale of shares)............................. $28 $ 85
</TABLE>
ASSUMPTIONS MADE IN THE EXAMPLE
. ALL CLASSES: Reinvestment of all dividends and distributions; percent-
age amounts listed under "Annual Fund Operating Expenses" remain the
same for years shown.
. CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at
the time of purchase.
. CLASS B SHARES: Deduction of the maximum applicable contingent de-
ferred sales charge at the time of sale, which declines over a period
of six years.
. CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
----------
Prospectus Page 5
<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 Trust'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
potential of superior returns through their ability to grow at rates
substantially 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
market. When Schroder Capital believes it is consistent with the Fund's
investment objective, the Fund may invest up to 10% of its total assets in
convertible and non-convertible debt securities issued or guaranteed by Asia
Pacific Region issuers, including obligations of sovereign governmental
issuers ("sovereign 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.
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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 exist
may 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 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.
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Prospectus Page 7
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
Performance
- -------------------------------------------------------------------------------
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>
S&P 500 Daily Reinvest(1)...................... 15.91 15.23 17.42 20.34
MSCI AC Asia Pac Free ex Japan (Gross
Dividend)(2).................................. 16.38 16.66 11.63 9.01
</TABLE>
- -------
(1) Source: Lipper Analytical Services
(2) Source: Morgan Stanley
----------
Prospectus Page j8
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. Standardized return for Class A
shares of the Fund reflects deduction of the Fund's maximum initial sales
charge of 4.5% at the time of purchase, and standardized return for the Class
B and Class C shares of the Fund reflects deduction of the applicable contin-
gent deferred sales charge imposed on the sale of shares held for the period.
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 return calculations assume reinvestment of divi-
dends 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. Non-standardized
return does not reflect initial or contingent deferred sales charges and would
be lower if such charges were deducted.
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.
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
----------
Prospectus Page 9
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.
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
The Fund's Investments
- -------------------------------------------------------------------------------
----------
Prospectus Page 10
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 securities involves more risks than
investing in the U.S. Their value is subject to economic and political devel-
opments 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
or Moody's 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.
<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 illiquid
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 tradeable
in the country in which they are principally traded, they are not considered
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
securities 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
instruments, including 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 on demand and at a price reflecting a
market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. 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
accordance 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
indexes), futures contracts (on stock indexes and interest rates) and interest
rate swaps. The Fund also may use derivative contracts involving foreign
currencies, including options and futures contracts on foreign currencies and
forward 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
investment. 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
portfolio investments at advantageous times due to the need for the Fund to
maintain "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
securities on a when-issued basis or may purchase or sell securities for
delayed delivery. 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
purposes, but not in excess of 33 1/3% of its total assets. The Fund may sell
securities 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
Flexible Pricing(SM)
- -------------------------------------------------------------------------------
The Fund offers three classes of shares that differ in terms of sales charges
and expenses. An investor can select the class that is best suited to his or
her investment needs, based upon the holding period and the amount of invest-
ment.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial
sales charge (the maximum is 4.5% of the public offering price) next calcu-
lated after PaineWebber's New York City headquarters or PFPC Inc., the Fund's
transfer agent ("Transfer Agent"), receives the purchase order. Although in-
vestors pay an initial sales charge when they buy Class A shares, the ongoing
expenses for this class are lower than the ongoing expenses of Class B and
Class C shares. Class A shares sales charges are calculated as follows:
<TABLE>
<CAPTION>
DISCOUNT TO SELECTED
SALES CHARGE AS A PERCENTAGE OF: DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- -------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.25%
$50,000 to $99,999...... 4.00 4.17 3.75
$100,000 to $249,999.... 3.50 3.63 3.25
$250,000 to $499,999.... 2.50 2.56 2.25
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and
over(/1/).............. None None 1.00(/2/)
</TABLE>
- -------
(/1/) A contingent deferred sales charge of 1% of the shares' net asset value at
the time of purchase or sale, whichever is less, is charged on sales of
shares made within one year of the purchase date. Class A shares
representing reinvestment of any dividends or other distributions are not
subject to the 1% charge. Withdrawals under the Systematic Withdrawal Plan
are not subject to this charge. However, investors may not withdraw
annually more than 12% of the value of the Fund account under the Plan in
the first year after purchase.
(/2/) Mitchell Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS
Investors who are purchasing Class A shares in more than one PaineWebber mu-
tual fund may combine those purchases to get a reduced sales charge. Investors
who already own Class A shares in one or more PaineWebber mutual funds may
combine the amount they are currently purchasing with the value of such previ-
ously owned shares to qualify for a reduced sales charge. To determine the
sales charge reduction in either case, please refer to the chart above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. any company controlled by the investor;
. trusts created by the investor;
. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of individuals for the benefit of the investors'
children; or
. accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
. is an employee, director, trustee or officer of PaineWebber, its affiliates
or any PaineWebber mutual fund;
. is the spouse, parent or child of any of the above, or advisory clients of
Mitchell Hutchins;
----------
Prospectus Page 13
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
. buys these shares through a PaineWebber investment executive who was for-
merly employed as a broker with a competing brokerage firm that was regis-
tered as a broker-dealer with the SEC and
. the investor was the investment executive's client at the competing broker-
age firm;
. within 90 days of buying Class A shares in the Fund, the investor sells
shares of one or more mutual funds that (a) were principally underwritten
by the competing brokerage firm or its affiliates and (b) the investor ei-
ther paid a sales charge to buy those shares, paid a contingent deferred
sales charge when selling them or held those shares until the contingent
deferred sales charge was waived; and
. the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;
. is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that invest-
ment automatically invested in Class A shares;
. is an employer establishing an employee benefit plan qualified under section
401 (including a salary reduction plan qualified under section 401(k)) or
section 403(b) of the Internal Revenue Code. (This waiver is subject to min-
imum requirements, with respect to the number of employees and investment
amount, established by Mitchell Hutchins.) Currently, the plan must have 100
or more eligible employees or the amount invested or to be invested in a
Fund or any other PaineWebber mutual fund must total at least $1 million
during the subsequent 13-month period;
. acquires Class A shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a writ-
ten agreement with PaineWebber permitting the sale of Class A shares at net
asset value to that program (for subsequent investments or exchanges made to
implement a rebalancing feature of such an investment program, the minimum
subsequent investment requirement and $5 exchange fee also are waived); or
. acquires Class A shares in connection with a reorganization pursuant to
which the Fund acquires substantially all of the assets and liabilities of
another investment company in exchange solely for shares of the Fund.
The sales charge will not apply when an investor acquires Class A shares
through an investment program that is not sponsored by PaineWebber or its af-
filiates and that charges participants a fee for program services, provided
that the program sponsor has entered into a written agreement with PaineWebber
permitting the sale of Class A shares at net asset value to that program. For
subsequent investments or exchanges made to implement a rebalancing feature of
such an investment program, the minimum subsequent investment requirement and
$5 exchange fee also are waived.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated af-
ter PaineWebber's New York City headquarters or the Transfer Agent receives
the purchase order. The ongoing expenses investors pay for Class B shares are
higher than those of Class A shares. Because investors do not pay an initial
sales charge when they buy Class B shares, 100% of their purchase is immedi-
ately invested.
Depending on how long they own their Fund investment, investors may have to
pay a sales charge when they sell their Fund shares. This sales charge is
called a "contingent deferred sales charge." The amount of the charge depends
on how long the investor owned the shares. The sales charge is calculated by
multiplying the net asset value of the shares at the time of sale or purchase,
whichever is less, by the percentage shown on the following table. Investors
who own shares for more than six years do not have to pay a sales charge when
selling those shares.
<TABLE>
<CAPTION>
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES'
SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED:
- ----------------------- -------------------------------
<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A
shares of equal dollar value after the investor has owned them for six years.
Dividends and other distributions paid to the investor by the
----------
Prospectus Page 14
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
Fund in the form of additional Class B shares will also convert to Class A
shares on a pro-rata basis. This benefits shareholders because Class A shares
have lower ongoing expenses than Class B shares. If the investor has exchanged
Class B shares between PaineWebber funds, the Fund uses the purchase date at
which the initial investment was made to determine the conversion date.
MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE
When investors sell Class B shares they have owned for less than six years,
the Fund automatically will minimize the sales charge by assuming the invest-
ors are selling:
. First, Class B shares owned through reinvested dividends and capital gain
distributions; and
. Second, Class B shares held in the portfolio the longest.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
. sales of shares under the Fund's "Systematic Withdrawal Plan" (investors may
not withdraw annually more than 12% of the value of the Fund account under
the Plan);
. a distribution from an IRA, a self-employed individual retirement plan
("Keogh Plan") or a custodial account under section 403(b) of the Internal
Revenue Code after the investor reaches age 59 1/2;
. a tax-free return of an excess IRA contribution;
. a tax-qualified retirement plan distribution following retirement; or
. Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.
An investor must provide satisfactory information to PaineWebber or the Fund
to seek any of these waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. Investors do not pay an initial sales
charge when they buy Class C shares, but the ongoing expenses of Class C
shares are higher than those of Class A shares. Class C shares never convert
to any other class of shares.
A contingent deferred sales charge of 1% of the net asset value of the shares
at the time of purchase or sale, whichever is less, is charged on sales of
shares made within one year of the purchase date. Other PaineWebber mutual
funds may impose a different contingent deferred sales charge on Class C
shares sold within one year of the purchase date. A sale of Class C shares ac-
quired through an exchange and held less than one year will be subject to the
same contingent deferred sales charge that would have been imposed on Class C
shares of the PaineWebber mutual fund originally purchased. Class C shares
representing reinvestment of any dividends or capital gain distributions will
not be subject to the 1% charge. Withdrawals under the Systematic Withdrawal
Plan also will not be subject to this charge. However, investors may not with-
draw more than 12% of the value of the Fund account under the Plan in the
first year after purchase.
- -------------------------------------------------------------------------------
How to Buy Shares
- -------------------------------------------------------------------------------
During an initial subscription period scheduled to end on December 20, 1996 (the
"Offering Period"), Class B and Class C shares of the Fund will be offered at a
subscription price equal to the Fund's initial net asset value per share of
$[12.50], and Class A shares of the Fund will be offered at that price plus any
applicable initial sales charge. See "Flexible Pricing--Class A Shares." 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 specified 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 described 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
----------
Prospectus Page 15
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
during the Offering Period without notice and the Fund reserves the right to
refuse any order in whole or in part, if the Fund determines 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 A, Class B and Class C shares once
each Business Day, at the close of regular trading on the New York Stock Ex-
change (currently 4:00 p.m., Eastern time). A "Business Day" is any day, Mon-
day 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 or-
der 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.
When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will au-
tomatically receive Class A shares, which include an initial sales charge.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber in-
vestment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1 mil-
lion). PaineWebber investment executives and correspondent firms are responsi-
ble for promptly sending investors' purchase orders to PaineWebber's New York
City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its correspon-
dent firms. Payment is due on the third Business Day after PaineWebber's New
York City headquarters office receives the purchase order.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up
an account through the Transfer Agent by completing an account application,
which you may obtain by calling 1-800-647-1568. The application and check must
be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O. Box 8950, Wil-
mington, DE 19899.
Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:
. mail an application with a check; or
. open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional invest-
ments in the Fund.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account:............ $1,000
To add to an account:.......... $ 100
</TABLE>
The Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts or the Fund's au-
tomatic investment plan; or
. transactions in Class A shares made to implement a rebalancing feature in
certain investment programs.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Fund shares for
the same class of other PaineWebber mutual fund shares. In classes of shares
where no initial sales charge is imposed, a contingent deferred sales charge
may apply if the investor sells the shares acquired through the exchange. Ex-
changes may be subject to minimum investment requirements of the fund into
which exchanges are made. A $5 fee is imposed on most exchanges.
. Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.
. Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to the Transfer Agent. The letter of in-
struction 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.
----------
Prospectus Page 16
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.
No contingent deferred sales charge is imposed when shares are exchanged for
the corresponding class of shares of other PaineWebber mutual funds. The Fund
will use the purchase date of the initial investment to determine any contin-
gent deferred sales charge due when the shares are sold. Fund shares may be
exchanged only after the settlement date has passed and payment for the shares
has been made. The exchange privilege is available only in those jurisdictions
where the sale of the Fund shares to be acquired is authorized. This exchange
privilege may be modified or terminated at any time and, when required by SEC
rules, upon 60 days' notice. See the back cover of this Prospectus for a list-
ing of other PaineWebber mutual funds.
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class as next calculated after the order is received and
accepted (less any applicable contingent deferred sales charge). Share prices
are normally calculated at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time).
Investors who own more than one class of shares should specify which class
they are selling. If they do not, the Fund will assume they are first selling
their Class A shares, then Class C, and last, Class B.
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 PFPC
Inc., the Fund's Transfer Agent, may sell shares by writing a "letter of in-
struction," as detailed in "How to Exchange Shares."
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.
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this rein-
statement privilege, shareholders must notify their investment executive at
PaineWebber or one of its correspondent firms at the time of purchase.
----------
Prospectus Page 17
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
Other Services
- -------------------------------------------------------------------------------
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services:
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial invest-
ment of $1,000 through which the Fund will deduct $50 or more each month from
the investor's bank account to invest directly in the Fund. In addition to
providing a convenient and disciplined manner of investing, participation in
the Automatic Investment Plan enables the investor to use the technique of
"dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December) or semi-annual (June and December) with-
drawals from their PaineWebber Mutual Fund accounts. Minimum balances and
withdrawals vary according to the class of shares:
. CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.
. CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly and semi-annual withdrawals of $200, $400 and $600, respectively.
Withdrawals under the Systematic Withdrawal Plan will not be subject to a con-
tingent deferred sales charge. Investors may not withdraw more than 12% of the
value of the Fund account when the investor signed up for the Plan. Sharehold-
ers who elect to receive dividends or other distributions in cash may not par-
ticipate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed IRAs are available through PaineWebber in which purchases of
PaineWebber mutual funds and other investments may be made. Investors consid-
ering establishing an IRA should review applicable tax laws and should consult
their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of the Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be
moved to an account with the Transfer Agent. However, if the other firm has
entered into a selected dealer agreement with Mitchell Hutchins relating to
the Fund, the shareholder may be able to hold Fund shares in an account with
the other firm.
- -------------------------------------------------------------------------------
Management
- -------------------------------------------------------------------------------
The Fund is governed by a board of trustees, which oversees the Fund's opera-
tions. It has appointed Mitchell Hutchins as investment adviser and adminis-
trator 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.
----------
Prospectus Page 18
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
----------
Prospectus Page 19
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 in-
vestment 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 Man-
agement International Limited, had over $20 billion in assets under manage-
ment. 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 com-
mittee, 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 SCMI 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 Rein-
surance 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.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of the Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. Under dis-
tribution plans for Class A, Class B and Class C shares ("Class A Plan,"
"Class B Plan" and "Class C Plan," collectively, "Plans"), the Fund pays
Mitchell Hutchins:
. Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
. Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares.
Under the Plans, Mitchell Hutchins primarily uses the service fees to pay
PaineWebber for shareholder servicing, currently at the annual rate of 0.25%
of the aggregate investment amounts maintained in the Fund by PaineWebber cli-
ents. PaineWebber then compensates its investment executives for shareholder
servicing that they perform and offsets its own expenses in servicing and
maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class B and Class C
Plans to:
. Offset the commissions it pays to PaineWebber for selling the Fund's Class B
and Class C shares, respectively.
. Offset the Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and Class C shares
are sold, as well as on an ongoing basis. Mitchell Hutchins receives no spe-
cial compensation from the Fund or the Fund's investors at the time of sale of
Class B or C shares.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution ex-
penses.
The Plans and the related distribution contracts for each class of shares
("Distribution Contracts") specify that the Fund must pay service and distri-
bution fees to Mitchell Hutchins for its activities, not as reimbursement for
specific expenses incurred. Therefore, even if Mitchell Hutchins' expenses ex-
ceed the service or distribution fees it receives, the Fund will not be obli-
gated to pay more than those fees. On the other hand, if Mitchell Hutchins'
expenses are less than such fees, it will retain its full fees and realize a
profit. Expenses in excess of service and distribution fees received or ac-
crued through the termination date of any Plan will be Mitchell Hutchins' sole
responsibility and not that of the Fund. Annually, the Fund's board reviews
the Plans and Mitchell Hutchins' corresponding expenses for each class sepa-
rately from the Plans and expenses of the other classes.
<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 all classes of Fund shares are cal-
culated at the same time and in the same manner. Dividends from net investment
income on Class B and Class C shares are expected to be lower than those on
Class A shares because Class B and Class C shares have higher expenses result-
ing from their distribution fees. Dividends on each class also might be af-
fected differently by the allocation of other class-specific expenses. See
"General Information."
The Fund's dividends and other distributions are paid in additional Fund
shares of the same class at net asset value, unless the shareholder has re-
quested 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 in-
vestment executives or correspondent firms or complete the appropriate section
of the account application.
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.
----------
Prospectus Page 20
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
BACKUP WITHHOLDING
The Fund is required to withhold 31% of all dividends, capital gain distribu-
tions and redemption proceeds payable to individuals and certain other non-
corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to shareholders who otherwise are sub-
ject to backup withholding.
TAX ON THE SALE OR EXCHANGE
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 (which normally includes any initial sales charge
paid on Class A shares). An exchange of the Fund's shares for shares of another
PaineWebber mutual fund generally will have similar tax consequences. In addi-
tion, if the Fund's shares are bought within 30 days before or after selling
other shares of the Fund (regardless of class) at a loss, all or a portion of
that loss will not be deductible and will increase the basis of the newly pur-
chased shares.
SPECIAL TAX RULES
FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of a
PaineWebber mutual fund without paying a sales charge due to the 365-day rein-
statement privilege or the exchange privilege. In these cases, any gain on the
sale or exchange of the original Class A shares would be increased (or any loss
would be decreased) by the amount of the sales charge paid when those shares
were bought, and that amount will increase the basis of the PaineWebber mutual
fund shares subsequently acquired.
* * * *
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 diversified series of PaineWebber Managed Investments Trust, an
open-end management investment company that was organized as a business trust
under the laws of the Commonwealth of Massachusetts by Declaration of Trust
dated November 21, 1986. The trustees have authority to issue an unlimited num-
ber of shares of beneficial interest of separate 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 identical
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 expenses allocable ex-
clusively to each class, voting rights on matters exclusively affecting that
class, and its exchange privilege, if any. The different sales charges and
other expenses applicable to the different classes of shares of the Fund will
affect the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on Class B and Class C shares
are likely to be lower than for Class A shares and are likely to be higher on
Class Y shares than for any other class of shares.
Class Y shares, which are offered only to limited groups of investors, are sub-
ject to neither an initial or contingent deferred sales charge nor ongoing
service or distribution fees. More information concerning Class Y shares may be
obtained from an investment executive at PaineWebber or one of its correspon-
dent firms or by calling 1-800-647-1568.
----------
Prospectus Page 21
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
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 Fund will be voted together ex-
cept that only the shareholders of a particular class of the Fund may vote on
matters affecting only that class, such as the terms of a Plan as it relates
to a 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.
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 22
<PAGE>
---------------------
PaineWebber Asia Pacific Growth Fund
Prospectus -- , 1996
- --------------------------------------------------------------------------------
- - PAINEWEBBER BOND FUNDS - PAINEWEBBER STOCK FUNDS
High Income Fund Capital Appreciation Fund
Investment Grade Income Growth Fund
Fund Growth and Income Fund
Low Duration U.S. Financial Services Growth Fund
Government Income Fund
Strategic Income Fund Small Cap Fund
Utility Income Fund
U.S. Government Income
Fund
- PAINEWEBBER TAX-FREE BOND - PAINEWEBBER GLOBAL FUNDS
FUNDS
Emerging Markets Equity Fund
California Tax-Free Global Equity Fund
Income Fund Global Income Fund
Municipal High Income
Fund
National Tax-Free
Income Fund
New York Tax-Free
Income Fund
- PAINEWEBBER MONEY MARKET
FUND
- PAINEWEBBER ASSET
ALLOCATION FUNDS
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 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 STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER , 1996
PAINEWEBBER ASIA PACIFIC GROWTH FUND
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" or "Sub-Adviser") 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, 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 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 Investment Company Act of
1940 ("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).
9
<PAGE>
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.
10
<PAGE>
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
11
<PAGE>
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.
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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 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.
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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 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
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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 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.
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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 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
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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
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onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The Fund's use of
futures and related options is governed by the following guidelines, which can
be changed by 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.
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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
21
<PAGE>
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. 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.
22
<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>
23
<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>
24
<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>
25
<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>
26
<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>
27
<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>
28
<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>
29
<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.
30
<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
31
<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 the Sub-Adviser 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 $100 million. Schroder
Capital bears all expenses incurred by it in connection with its services
under the Sub-Advisory Contract.
Under the Sub-Advisory Contract, Schroder Capital will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust, the
Fund, its shareholders or Mitchell Hutchins in connection with the Sub-
Advisory Contract, except any liability to the Trust, the Fund, its
shareholders or Mitchell Hutchins to which Schroder Capital would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under the Sub-Advisory Contract.
The Sub-Advisory Contract terminates automatically upon its assignment or
the termination of the Advisory Contract and is terminable at any time without
penalty by the board or by vote of the holders of a majority of the Fund's
outstanding voting securities on 60 days' notice to Schroder Capital, or by
Schroder Capital on 120 days' written notice to Mitchell Hutchins. The Sub-
Advisory Contract may also be terminated
32
<PAGE>
by Mitchell Hutchins (1) upon material breach by Schroder Capital of its
representations and warranties, which breach shall not have been cured within
a 20-day period after notice of such breach; (2) if the Sub-Adviser becomes
unable to discharge its duties and obligations under the Sub-Advisory Contract
or (3) on 120 days' notice to Schroder Capital.
NET ASSETS. The following table shows the approximate net assets as of ,
1996, sorted by category of investment objective, of the investment companies
as to which Mitchell Hutchins serves as adviser or sub-adviser. An investment
company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
($ 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 A, Class B and Class C shares under separate distribution
contracts with the Fund dated (collectively, "Distribution Contracts")
that require Mitchell Hutchins to use its best efforts, consistent with its
other businesses, to sell shares of the Fund. Shares of the Fund are offered
continuously. Under separate exclusive dealer agreements between Mitchell
Hutchins and PaineWebber dated relating to the Class A, Class B and
Class C shares (collectively, "Exclusive Dealer Agreements"), PaineWebber and
its correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by the Trust in the manner prescribed under Rule 12b-1
under the 1940 Act ("Class A Plan," "Class B Plan" and "Class C Plan,"
collectively, "Plans"), the Fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily
net assets of each Class of shares for the Fund. Under the Class B Plan and
the Class C Plan, the Fund pays Mitchell Hutchins a distribution fee, accrued
daily and payable monthly, at the annual rate of 0.75% of the average daily
net assets of the Class B shares and Class C shares of the Fund.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the board members will review,
reports regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, (2) the Plan will continue in effect only
so long as it is
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approved at least annually, and any material amendment thereto is approved, by
the board, including those board members who are not "interested persons" of
the Fund and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan, acting in person
at a meeting called for that purpose, (3) payments by a Fund under the Plan
shall not be materially increased without the affirmative vote of the holders
of a majority of the outstanding shares of the relevant class of the
respective Fund and (4) while the Plan remains in effect, the selection and
nomination of board members who are not "interested persons" of the Fund shall
be committed to the discretion of the board members who are not "interested
persons" of the Funds.
In reporting amounts expended under the Plans to the board members, Mitchell
Hutchins allocates expenses attributable to the sale of each class of the
Fund's shares to such class based on the ratio of sales of shares of such
class to the sales of all three classes of shares. The fees paid by one class
of the Fund's shares will not be used to subsidize the sale of any other class
of Fund shares.
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing the Fund's shares. These
internal costs encompass office rent, salaries and other overhead expenses of
various departments and areas of operations of Mitchell Hutchins. "Branch
network costs allocated and interest expense" consist of an allocated portion
of the expenses of various PaineWebber departments involved in the
distribution of the Fund's shares, including the PaineWebber retail branch
system.
In approving the Fund's overall Flexible PricingSM system of distribution,
each board considered several factors, including that implementation of
Flexible Pricing would (1) enable investors to choose the purchasing option
best suited to their individual situation, thereby encouraging current
shareholders to make additional investments in the Fund and attracting new
investors and assets to the Fund to the benefit of the Fund and its
shareholders, (2) facilitate distribution of the Fund's shares and (3)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution
arrangements.
In approving the Class A Plan, the board considered all the features of the
distribution system, including (1) the conditions under which initial sales
charges would be imposed and the amount of such charges, (2) Mitchell
Hutchins' belief that the initial sales charge combined with a service fee
would be attractive to PaineWebber investment executives and correspondent
firms, resulting in greater growth of the Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
In approving the Class B Plan, the board considered all the features of the
distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2)
the advantage to investors in having no initial sales charges deducted from
Fund purchase payments and instead having the entire amount of their purchase
payments immediately invested in Fund shares, (3) Mitchell Hutchins' belief
that the ability of PaineWebber investment executives and correspondent firms
to receive sales commissions when Class B shares are sold and continuing
service fees thereafter while their customers invest their entire purchase
payments immediately in Class B shares would prove attractive to the
investment executives and correspondent firms, resulting in greater growth of
the Fund than might
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otherwise be the case, (4) the advantages to the shareholders of economies of
scale resulting from growth in the Fund's assets and potential continued
growth, (5) the services provided to the Fund and its shareholders by Mitchell
Hutchins, (6) the services provided by PaineWebber pursuant to its Exclusive
Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service and distribution-related expenses and costs. The board members also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its investment executives, without the concomitant receipt by Mitchell
Hutchins of initial sales charges, was conditioned upon its expectation of
being compensated under the Class B Plan.
In approving the Class C Plan, the board considered all the features of the
distribution system, including (1) the advantage to investors in having no
initial sales charges deducted from the Fund purchase payments and instead
having the entire amount of their purchase payments immediately invested in
Fund shares, (2) the advantage to investors in being free from contingent
deferred sales charges upon redemption for shares held more than one year and
paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief
that the ability of PaineWebber investment executives and correspondent firms
to receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and generally do not
face contingent deferred sales charges, would prove attractive to the
investment executives and correspondent firms, resulting in greater growth to
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The board members also recognized that Mitchell Hutchins' willingness
to compensate PaineWebber and its investment executives without the
concomitant receipt by Mitchell Hutchins of initial sales charges or
contingent deferred sales charges upon redemption, was conditioned upon its
expectation of being compensated under the Class C Plan.
With respect to each Plan, the board members considered all compensation
that Mitchell Hutchins would receive under the Plan and the Distribution
Contract, including service fees and, as applicable, initial sales charges,
distribution fees and contingent deferred sales charges. The board members
also considered the benefits that would accrue to Mitchell Hutchins under each
Plan in that Mitchell Hutchins would receive service, distribution and
advisory fees which are calculated based upon a percentage of the average net
assets of the Fund, which fees would increase if the Plan were successful and
the Fund attained and maintained significant asset levels.
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 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.
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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
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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
Funds.
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.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE-CLASS A SHARES. Investors and eligible groups of
related Fund investors may combine purchases of Class A shares of the Fund
with concurrent purchases of Class A shares of any other PaineWebber mutual
fund and thus take advantage of the reduced sales charges indicated in the
table of sales charges for Class A shares in the Prospectus. The sales charge
payable on the purchase of Class A shares of the Fund and Class A shares of
such other funds will be at the rates applicable to the total amount of the
combined concurrent purchases.
An "eligible group of related Fund investors" can consist of any combination
of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse;
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(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that other employer); or
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.
RIGHTS OF ACCUMULATION-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber mutual
fund. The purchaser must provide sufficient information to permit confirmation
of his or her holdings, and the acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or terminated at
any time.
WAIVERS OF SALES CHARGES-CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where
the decedent is either the individual shareholder or owns the shares with his
or her spouse as a joint tenant with right of survivorship. This waiver
applies only to redemption of shares held at the time of death.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Fund may be exchanged for shares of the
corresponding Class of most other PaineWebber mutual funds. This exchange
privilege is available only in those jurisdictions where the sale of
PaineWebber fund shares to be acquired through such exchange may be legally
made. Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or the Fund temporarily
delays or ceases the sales of its shares because it is unable to invest
amounts effectively in accordance with the Fund's investment objective,
policies and restrictions.
If conditions exist that make cash payments undesirable, the Funds reserve
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 Funds 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 a Fund's
portfolio at the time.
AUTOMATIC INVESTMENT PLAN. Participation in the Automatic Investment Plan
enables an investor to use the technique of "dollar cost averaging." When the
investor invests the same dollar amount each month
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under the Plan, the investor will purchase more shares when a Fund's net asset
value per share is low and fewer shares when the net asset value per share is
high. Using this technique, an investor's average purchase price per share
over any given period will be lower than if the investor purchased a fixed
number of shares on a monthly basis during the period. Of course, investing
through the automatic investment plan does not assure a profit or protect
against loss in declining markets. Additionally, because the automatic
investment plan involves continuous investing regardless of price levels, an
investor should consider his or her financial ability to continue purchases
through periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. An investor's participation in the systematic
withdrawal plan will terminate automatically if the "Initial Account Balance"
(a term that means the value of the Fund account at the time the investor
elects to participate in the systematic withdrawal plan) less aggregate
redemptions made other than pursuant to the systematic withdrawal plan is less
than $5,000 for Class A and Class C shareholders or $20,000 for Class B
shareholders. Purchases of additional shares of the Fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, initial sales charges. On or about the
15th of each month for monthly plans and on or about the 15th of the months
selected for quarterly or semi-annual plans, PaineWebber will arrange for
redemption by the Fund of sufficient Fund shares to provide the withdrawal
payment specified by participants in the Fund's systematic withdrawal plan.
The payment generally is mailed approximately five Business Days (defined
under "Valuation of Shares") after the redemption date. Withdrawal payments
should not be considered dividends, but redemption proceeds, with the tax
consequences described under "Dividends & Taxes" in the Prospectus. If
periodic withdrawals continually exceed reinvested dividends and other
distributions, a shareholder's investment may be correspondingly reduced. A
shareholder may change the amount of the systematic withdrawal or terminate
participation in the systematic withdrawal plan at any time without charge or
penalty by written instructions with signatures guaranteed to PaineWebber or
PFPC Inc. ("Transfer Agent"). Instructions to participate in the plan, change
the withdrawal amount or terminate participation in the plan will not be
effective until five days after written instructions with signatures
guaranteed are received by the Transfer Agent. Shareholders may request the
forms needed to establish a systematic withdrawal plan from their PaineWebber
investment executives, correspondent firms or the Transfer Agent at 1-800-647-
1568.
REINSTATEMENT PRIVILEGE-CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their
account in the Fund without a sales charge. Shareholders may exercise the
reinstatement privilege by notifying the Transfer Agent of such desire and
forwarding a check for the amount to be purchased within 365 days after the
date of redemption. The reinstatement will be made at the net asset value per
share next computed after the notice of reinstatement and check are received.
The amount of a purchase under this reinstatement privilege cannot exceed the
amount of the redemption proceeds. Gain on a redemption is taxable regardless
of whether the reinstatement privilege is exercised; however, a loss arising
out of a redemption will not be deductible to the extent the reinstatement
privilege is exercised within 30 days after redemption, and an adjustment will
be made to the shareholder's tax basis for shares acquired pursuant to the
reinstatement privilege. Gain or loss on a redemption also will be adjusted
for federal income tax purposes by the amount of any sales charge paid on
Class A shares, under the circumstances and to the extent described in
"Dividends & Taxes" in the Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLANSM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(R) (RMA)(R)
Shares of PaineWebber mutual funds (each a "PW Fund" and, collectively, the
"PW Funds") are available for purchase through the RMA Resource Accumulation
Plan ("Plan") by customers of PaineWebber
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and its correspondent firms who maintain Resource Management Accounts ("RMA
accountholders"). The Plan allows an RMA accountholder to continually invest
in one or more of the PW Funds at regular intervals, with payment for shares
purchased automatically deducted from the client's RMA account. The client may
elect to invest at monthly or quarterly intervals and may elect either to
invest a fixed dollar amount (minimum $100 per period) or to purchase a fixed
number of shares. A client can elect to have Plan purchases executed on the
first or fifteenth day of the month. Settlement occurs three Business Days
(defined under "Valuation of Shares") after the trade date, and the purchase
price of the shares is withdrawn from the investor's RMA account on the
settlement date from the following sources and in the following order:
uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client
Agreement and Instruction Form available from PaineWebber. The investor must
have received a current prospectus for each PW Fund selected prior to
enrolling in the Plan. Information about mutual fund positions and outstanding
instructions under the Plan are noted on the RMA accountholder's account
statement. Instructions under the Plan may be changed at any time, but may
take up to two weeks to become effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds
may be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING.
Periodic investing in the PW Funds or other mutual funds, whether through
the Plan or otherwise, helps investors establish and maintain a disciplined
approach to accumulating assets over time, de-emphasizing the importance of
timing the market's highs and lows. Periodic investing also permits an
investor to take advantage of "dollar cost averaging." By investing a fixed
amount in mutual fund shares at established intervals, an investor purchases
more shares when the price is lower and fewer shares when the price is higher,
thereby increasing his or her earning potential. Of course, dollar cost
averaging does not guarantee a profit or protect against a loss in a declining
market, and an investor should consider his or her financial ability to
continue investing through periods of low share prices. However, over time,
dollar cost averaging generally results in a lower average original investment
cost than if an investor invested a larger dollar amount in a mutual fund at
one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Plan, an investor must have opened an RMA account
with PaineWebber or one of its correspondent firms. The RMA account is
PaineWebber's comprehensive asset management account and offers investors a
number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard(R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
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. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the seven RMA money market funds-RMA Money Market Portfolio,
RMA U.S. Government Portfolio, RMA Tax-Free Fund, RMA California
Municipal Money Fund, RMA New Jersey Municipal Money Fund and RMA New
York Municipal Money Fund. Each money market fund attempts to maintain a
stable price per share of $1.00, although there can be no assurance that
it will be able to do so. Investments in the money market funds are not
insured or guaranteed by the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $25 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the Fund will automatically convert to Class A shares of
the Fund, based on the relative net asset values per share of the two classes,
as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of such Class B shares occurs. For the purpose of calculating
the holding period required for conversion of Class B shares, the date of
initial issuance shall mean (i) the date on which such Class B shares were
issued, or (ii) for Class B shares obtained through an exchange, or a series
of exchanges, the date on which the original Class B shares were issued. For
purposes of conversion into Class A shares, Class B shares purchased through
the reinvestment of dividends and other distributions paid in respect of Class
B shares will be held in a separate sub-account. Each time any Class B shares
in the shareholder's regular account (other than those in the sub-account)
convert to Class A, a pro rata portion of the Class B shares in the sub-
account will also convert to Class A shares. The portion will be determined by
the ratio that the shareholder's Class B shares converting to Class A shares
bears to the shareholder's total Class B shares not acquired through dividends
and other distributions.
The availability of the conversion feature is subject to (1) the continuing
applicability of a ruling of the Internal Revenue Service that the dividends
and other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and (2) the
continuing availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event. If the
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conversion feature ceased to be available, the Class B shares of the Funds
would not be converted and would continue to be subject to the higher ongoing
expenses of the Class B shares beyond six years from the date of purchase.
Mitchell Hutchins has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be met.
VALUATION OF SHARES
The Fund determines 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 the Sub-Adviser 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 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.
42
<PAGE>
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated
according to the following formula:
<TABLE>
<S> <C> <C> <C>
P(1 + T)n = ERV
a hypothetical initial payment of $1,000 to purchase shares of a
where: P = specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. In calculating the ending redeemable value, for Class A shares,
the maximum 4.5% sales charge is deducted from the initial $1,000 payment and,
for Class B and Class C shares, the applicable contingent deferred sales
charge imposed on a redemption of Class B or Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare 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 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.
43
<PAGE>
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 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.
44
<PAGE>
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 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
45
<PAGE>
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 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.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific classes of the
Fund's shares to which those expenses are attributable. For
46
<PAGE>
example, Class B shares bear higher transfer agency fees per shareholder
account than those borne by Class A or Class C shares. The higher fee is
imposed due to the higher costs incurred by the Fund's transfer agent in
tracking shares subject to a contingent deferred sales charge because, upon
redemption, the duration of the shareholder's investment must be determined in
order to determine the applicable charge. Moreover, the tracking and
calculations required by the automatic conversion feature of the Class B
shares will cause the transfer agent to incur additional costs. Although the
transfer agency fee will differ on a per account basis as stated above, the
specific extent to which the transfer agency fees will differ between the
classes as a percentage of net assets is not certain, because the fee as a
percentage of net assets will be affected by the number of shareholder
accounts in each class and the relative amounts of net assets in each class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 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.
47
<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 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
A-6
<PAGE>
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>
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........................................... 14
Trustees and Officers.................................................... 23
Investment Advisory and Distribution Arrangements........................ 31
Portfolio Transactions................................................... 35
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 37
Conversion of Class B Shares............................................. 41
Valuation of Shares...................................................... 42
Performance Information.................................................. 42
Taxes.................................................................... 45
Other Information........................................................ 48
Appendix A............................................................... A-1
Appendix B .............................................................. B-1
</TABLE>
(C)1996 PaineWebber Incorporated
PaineWebber
Asia Pacific Growth Fund
- --------------------------------------------------------------------------------
Statement of Additional Information
November , 1996
- --------------------------------------------------------------------------------
LOGO
<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 (filed herewith)
(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
C-1
<PAGE>
(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
(filed herewith)
(e) Form of Sub-Advisory Contract with respect to
PaineWebber Asia Pacific Growth Fund (filed
herewith)
(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/
(d) Opinion and consent of Kirkpatrick & Lockhart
LLP, counsel to the Registrant, with respect to
PaineWebber Low Duration U.S. Government Income
Fund 12/
C-2
<PAGE>
(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 (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
(filed herewith)
(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/
C-3
<PAGE>
(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.
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.
C-4
<PAGE>
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.
23/ Incorporated by reference from Post-Effective Amendment No. 42
C-5
<PAGE>
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.
Item 25. Persons Controlled by or under Common Control with
Registrant - None
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Title of Class Shareholders as of
-------------- August 30, 1996
----------------
Shares of beneficial interest, par value $0.001 per
share, in
<S> <C>
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 ___
PaineWebber Utility Income Fund
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C> <C>
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 ___
</TABLE>
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
C-7
<PAGE>
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.
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 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
C-8
<PAGE>
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.
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
advisor 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
C-9
<PAGE>
ADV, as filed with the Securities and Exchange Commission (registration
number 801-13219), and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Mitchell Hutchins serves as principal underwriter and/or
investment adviser for the following 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
. 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:
C-10
<PAGE>
<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 Trustee Director, President
1285 Avenue of the Americas 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, Senior
1285 Avenue of the Americas Investment Strategist and Member of
New York, New York 10019 Investment Policy Committee of
PaineWebber
Julianna Berry Vice President Vice President and a Portfolio
1285 Avenue of the Americas Manager of Mitchell Hutchins
New York, New York 10019
Teresa M. Boyle Vice President First Vice President and Manager -
1285 Avenue of the Americas Advisory Administration of
New York, New York 10019 Mitchell Hutchins
Karen L. Finkel Vice President First Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins
Ellen R. Harris Vice President Managing Director and a Portfolio
1285 Avenue of the Americas Manager of Mitchell Hutchins
New York, New York 10019
James F. Keegan Vice President Senior Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins
Thomas J. Libassi Vice President Senior Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins
C. William Maher Vice President First Vice President and a Senior
1285 Avenue of the Americas and Assistant Manager of the Mutual Fund Finance
New York, New York 10019 Treasurer 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
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Position and Offices
Name and Principal Position With With Underwriter or
Business Address Registrant Exclusive Dealer
------------------ ------------- --------------------
<S> <C> <C>
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 and Deputy
1285 Avenue of the Americas and Secretary General Counsel of Mitchell
New York, New York 10019 Hutchins
Victoria E. Schonfeld Vice President Managing Director and General
1285 Avenue of the Americas Counsel of Mitchell Hutchins
New York, New York 10019
Paul H. Schubert Vice President First Vice President and a Senior
1285 Avenue of the Americas and Assistant Manager of the Mutual Fund Finance
New York, New York 10019 Treasurer Division of Mitchell Hutchins
Nirmal Singh Vice President First Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins
Julian F. Sluyters Vice President Senior Vice President and Director
1285 Avenue of the Americas New York, New and Treasurer of the Mutual Fund Finance Division
York 10019 of Mitchell Hutchins
Mark A. Tincher Vice President Managing Director and Chief
1285 Avenue of the Americas Investment Officer -- U.S. Equity
New York, New York 10019 Investments of Mitchell Hutchins
Craig M. Varrelman Vice President First Vice President and a
1285 Avenue of the Americas Portfolio Manager of Mitchell
New York, New York 10019 Hutchins
Keith A. Weller Vice President First Vice President and
1285 Avenue of the Americas and Assistant Associate General Counsel of
New York, New York 10019 Secretary Mitchell Hutchins
</TABLE>
(c) None.
C-12
<PAGE>
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-13
<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 day of
PAINEWEBBER MANAGED INVESTMENTS TRUST
By: /s/ Dianne E. O'Donnell
/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 Sept. 26, 1996
--------------------------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman Sept. 26, 1996
--------------------------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee Sept. 26, 1996
---------------------------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee Sept. 26, 1996
---------------------------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee Sept. 26, 1996
---------------------------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee Sept. 26, 1996
---------------------------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee Sept. 26, 1996
---------------------------------------------
George W. Gowen *
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Frederic V. Malek Trustee Sept. 26, 1996
---------------------------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee Sept. 26, 1996
---------------------------------------------
Carl W. Schafer *
/s/ John R. Torell III Trustee Sept. 26, 1996
---------------------------------------------
John R. Torell III *
/s/ Julian F. Sluyters Vice President and Treasurer (Chief Sept. 26, 1996
--------------------------------------------- Financial and Accounting Officer)
Julian F. Sluyters
</TABLE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to powers 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 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 (filed herewith)
(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
(filed herewith)
-1-
<PAGE>
(e) Form of Sub-Advisory Contract with respect to
PaineWebber Asia Pacific Growth Fund (filed
herewith)
(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/
(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
-2-
<PAGE>
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
(filed herewith)
(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.
-3-
<PAGE>
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.
-4-
<PAGE>
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.
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.
-5-
<PAGE>
EXHIBIT 1(n)
PAINEWEBBER MANAGED INVESTMENTS TRUST
AMENDMENT TO DECLARATION OF TRUST
CERTIFICATE OF VICE PRESIDENT AND SECRETARY
I, Dianne E. O'Donnell, Vice President and Secretary of
PaineWebber Managed Investments Trust ("Trust"), hereby certify that the
board of trustees of the Trust adopted the following resolutions, which
became effective on September 19, 1996:
RESOLVED, that pursuant to Section 2 of Article III of the
Trust's Declaration of Trust there is hereby established and designated a
new series of shares of beneficial interest of the Trust, having the
rights and privileges specified in the Trust's Declaration of Trust, to be
known as PaineWebber Asia Pacific Growth Fund; and be it further
RESOLVED, that Section 1 of Article III of the Trust's
Declaration of Trust be, and it hereby is, amended to reflect the addition
of this new Series of the Trust, the amended Section to read, in relevant
part, as follows:
Section 1. . . . Without limiting the authority of the Trustees
set forth in this Section 1 to establish and designate any
further Series, the Trustees have established and designated six
Series of Shares to be known as the "U.S. Government Income
Fund," "Investment Grade Income Fund," "High Income Fund,"
"PaineWebber Utility Income Fund," "PaineWebber Low Duration U.S.
Government Income Fund," and "PaineWebber Asia Pacific Growth
Fund."
and be it further
RESOLVED, that the board hereby establishes an unlimited number
of shares of beneficial interest of the Series of the Trust known as the
PaineWebber Asia Pacific Growth Fund as Class A shares; and be it further
RESOLVED, that the board hereby establishes an unlimited number
of shares of beneficial interest of the PaineWebber Asia Pacific Growth
Fund as Class B shares; and be it further
RESOLVED, that the board hereby establishes an unlimited number
of shares of beneficial interest of the PaineWebber Asia Pacific Growth
Fund as Class C shares; and be it further
RESOLVED, that the board hereby establishes an unlimited number
of shares of beneficial interest of the PaineWebber Asia Pacific Growth
Fund as Class Y shares; and be it further
RESOLVED, that Class A shares, Class B shares, Class C shares and
Class Y shares of the PaineWebber Asia Pacific Growth Fund shall have the
same preferences, conversion and other rights, voting powers,
<PAGE>
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of shares, except as provided in the Trust's
Declaration of Trust and as set forth below:
(1) The proceeds of the redemption of a Class B share
(including a fractional share) shall be reduced by the amount of any
applicable contingent deferred sales charge payable on such redemption to
the distributor of the Class B shares pursuant to the terms of the
issuance of the shares (to the extent consistent with the Investment
Company Act of 1940, as amended, or regulations or exemptions thereunder)
and the Trust shall promptly pay to such distributor the amount of such
contingent deferred sales charge.
(2)(a) Each Class B share, other than a share purchased through
the reinvestment of a dividend or a distribution with respect to the Class
B share, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares, based on
the relative net asset value of each such class at the time of the
calculation of the net asset value of such class of shares on the date
that is the first Business Day (as defined in such Series' prospectus
and/or statement of additional information) of the month in which the
sixth anniversary of the issuance of such Class B shares occurs (which,
for the purpose of calculating the holding period required for conversion,
shall mean (i) the date on which the issuance of such Class B shares
occurred or (ii) for Class B shares obtained through an exchange, the date
on which the issuance of the Class B shares of an eligible PaineWebber
fund occurred, if such shares were exchanged directly, or through a series
of exchanges for the PaineWebber Asia Pacific Growth Fund's Class B shares
(the "Conversion Date")).
(b) Each Class B share purchased through the reinvestment of
a dividend or a distribution with respect to the Class B shares and the
dividends and distributions on such shares shall be segregated in a
separate sub-account on the stock records of the PaineWebber Asia Pacific
Growth Fund for each of the holders of record thereof. On any Conversion
Date, a number of the shares held in the sub-account of the holder of
record of the share or shares being converted, calculated in accordance
with the next following sentence, shall be converted automatically, and
without any action or choice on the part of the holder thereof, into Class
A shares. The number of shares in the holder's sub-account so converted
shall bear the same relation to the total number of shares maintained in
the sub-account on the Conversion Date as the number of shares of the
holder converted on the Conversion Date pursuant to Paragraph 2(a) hereof
bears to the total number of Class B shares of the holder on the
Conversion Date not purchased through the automatic reinvestment of
dividends or distributions with respect to the Class B shares.
(c) The number of Class A shares into which a Class B share
is converted pursuant to paragraphs (2)(a) and (2)(b) hereof shall equal
2
<PAGE>
the number (including for this purpose fractions of a share) obtained by
dividing the net asset value per share of the Class B shares for purposes
of sales and redemptions thereof at the time of the calculation of the net
asset value on the Conversion Date by the net asset value per share of the
Class A shares for purposes of sales and redemptions thereof at the time
of the calculation of the net asset value on the Conversion Date.
(d) On the Conversion Date, the Class B shares converted into
Class A shares will cease to accrue dividends and will no longer be
outstanding and the rights of the holders thereof will cease (except the
right to receive declared but unpaid dividends to the Conversion Date).
(e) For purposes of Paragraph (2)(a)(ii) above the term
"eligible PaineWebber fund" includes any and all mutual funds for which
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. serves
as investment adviser that offer shares with a contingent deferred sales
charge imposed upon certain redemptions of such shares and that are
exchangeable with PaineWebber Asia Pacific Growth Fund's Class B shares.
Dated: September 26, 1996 By: /s/ Dianne E. O'Donnell
----------------------------
Dianne E. O'Donnell
Vice President and Secretary
PaineWebber Managed
Investments Trust
New York, New York (ss)
Subscribed and sworn before me this 26th day of September, 1996.
/s/ Ilene Shore
________________________
Notary Public
3
<PAGE>
EXHIBIT 5(d)
FORM OF INVESTMENT ADVISORY AND ADMINISTRATION FEE AGREEMENT
Agreement made as of ___________, 1996, between PAINEWEBBER
MANAGED INVESTMENTS TRUST, a Massachusetts business trust ("Trust"), on
behalf of PaineWebber Asia Pacific Growth Fund ("Fund"), a series of shares
of beneficial interest of the Trust, and MITCHELL HUTCHINS ASSET MANAGEMENT
INC. ("Mitchell Hutchins"), a Delaware corporation registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended, and as an
investment adviser under the Investment Advisers Act of 1940, as amended.
WHEREAS, the Trust has appointed Mitchell Hutchins as investment
adviser and administrator for each series of shares of beneficial interest
of the Trust as now exists and as hereafter may be established, pursuant to
an Investment Advisory and Administration Contract, dated April 21, 1988,
between the Trust and Mitchell Hutchins ("Advisory Contract"); and
WHEREAS, the Fund has been established as a new series of the
Trust;
NOW THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as
follows:
1. For the services provided and the expenses assumed
pursuant to the Advisory Contract with respect to the Fund, the Fund will
pay to Mitchell Hutchins a fee, computed daily and paid monthly, at an
annual rate of 1.20% of the Fund's average daily net assets.
2. This Fee Agreement shall be subject to all of the terms
and conditions of the Advisory Contract.
3. This Fee Agreement shall become effective upon the date
written above, provided that it shall not take effect unless it has first
been approved (i) by a vote of a majority of the Trustees of the Trust who
are not parties to this Fee Agreement or the Advisory Contract or
interested persons of any such persons at a meeting called for the purpose
of such approval and (ii) by vote of a majority of the Fund's outstanding
voting securities.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated as of the day and year first
above written.
PAINEWEBBER MANAGED INVESTMENTS TRUST,
on behalf of PaineWebber Asia Pacific
Growth Fund
By:___________________________________
Name: Dianne E. O'Donnell
Title: Secretary and Vice President
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:____________________________________
Name:
Title:
<PAGE>
EXHIBIT 5(e)
FORM OF SUB-ADVISORY AGREEMENT
------------------------------
Agreement made as of ___________, 1996 ("Agreement") between MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"),
and SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC., a New York corporation
("Sub-Adviser"), (the "Agreement").
RECITALS
--------
(1) Mitchell Hutchins has entered into a Investment Advisory and
Administration Contract, dated April 21, 1988, including an addendum dated
________________, 1996 ("Advisory Contract"), with PaineWebber Managed
Investments Trust ("Trust"), an open-end management investment company
registered under the Investment Company Act of 1940, as amended ("1940 Act");
(2) The Trust offers for public sale distinct series of shares of beneficial
interest and may offer additional distinct series in the future;
(3) Under the Advisory Contract Mitchell Hutchins has agreed to provide
certain investment advisory and administrative services to each series of the
Fund as now exists and as hereafter may be established;
(4) The Advisory Contract permits Mitchell Hutchins to delegate certain of
its duties as investment adviser under the Advisory Contract to a sub-adviser;
and
(5) Mitchell Hutchins desires to retain the Sub-Adviser to furnish certain
investment advisory services with respect to the PaineWebber Asia Pacific Growth
Fund ("Fund") series of the Trust, and the Sub-Adviser is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as an
------------
investment sub-adviser with respect to the Fund for the period and on the terms
set forth in this Agreement. The Sub-Adviser accepts that appointment and agrees
to render the services herein set forth, for the compensation herein provided.
2. Duties as Sub-Adviser.
----------------------
(a) Subject to the supervision of and any guidelines adopted by the Trust's
Board of Trustees (the "Board") and Mitchell
<PAGE>
Hutchins, the Sub-Adviser will provide a continuous investment program for the
Fund, including investment research and management. The Sub-Adviser will
determine from time to time what investments will be purchased, retained or sold
by the Fund. The Sub-Adviser will be responsible for placing purchase and sell
orders for investments and for other related transactions. The Sub-Adviser will
provide services under this Agreement in accordance with the Fund's investment
objective, policies and restrictions as stated in the Trust's Registration
Statement.
(b) The Sub-Adviser agrees that, in placing orders with brokers, it will
obtain the best net result in terms of price and execution; provided that, on
behalf of the Fund, the Sub-Adviser may, in its discretion, use brokers who
provide the Sub-Adviser with research, analysis, advice and similar services to
execute portfolio transactions, and the Sub-Adviser may pay to those brokers in
return for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of the Sub-Adviser to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. In no instance will
portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. The Sub-Adviser may aggregate sales
and purchase orders with respect to the assets of the Fund with similar orders
being made simultaneously for other accounts advised by the Sub-Adviser or its
affiliates. Whenever the Sub-Adviser simultaneously places orders to purchase
or sell the same security on behalf of the Fund and one or more other accounts
advised by the Sub-Adviser, the orders will be allocated as to price and amount
among all such accounts in a manner believed to be equitable over time to each
account. Mitchell Hutchins recognizes that in some cases this procedure may
adversely affect the results obtained for the Fund.
(c) The Sub-Adviser will maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions by the Sub-
Adviser on behalf of the Fund, and will furnish the Board and Mitchell Hutchins
with such periodic and special reports as the Board or Mitchell Hutchins
reasonably may request. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Sub-Adviser hereby agrees that all records which it maintains
for the Fund are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act, and further agrees to surrender promptly to the Trust any records which it
maintains for the Fund upon request by the Trust.
<PAGE>
(d) At such times as shall be reasonably requested by the Board or Mitchell
Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins with
economic and investment analyses and reports as well as quarterly reports
setting forth the Fund's performance and make available to the Board and
Mitchell Hutchins any economic, statistical and investment services normally
available to institutional or other customers of the Sub-Adviser.
(e) In accordance with procedures adopted by the Board, as amended from time
to time, the Sub-Adviser is responsible for assisting in the fair valuation of
all portfolio securities and will use its reasonable efforts to arrange for the
provision of a price(s) from a party(ies) independent of the Sub-Adviser for
each portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
3. Further Duties. In all matters relating to the performance of this
---------------
Agreement, the Sub-Adviser will act in conformity with the Trust's Declaration
of Trust, By-Laws and currently effective registration statement under the 1940
Act, and any amendments or supplements thereto ("Registration Statement"), and
with the written instructions and written directions of the Board and Mitchell
Hutchins, and will comply with the requirements of the 1940 Act, the Investment
Advisers Act of 1940, as amended ("Advisers Act"), the rules under each,
Subchapter M of the Internal Revenue Code ("Code"), as applicable to regulated
investment companies, the diversification requirements applicable to the Fund
under Section 817(h) of the Code, and all other applicable federal and state
laws and regulations. Mitchell Hutchins agrees to provide to the Sub-Adviser
copies of the Trust's Declaration of Trust, By-Laws, Registration Statement,
written instructions and directions of the Board and Mitchell Hutchins, and any
amendments or supplements to any of these materials as soon as practicable after
such materials become available; [provided, however, that the Sub-Adviser's duty
--------- --------
under this Agreement to act in conformity with any document, instruction, or
guidelines produced by the Trust or Mitchell Hutchins shall not arise until it
has been delivered to the Sub-Adviser.] Any changes to the Fund's objectives,
policies or restrictions will make due allowance for the time within which the
Sub-Adviser shall have to come into compliance.
4. Expenses. During the term of this Agreement, the Sub-Adviser will bear
---------
all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses incurred
by the Trust, the Fund or Mitchell Hutchins.
-3-
<PAGE>
5. Compensation.
-------------
(a) For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, Mitchell Hutchins, not the Fund, will pay to the
Sub-Adviser a fee, computed daily and payable monthly, at an annual rate of
____% of the Fund's average daily net assets (computed in the manner specified
in the Advisory Contract), and will provide the Sub-Adviser with a schedule
showing the manner in which the fee was computed.
(b) The fee shall be computed daily and payable monthly to the Sub-Adviser on
or before the last business day of the next succeeding calendar month.
(c) For those periods in which Mitchell Hutchins has agreed to waive all or a
portion of its management fee (on a voluntary basis or to comply with any
expense limitation imposed by a state), the Sub-Adviser will waive the
proportion of its fees that will amount to half of Mitchell Hutchins' total fee
waiver.
(d) If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
6. Limitation Of Liability. The Sub-Adviser shall not be liable for any
------------------------
error of judgment or mistake of law or for any loss suffered by the Fund, the
Trust or its shareholders or by Mitchell Hutchins in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
7. Representations of Sub-Adviser. The Sub-Adviser represents, warrants and
-------------------------------
agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this Agreement
remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act
from performing the services contemplated by this Agreement; (iii) has met, and
will seek to continue to meet for so long as this Agreement remains in effect,
any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an
-4-
<PAGE>
investment adviser of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell Hutchins
and the Board with a copy of such code of ethics, together with evidence of its
adoption. Within fifteen days of the end of the last calendar quarter of each
year that this Agreement is in effect, the president or a vice-president of the
Sub-Adviser shall certify to Mitchell Hutchins that the Sub-Adviser has complied
with the requirements of Rule 17j-1 during the previous year and that there has
been no violation of the Sub-Adviser's code of ethics or, if such a violation
has occurred, that appropriate action was taken in response to such violation.
Upon the written request of Mitchell Hutchins, the Sub-Adviser shall permit
Mitchell Hutchins, its employees or its agents to examine the reports required
to be made to the Sub-Adviser by Rule 17j-1(c)(1) and all other records relevant
to the Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form
ADV as most recently filed with the Securities and Exchange Commission ("SEC")
and promptly will furnish a copy of all amendments to Mitchell Hutchins at least
annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of control of
the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Fund or senior management of the Sub-Adviser, in
each case prior to or promptly after such change.
8. Services Not Exclusive. The Sub-Adviser may act as an investment adviser
-----------------------
to any other person, firm or corporation, and may perform management and any
other services for any other person, association, corporation, firm or other
entity pursuant to any contract or otherwise, and take any action or do anything
in connection therewith or related thereto, except as prohibited by applicable
law; and no such performance of management or other services or taking of any
such action or doing of any such thing shall be in any manner restricted or
otherwise affected by any aspect of any relationship of the Sub-Adviser to or
with the Trust, Fund or Mitchell Hutchins or deemed to violate or give rise to
any duty or obligation of the Sub-Adviser to the Trust, Fund or Mitchell
Hutchins except as otherwise imposed by law or by this Agreement.
9. Duration and Termination.
-------------------------
(a) This Agreement shall become effective upon the date first above written,
provided that this Agreement shall not take effect unless it has first been
approved (i) by a vote of a majority of
-5-
<PAGE>
those trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by vote of a majority of the Fund's
outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Fund.
(c) Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Sub-Adviser. This Agreement may also be terminated, without the
payment of any penalty, by Mitchell Hutchins: (i) upon 120 days' written notice
to the Sub-Adviser; (ii) immediately upon material breach by the Sub-Adviser of
any of the representations and warranties set forth in Paragraph 7 of this
Agreement; or (iii) immediately if, in the reasonable judgment of Mitchell
Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations
under this Agreement, including circumstances such as financial insolvency of
the Sub-Adviser or other circumstances that could adversely affect the Fund.
The Sub-Adviser may terminate this Agreement at any time, without the payment of
any penalty, on 120 days' written notice to Mitchell Hutchins. This Agreement
will terminate automatically in the event of its assignment or upon termination
of the Advisory Contract as it relates to the Fund.
10. Amendment of this Agreement. No provision of this Agreement may be
----------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved (i) by a vote of a majority of those trustees of the
Trust who are not parties to this Agreement or interested persons of any such
party, and (ii) by a vote of a majority of the Fund's outstanding voting
securities (unless in the case of (ii), the Trust receives an SEC order or no-
action letter permitting it to modify the Agreement without such vote).
11. Governing Law. This Agreement shall be construed in accordance with
--------------
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
-6-
<PAGE>
To the extent that the applicable laws of the State of Delaware conflict with
the applicable provisions of the 1940 Act, the latter shall control.
12. Miscellaneous. The captions in this Agreement are included for
--------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell" and "security" shall have the same
meaning as such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may be
signed in counterpart.
13. Notices. Any written notice herein required to be given to the Sub-
--------
Adviser or Mitchell Hutchins shall be deemed to have been given upon receipt of
the same at their respective addresses set forth below.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue of the Americas
New York, New York 10019
Attest:
By:_____________________ By:_____________________________
Name: Name: DIANNE E. O'DONNELL
Title: Title: Senior Vice President
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
787 Seventh Avenue
New York, New York 10019
Attest:
By:_______________________ By:_____________________________
Name: Name:
Title: Title:
-9-
<PAGE>
EXHIBIT 10(h)
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(202) 778-9000
October 4, 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 A, Class B and Class C shares of beneficial interest (the
"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 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 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 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
<PAGE>
PaineWebber Managed Investments Trust
October 4, 1996
Page 2
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. 46 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
<PAGE>
EXHIBIT 15(e)
PAINEWEBBER MANAGED INVESTMENTS TRUST
CLASS C SHARES
ADDENDUM TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Managed Investments Trust ("Trust") is
registered under the Investment Company Act of 1940, as amended ("1940
Act"), as an open-end management investment company; and
WHEREAS, the Trust has adopted a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class C
shares of each series of shares of beneficial interest as now exists and
as may hereafter be designated by the Trust's board of trustees ("Board")
and have Class C shares established; and
WHEREAS, the Trust has entered into a Distribution Contract
("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins") pursuant to which Mitchell Hutchins has agreed to serve as
Distributor of the Class C shares of each such series; and
WHEREAS, the Trust has established a new series of shares of
beneficial interest designated as the PaineWebber Asia Pacific Growth Fund
("New Series") and has established Class C shares with respect to the New
Series; and
NOW, THEREFORE, the Trust hereby adopts the Plan with respect to
the Class C shares of the New Series in accordance with Rule 12b-1 under
the 1940 Act.
1. The New Series is authorized to pay to Mitchell Hutchins,
as compensation for Mitchell Hutchins' services as Distributor of its
Class C shares, distribution fees at the rate of 0.75% (on an annualized
basis) of the average daily net assets of the New Series' Class C shares.
Such fee shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine.
2. This Addendum shall be subject to all other terms and
conditions of the Plan, including the authorization of the payment to
Mitchell Hutchins of a service fee at the rate of 0.25% (on an annualized
basis) of the average daily net assets of the New Series.
3. This Addendum shall not become effective unless (a) it
first has been approved, together with any related agreements, by votes of
a majority of both (i) the Board and (ii) those Trustees of the Trust who
are not "interested persons" of the Trust and have no direct or indirect
financial interest in the operation of this Plan or any agreements related
thereto ("Independent Trustees") cast in person at a meeting (or meetings)
called for the purpose of voting on such approval; and until the Trustees
<PAGE>
who approve the Plan's taking effect with respect to the Class C shares of
the New Series have reached the conclusion required by Rule 12b-1(e) under
the 1940 Act and (b) it has been approved by a vote of the then-sole
shareholder of the Class C shares of the New Series.
IN WITNESS WHEREOF, the Trust has caused this Plan of
Distribution to be executed on the day and year set forth below in New
York, New York.
Date: __________, 1996
PAINEWEBBER MANAGED INVESTMENTS TRUST
Attest:
By:_________________________ By:________________________________
Name: Name: Dianne E. O'Donnell
Title: Title: Secretary and Vice President
