<PAGE>
As filed with the Securities and Exchange Commission on July 20, 1998
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. 54 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 47
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(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:
ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202)778-9000
Approximate Date of Proposed Public Offering: Effective Date of this Post-
Effective Amendment.
[ ] Immediately upon filing pursuant to Rule 485(b)
[ ] On __________ pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[ ] On __________ pursuant to Rule 485(a)(1)
[ X ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On __________ pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Beneficial Interest.
<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
Cross Reference Sheets
PaineWebber Tax-Managed Equity Fund
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Part A - Prospectus
Part B - Statement of Additional Information
Part C- Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER MANAGED INVESTMENTS TRUST:
PaineWebber Tax-Managed Equity Fund
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No. and Caption Prospectus Caption
------------------------------------------------ -------------------------------------------------------------
<C> <S> <C>
1. Cover Page Cover Page
2. Synopsis The Fund at a Glance; Expense Table
3. Condensed Financial Financial Highlights; Performance
Information
4. General Description of The Fund at a Glance; Investment Objective & Policies;
Registrant Investment Philosophy & Process; The Fund's Investments;
General Information
5. Management of the Fund Management; General Information
5A. Management's Discussion of Financial Highlights
Fund Performance
6. Capital Stock and other Cover Page; Flexible Pricing/SM/; Dividends & Taxes; General
Securities Information
7. Purchase of Securities Flexible Pricing; How to Buy Shares; Other Services;
Being Offered Management; Determining the Shares' Net Asset Value
8. Redemption or How to Sell Shares; Other Services
Repurchase
9. Pending Legal Proceedings Not Applicable
<CAPTION>
PART B ITEM NO. AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
------------------------------------------------ -------------------------------------------------------------
<C> <S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Other Information
History
13. Investment Objectives and Policies Investment Policies and Restrictions; Hedging and Other
Strategies Using Derivative Instruments; Portfolio
Transactions
14. Management of the Fund Trustees and Officers; Principal Holders of Securities
15. Control Persons and Principal Holders of Trustees and Officers; Principal Holders of Securities
Securities
16. Investment Advisory and Other Services Investment Advisory and Distribution Arrangements
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Conversion of Class B Shares; Other Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B ITEM NO. AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
------------------------------------------------ -------------------------------------------------------------
<C> <S> <C>
19. Purchase, Redemption and Pricing of Securities Reduced Sales Charges, Additional Exchange and Redemption
Being Offered Information and Other Services; Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Distribution Arrangements
22. Calculation of Performance Performance Information
Data
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
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PaineWebber Tax-Managed Equity Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- October , 1998
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The Fund is designed for long-term investors who seek to maximize after-tax to-
tal return, by investing primarily in a diversified portfolio of equity securi-
ties believed by Mitchell Hutchins to have the potential for above-average
earnings growth with reasonable valuation. The Fund is newly organized and has
no operating history.
This Prospectus concisely sets forth information that an investor should know
about the Fund before investing. Please read this Prospectus carefully and re-
tain a copy for future reference.
A Statement of Additional Information dated October , 1998 has been filed with
the Securities and Exchange Commission ("SEC" or "Commission") and is legally
part of this Prospectus. The Statement of Additional Information can be ob-
tained without charge, and further inquiries can be made, by contacting the
Fund, your PaineWebber investment executive, PaineWebber's correspondent firms
or by calling toll-free 1-800-647-1568. In addition, the Commission maintains a
website (http://www.sec.gov) that contains the Statement of Additional Informa-
tion, other material incorporated by reference, and other information regarding
registrants that file electronically with the Commission.
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THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of seven broad categories,
which are presented here. Generally, investors seeking to maximize return must
assume greater risk. The Fund offered by this Prospectus is in the STOCK FUNDS
category.
^ Asset Allocation Funds ^ Global Funds for long-term growth by investing
for high total return mainly in foreign stocks or high current income
by investing in stocks by investing mainly in global debt instruments.
and bonds.
^ Stock Funds for long-
term growth by
investing mainly in ^ Money Market Fund for income and stability by
stocks. investing in high-quality, short-term
investments.
^ Bond Funds for income
by investing mainly in
bonds.
^ Tax-Free Bond Funds for ^ Fund of Funds for either long-term growth of
income exempt from capital; total return; or income and,
federal income tax and, secondarily, growth of capital by investing in
in some cases, state other PaineWebber mutual funds.
and 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.
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INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUND AND ITS DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE
INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OFFER TO
SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE FUND OR ITS DISTRIBUTOR
MAY NOT LAWFULLY SELL THOSE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospectus Page 1
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Table of Contents
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<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund at a Glance....................................................... 3
Expense Table.............................................................. 5
Investment Objective & Policies............................................ 7
Investment Philosophy & Process............................................ 7
Performance................................................................ 8
The Fund's Investments..................................................... 8
Flexible PricingSM......................................................... 11
How to Buy Shares.......................................................... 15
How to Sell Shares......................................................... 16
Other Services............................................................. 17
Management................................................................. 18
Determining the Shares' Net Asset Value.................................... 19
Dividends & Taxes.......................................................... 19
General Information........................................................ 21
</TABLE>
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Prospectus Page 2
<PAGE>
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PaineWebber Tax-Managed Equity Fund
The Fund at a Glance
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The Fund offered by this Prospectus is not intended to provide a complete
investment program, but may be appropriate as a component of an investor's
overall portfolio. Some common reasons to invest in this Fund are to finance
college educations, plan for retirement or diversify a portfolio. When selling
shares, investors should be aware that they may get more or less for their
shares than they originally paid for them. As with any mutual fund, there is
no assurance that the Fund will achieve its goal.
GOAL: To increase the after-tax value of your investment by investing
primarily in equity securities believed to have potential for above-average
earnings growth with reasonable valuation.
INVESTMENT OBJECTIVE: Maximize after-tax total return.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility.
Because the Fund invests primarily in equity securities, its price will rise
and fall. The Fund may invest in U.S. dollar-denominated securities of foreign
companies, which involves more risk than investing in the securities of U.S.
companies. The Fund may use derivatives, such as options and futures, which
may involve special risks. Seeking to maximize after-tax returns may require
trade-offs that reduce pre-tax returns. The Fund may also invest up to 10% of
its total assets in high yield, high risk convertible bonds, which are
considered predominantly speculative and may involve major risk exposure to
adverse conditions. Investors may lose money by investing in the Fund; the
investment is not guaranteed. Notwithstanding the Fund's use of tax management
strategies, the Fund may have taxable income and may realize taxable capital
gains from time to time. Investors may realize capital gains when they sell
their shares.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), is
the investment adviser and administrator of 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 designed for investors seeking to maximize after tax total return
by investing primarily in equity securities believed to have potential for
above average earnings growth with reasonable valuation. In addition, the Fund
can invest in high yield, high risk convertible bonds. These investments offer
the potential for greater returns, but also entail a substantial degree of
volatility and risk. Accordingly, the Fund is designed for investors who are
able to bear the risks that come with investments in the stocks and bonds of
such companies.
The Fund is not designed for tax-exempt institutions, qualified retirement
plans or Individual Retirement Accounts ("IRAs") because these investors do
not benefit from the Fund's tax management strategies.
HOW TO PURCHASE SHARES OF THE FUND
Shares of the Fund will be offered during an initial subscription period
currently scheduled to end on November 24, 1998. The Fund expects to commence
investment operations on or about December 1, 1998.
Investors may select among these classes of shares:
CLASS A SHARES
The price is the net asset value plus the initial sales charge; the maximum
sales charge 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 the 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
immediately 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 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.
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Prospectus Page 3
<PAGE>
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PaineWebber Tax-Managed Equity Fund
The Fund at a Glance
(Continued)
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CLASS C SHARES
The price is the 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
immediately 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.
CLASS Y SHARES
Class Y shares are offered only to limited groups of investors. The price is
the net asset value. Investors do not pay an initial sales charge when they
buy Class Y shares. As a result, 100% of their purchase is immediately
invested. Investors also do not pay a contingent deferred sales charge when
they sell Class Y shares. Class Y shares have lower ongoing expenses than any
other class of shares.
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Prospectus Page 4
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Expense Table
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The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Fund.
Because the Fund has no operating history, "Other Expenses" have been
estimated for the first year of operations.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases of Shares (as
a % of offering price)........................ 4.50% None None None
Sales Charge on Reinvested Dividends (as a % of
offering price)............................... None None None None
Maximum Contingent Deferred Sales Charge (as a
% of offering price or net asset value at the
time of sale, whichever is less).............. None 5% 1% None
Exchange Fee................................... None None None None
ANNUAL FUND OPERATING EXPENSES (as a % of
average net assets)
Management Fees................................ 1.00% 1.00% 1.00% 1.00%
12b-1 Fees..................................... 0.25 1.00 1.00 None
Other Expenses................................. 0.40 0.40 0.40 0.40
---- ---- ---- ----
Total Operating Expenses....................... 1.65 2.40 2.40 1.40
==== ==== ==== ====
</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 an investor sells these shares within one
year after purchase, a contingent deferred sales charge of 1% of the
offering price or the net asset value of the shares at the time of sale,
whichever is less, is imposed.
CLASS B SHARES: Sales charge waivers are available. The maximum 5%
contingent deferred sales charge applies to sales of shares during the first
year after purchase. The charge generally declines by 1% annually, reaching
zero after six years.
CLASS C SHARES: If a shareholder sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or
the net asset value of the shares at the time of sale, whichever is less, is
imposed.
CLASS Y SHARES: No initial or contingent deferred sales charge is imposed,
nor are Class Y shares subject to 12b-1 distribution or service fees. Class
Y shares may be purchased by participants in certain investment programs
that are sponsored by PaineWebber and that may invest in PaineWebber Mutual
Funds ("PW Programs"), when Class Y shares are purchased through that PW
Program. Participation in a PW Program is subject to an advisory fee at the
effective annual rate of no more than 1.5% of assets held through that PW
Program. This account charge is not included in the table because investors
who are not PW Program participants also are permitted to purchase Class Y
shares.
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 CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
12b-1 service fees.............................. 0.25% 0.25% 0.25% None
12b-1 distribution fees......................... None 0.75 0.75 None
</TABLE>
For more information, see "Management" and "Flexible PricingSM."
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Prospectus Page 5
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Expense Table
(Continued)
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EXAMPLES OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various costs
and expenses incurred as shareholders of the Fund. The assumed 5% annual
return shown in the example is required by regulations of the SEC applicable
to all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED TO BE
REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF THE FUND MAY BE
MORE OR LESS THAN THOSE SHOWN.
An investor would, directly or indirectly, pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS
- -------- ------ -------
<S> <C> <C>
Class A.......................................................... $61 $ 93
Class B (Assuming sale of all shares at end of period)........... $74 $103
Class B (Assuming no sale of shares)............................. $24 $ 73
Class C (Assuming sale of all shares at end of period)........... $34 $ 73
Class C (Assuming no sale of shares)............................. $24 $ 73
Class Y.......................................................... $14 $ 43
</TABLE>
ASSUMPTIONS MADE IN THE EXAMPLES
. ALL CLASSES: Reinvestment of all dividends and other distributions;
percentage 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
deferred sales charge at the time of redemption, 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.
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Prospectus Page 6
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Investment Objective & Policies
- -------------------------------------------------------------------------------
The Fund's investment objective may not be changed without shareholder
approval. Its other investment policies, except where noted, are not
fundamental and may be changed by the Fund's board.
The Fund's investment objective is to maximize after- tax total return. The
Fund seeks to achieve this objective by investing primarily in a diversified
portfolio of equity securities believed by Mitchell Hutchins to have the
potential for above-average earnings growth with reasonable valuation. The
Fund seeks to invest substantially all of its assets in equity securities and,
except under unusual market conditions, invests at least 65% of its total
assets in these securities. Up to 25% of the Fund's total assets may be
invested in U.S. dollar-denominated equity securities of foreign issuers that
are traded on recognized U.S. exchanges or in the U.S. over-the-counter
("OTC") market. Up to 10% of the Fund's total assets may be invested in
convertible bonds that are rated below investment grade.
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Investment Philosophy & Process
- -------------------------------------------------------------------------------
Mitchell Hutchins manages the Fund to maximize after-tax returns by minimizing
the taxes that the Fund's shareholders would incur in connection with the
Fund's investment income and realized capital gains. Mitchell Hutchins expects
to minimize taxes on realized capital gains in part by maintaining relatively
low portfolio turnover and by generally avoiding short-term capital gains.
Mitchell Hutchins expects to invest the Fund's assets primarily in equity
securities that combine potential for above average earnings growth with
reasonable valuation and expects that the Fund will hold the securities for a
period of years. If Mitchell Hutchins decides to sell a particular appreciated
security, under normal conditions, the share lots selected for sale will be
those with holding periods that qualify for long-term capital gains treatment
and, among those, the share lots with the highest cost basis. When Mitchell
Hutchins believes it prudent to do so, it may sell securities to realize capital
losses that then can be used to offset realized capital gains.
In selecting securities for the Fund, Mitchell Hutchins follows a disciplined
investment process that relies on the Mitchell Hutchins Equity Research Team
utilizing a tax-advantaged valuation model. The model will screen a universe
of small to large cap companies to identify companies believed to have
potential for above average earning growth, while taking into account the
valuation of the securities.
Mitchell Hutchins may evaluate a number of factors when considering the
reasonableness of the valuation of an individual security relative to the U.S.
equity markets or other individual securities. These factors may include the
price of the security, expected revenues or earnings, cash flow, book value,
projected dividends, company history, industry forecasts and economic
forecasts.
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Prospectus Page 7
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Performance
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PERFORMANCE INFORMATION
The Fund performs a standardized computation of annualized total return and
may show this return in advertisements or promotional materials. Standardized
returns show the change in value of an investment in the Fund as a steady
compound annual rate of return. Actual year-by-year returns fluctuate and may
be higher or lower than standardized returns. Standardized returns for Class A
shares of the Fund reflect deduction of the Fund's maximum initial sales
charge of 4.5% at the time of purchase, and standardized returns for the Class
B and Class C shares of the Fund reflect deduction of the applicable
contingent 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 dividends and other distributions.
The Fund may use other total return presentations in conjunction with
standardized returns. 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 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.
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The Fund's Investments
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EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and
common stock purchase warrants and rights. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation.
Preferred stock has certain fixed-income features, like a bond, but is
actually equity in a company, like common stock.
CONVERTIBLE SECURITIES may include debentures, notes and preferred equity
securities, which are convertible into common stock. Bonds (including notes
and debentures) are used by corporations and governments to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest
and must repay the amount borrowed at maturity. Bonds have varying degrees of
investment risk and varying levels of sensitivity to changes in interest
rates.
RISKS
Under normal circumstances, the Fund invests primarily in equity securities.
Following is a discussion of the risks of an investment in the Fund:
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities and reflect changes in a company's financial condition and
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that the Fund may experience
a substantial or complete loss on an individual equity investment.
RISKS OF TAX MANAGEMENT STRATEGIES. Over time, securities with unrealized gains
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Prospectus Page 8
<PAGE>
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PaineWebber Tax-Managed Equity Fund
may comprise a substantial portion of the Fund's assets. While the Fund may use
a number of strategies to avoid having to recognize large capital gains or to
reduce the Fund's exposure to price declines in these securities without selling
them, these strategies may not be successful or may not be fully successful.
Seeking to maximize after-tax returns may require trade-offs that reduce pre-tax
returns.
Notwithstanding the Fund's use of tax management strategies, the Fund may have
taxable income and may realize taxable capital gains from time to time.
Investors who purchase Fund shares when the Fund has large accumulated capital
gains could receive a significant part of the purchase price of their shares
back as a taxable capital gain distribution.
FOREIGN SECURITIES. The Fund may invest a portion of its assets in U.S. dollar-
denominated securities of foreign companies that are traded on recognized U.S.
exchanges or in the U.S. OTC market. Investing in the securities of foreign
companies involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments 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 regulations involving
prohibitions on the repatriation of foreign currencies.
In general, less information may be available about foreign companies than
about U.S. companies, and foreign companies are generally not subject to the
same accounting, auditing and financial reporting standards as are U.S.
companies.
CONVERTIBLE SECURITIES. Convertible securities are subject to interest rate
risk and credit risk. Interest rate risk is the risk that interest rates will
rise and bond prices will fall, lowering the value of the Fund's investments in
convertible securities. Long-term convertible securities are generally more
sensitive to interest rate changes than short-term bonds. Credit risk is the
risk that the issuer or a guarantor may be unable or unwilling to pay interest
or repay principal on the bond. Credit risk can be affected by many factors,
including adverse changes in the issuer's own financial condition or in economic
conditions.
NON-INVESTMENT GRADE (LOWER-RATED) CONVERTIBLE SECURITIES. The Fund may invest
up to 10% of its total assets in non-investment grade convertible securities
rated as low as B by Standard & Poor's, a division of The McGraw Hill Companies
or Moody's Investors Service, Inc. or comparably rated by another ratings
agency. Such securities are deemed by the ratings agencies to be predominantly
speculative regarding the issuer's ability to pay principal and interest and
may involve major risk exposure to adverse economic conditions. They are also
known as "junk bonds." Lower-rated securities are frequently unsecured by
collateral and will not receive payment until more senior claims are paid in
full. The market for lower-rated securities is thinner and less active, which
may limit the Fund's ability to sell such securities at a fair value in
response to changes in the economy or financial markets.
DERIVATIVES. Some of the instruments in which the Fund may invest may be
referred to as "derivatives," because their value depends on (or "derives"
from) the value of an underlying asset, reference rate or index. These
instruments include options, futures contracts and similar instruments. There
is only limited consensus as to what constitutes a "derivative" security. The
market value of derivative instruments and securities sometimes is more
volatile than that of other investments, and each type of derivative instrument
may pose its own special risks. Mitchell Hutchins takes these risks into
account in its management of the Fund.
COUNTERPARTIES. The Fund may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the Fund's board monitors and evaluates the
creditworthiness of the parties with which the Fund does business.
YEAR 2000 RISK. Like other mutual funds and other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is
taking steps that it believes are reasonably designed to address the Year 2000
Issue with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other
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Prospectus Page 9
<PAGE>
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PaineWebber Tax-Managed Equity Fund
major service providers. However, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Fund.
INVESTMENT TECHNIQUES AND STRATEGIES
STRATEGIES USING DERIVATIVES. The Fund may use derivatives, such as options
(on securities, futures contracts and stock indices) and futures contracts (on
stock indices and interest rates) as tax management strategies to protect
against price declines in security holdings that have developed large
accumulated capital gains. The Fund may employ tax-advantaged techniques using
derivatives including, but not limited to, the purchase of put options on
securities held, equity collars (combining the purchase of a put option and
the sale of a call option), equity swaps, and the sale of stock index futures
contracts. Using these techniques rather than selling certain securities may
reduce exposure to price declines in certain securities without realizing
substantial capital gains under current tax law. The ability to use certain
equity swaps and certain equity collar strategies as a tax-efficient
management technique with respect to holdings of appreciated securities
generally is limited to circumstances in which the hedging transaction is
closed out no later than thirty days after the end of the taxable year and the
underlying appreciated securities position is held unhedged for at least the
next sixty days after the hedging transaction is closed.
The Fund may also use derivatives to reduce the overall risk of its
investments ("hedge") or to enhance return. New financial products and risk
management techniques continue to be developed and may be used if consistent
with the Fund's investment objective and policies. The Statement of Additional
Information for the Fund contains further information on these strategies.
The Fund might not use any of these derivatives, and there can be no assurance
that any strategy used will succeed. If Mitchell Hutchins 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 derivatives are different from those
needed to select securities for the Fund,
. the possibility of imperfect correlation, or even no correlation, between
price movements of derivatives and price movements of the securities 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.
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. 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 will be managed to minimize portfolio turnover.
Under normal market conditions, the Fund anticipates that portfolio turnover
will not exceed 30% during its first year of operations.
DEFENSIVE POSITIONS. When Mitchell Hutchins believes that unusual market or
economic circumstances warrant a defensive posture, the Fund may temporarily
commit all or any portion of its assets to cash or investment grade money
market instruments, including repurchase agreements. In a typical repurchase
agreement, the Fund buys a security and simultaneously agrees to sell it back
at an agreed-upon price and time, usually no more than seven days after
purchase.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. These include certain cover for OTC options and
securities whose disposition is restricted under the federal securities laws.
The Fund does not consider securities that are eligible for resale pursuant to
SEC Rule 144A to be illiquid securities if Mitchell Hutchins has determined
such securities to be liquid, based upon the trading markets for the
securities under procedures approved by the Fund's board.
OTHER INFORMATION. The Fund may 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. The Fund may invest up to 35% of its total
assets in investment grade money market instruments and/or cash for liquidity
purposes or pending investment in other securities.
The Fund may borrow money for temporary or emergency purposes but not in
excess of 33 1/3% of its total assets, including reverse repurchase agreements
up to an aggregate value of 5% of its net assets.
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Prospectus Page 10
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
Flexible PricingSM
- -------------------------------------------------------------------------------
The Fund offers through this Prospectus four classes of shares that differ in
terms of sales charges and expenses. An investor can select from among Classes
A, B and C the class that is best suited to his or her investment needs, based
upon the holding period and the amount of investment. Certain eligible
investors may select Class Y.
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
calculated after PaineWebber's New York City headquarters or PFPC Inc., the
Fund's transfer agent ("Transfer Agent") receives the purchase order. Although
investors pay an initial sales charge when they buy Class A shares, the
ongoing expenses for this class are lower than those of Class B and Class C
shares. Class A shares sales charges are calculated as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED
---------------------------------- 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' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. However, 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 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
mutual 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 previously owned shares to qualify for a reduced sales charge. To
determine the sales charge reduction, please refer to the chart above.
Investors may also qualify for a reduced sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their 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 investors 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;
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Prospectus Page 11
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
. is the spouse, parent or child of any of the above;
. buys these shares through a PaineWebber investment executive who was
formerly employed as a broker with a competing brokerage firm that was
registered as a broker-dealer with the SEC; and
. was the investment executive's client at the competing brokerage 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
either 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
investment 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 ("Code") (each a "qualified
plan"). (This waiver is subject to minimum requirements, with respect to the
number of employees and investment amount, established by Mitchell Hutchins.
Currently, the plan must have 50 or more eligible employees and at least $1
million in plan assets.) For investments made pursuant to this waiver,
Mitchell Hutchins may make a payment to PaineWebber out of its own resources
in an amount not to exceed 1% of the amount invested;
. is a participant in the PaineWebber Members Only Program(TM). For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested;
. is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver. Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
. 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
written agreement with PaineWebber permitting the sale of Class A shares at
net asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested. For
subsequent investments or exchanges made to implement a rebalancing feature
of such an investment program, the minimum subsequent investment requirement
is 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.
For more information on how to get any reduced sales charge, investors should
contact a PaineWebber investment executive or a correspondent firm or call
1-800-647-1568. Investors must provide satisfactory information to PaineWebber
or the Fund if they seek any of these sales charge reductions or waivers.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated
after 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
immediately 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 offering price (net asset value of the shares at the time of
purchase) or the net asset value at the time of sale by the shareholder,
whichever is less, by the percentage shown on the following table. Investors
who own shares for more
----------
Prospectus Page 12
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
than six years do not have to pay a sales charge when selling those shares.
<TABLE>
<CAPTION>
PERCENTAGE BY WHICH
IF THE INVESTOR THE SHARES' NET ASSET
SELLS SHARES WITHIN: 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 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
investors 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
withdraw annually no 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 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.
Investors 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. Because investors do not pay
an initial sales charge when they buy Class C shares, 100% of their purchase
is immediately invested. Class C shares never convert to any other class of
shares.
A contingent deferred sales charge of 1% of the offering price (the net asset
value of the shares at the time of purchase) or the net asset value of the
shares at the time of sale by the shareholder, whichever is less, is charged
on sales of shares made within one year of the purchase date. 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 acquired 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 the Class C shares of the PaineWebber mutual fund originally
purchased. Class C shares representing reinvestment of any dividends or
capital gains 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 withdraw more than 12% of the value of the Fund account
under the Plan in the first year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED: Eligible investors may purchase Class Y shares at the
net asset value next calculated after PaineWebber's New York City headquarters
or the Transfer Agent receives the
- -------------------------------------------------------------------------------
Prospectus Page 13
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
- -------------------------------------------------------------------------------
How to Buy Shares
- -------------------------------------------------------------------------------
purchase order. Because investors do not pay an initial sales charge when they
buy Class Y shares, 100% of their purchase is immediately invested. No
contingent deferred sales charge is imposed on Class Y shares, and the ongoing
expenses for Class Y shares are lower than for the other classes because Class
Y shares are not subject to 12b-1 distribution or service fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
. a participant in one of the PW Programs listed below when Class Y shares are
purchased through that PW Program;
. an investor who buys $10 million or more at any one time in any combination
of PaineWebber mutual funds in the Flexible Pricing System SM;
. a qualified plan that has either
5,000 or more eligible employees or
$50 million or more in assets;
. an investment company advised by PaineWebber or an affiliate of PaineWebber.
PACE MULTI-ADVISOR PROGRAM: An investor who participates in the PACE Multi-
Advisor Program is eligible to purchase Class Y shares. The PACE Multi-Advisor
Program is an advisory program sponsored by PaineWebber that provides
comprehensive investment services, including investor profiling, a
personalized asset allocation strategy using an appropriate combination of
funds, and a quarterly investment performance review. Participation in the
PACE Multi-Advisor Program is subject to payment of an advisory fee at the
maximum annual rate of 1.5% of assets. Employees of PaineWebber and its
affiliates are entitled to a waiver of this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE Multi-Advisor Program.
During an initial subscription period scheduled to end on November 24, 1998
("Offering Period"), Class B, C and Y shares 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 will be offered at that price plus any applicable initial sales
charge. See "Flexible Pricing--Class A Shares." Payment of the purchase price
must be made in the manner specified below. The Fund expects to commence
investment operations on or about December 1, 1998. After that date, 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 during the Offering Period without notice and
reserves the right to refuse any order in whole or part, if the Fund
determines that it is in its best interest.
Prices are calculated for each class of the Fund's shares once each Business
Day, at the close of regular trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time). A "Business Day" is any day, Monday through Friday,
on which the New York Stock Exchange is open for business. Shares are
purchased at the next share price calculated after the purchase order is
received by PaineWebber's New York City headquarters or the Transfer Agent.
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
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to
PaineWebber or the Fund that they are eligible to purchase Class Y shares.
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Prospectus Page 14
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible 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
correspondent firms.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up
an account through the Transfer Agent (PFPC Inc.) by completing and signing 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, Wilmington, DE 19899.
New investors to PaineWebber may complete and sign an account application and
mail it along with a check. Investors may also open an account in person.
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
investments in the Fund.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account....................................................... $1,000
To add to an account..................................................... $ 100
</TABLE>
A Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, B and C
shares for shares of the same class of most other PaineWebber mutual funds.
Class Y shares are not exchangeable. For 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.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
. 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
instruction must include:
. the investor's name and address;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be sold; and
. a guarantee of each registered owner's signature. A signature guarantee may
be obtained from a domestic bank or trust company, broker, dealer, clearing
agency or savings association which is a participant in a medallion program
recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and the New York Stock Exchange
Medallion Signature Program (MSP). Signature guarantees which are not a part
of these programs will not be accepted.
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 Class A, B or C 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 contingent deferred sales charge due when the acquired 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
----------
Prospectus Page 15
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
- -------------------------------------------------------------------------------
How to Sell Shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Other Services
- -------------------------------------------------------------------------------
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 a 60-day notice. See the back cover of this
Prospectus for a listing of other PaineWebber mutual funds. PaineWebber S&P
500 Index Fund does not currently participate in the Flexible Pricing SystemSM
and is not available for exchanges.
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class (less any applicable contingent deferred sales
charge) as next calculated after the order is received and accepted. Share
prices are normally calculated at the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time).
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, then Class B and last, Class Y.
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
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through the Fund's Transfer Agent (PFPC Inc.) may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to purchase back all Fund shares in any
shareholder 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
reinstatement privilege, shareholders must notify their investment executive
at PaineWebber or one of its correspondent firms at the time of purchase.
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Fund's Class A, Class B and C shares:
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which the Fund will deduct $50 or more on a
monthly, quarterly, semiannual or annual basis 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), semiannual (June and December) or
annual (December) withdrawals from their Fund account. Minimum balances and
withdrawals vary according to the class of shares:
----------
Prospectus Page 16
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
- -------------------------------------------------------------------------------
Management
- -------------------------------------------------------------------------------
. 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, semi-annual and annual withdrawals of $200, $400, $600 and $800,
respectively.
Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. Investors may withdraw annually no more than
12% of the value of the Fund account when the investor signed up for the Plan
(for Class B shares, annually; for Class A and Class C shares, during the
first year under the Plan). Shareholders who elect to receive dividends or
other distributions in cash may not participate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-Directed IRAs are available through PaineWebber in which purchases of
PaineWebber funds and other investments may be made. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of the Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be
moved to an account with 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.
The Fund is governed by its board of trustees, which oversees the Fund's
operations. The board has appointed Mitchell Hutchins as investment adviser
and administrator responsible for the Fund's operations (subject to the
authority of the board). As investment adviser and administrator, Mitchell
Hutchins supervises all aspects of the Fund's operations and makes and
implements all investment decisions for the Fund.
The board, as part of its overall management responsibility, oversee various
organizations responsible for the day-to-day management of the Fund.
In accordance with procedures adopted by the board, brokerage transactions for
the Fund may be conducted through PaineWebber or its affiliates and the Fund
may pay fees to PaineWebber for its services as lending agent in their
portfolio securities lending programs. Personnel of Mitchell Hutchins may
engage in securities transactions for their own accounts pursuant to a 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 a wholly owned asset management subsidiary of PaineWebber, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On August 31, 1998, Mitchell Hutchins was adviser or sub-
adviser of investment companies with separate portfolios and aggregate
assets of approximately $ billion.
Mark A. Tincher is the portfolio manager of the Fund and has day-to-day
responsibility for managing its portfolio. Mr. Tincher is a managing director
and chief investment officer of equities of Mitchell Hutchins, responsible for
overseeing the management of equity investments. Upon his arrival at Mitchell
Hutchins, Mr. Tincher formed the Mitchell Hutchins Equity Research Team. Each
analyst on the Team focuses on different industries. As a result, the Team
provides PaineWebber Stock Funds with more specialized knowledge of the
various industries in which the Fund generally invest. The Equity Research
Team is also assisted by members of Mitchell Hutchins' fixed income groups,
who provide input on market outlook, interest rate forecasts and other
considerations pertaining to domestic equity and fixed income investments.
MANAGEMENT FEES & OTHER EXPENSES
The Fund incurs various expenses in its operations, such as the management fee
paid to Mitchell Hutchins, 12b-1 service and distribution fees, custody and
transfer agency fees, professional fees, expenses of
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Prospectus Page 17
<PAGE>
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-------------------
PaineWebber Tax-Managed Equity Fund
board and shareholder meetings, fees and expenses relating to registration of
its shares, taxes and governmental fees, fees and expenses of trustees, costs
of obtaining insurance, expenses of printing and distributing shareholder
materials and extraordinary expenses, including costs or losses in any
litigation.
The Fund has agreed to pay Mitchell Hutchins a monthly fee for its advisory
services at the annual rate (as a percentage of average daily net assets) of
1.00%.
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. There is no
distribution plan with respect to the Fund's Class Y shares. Under
distribution 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 up to 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 up to
0.25% of the aggregate investment amounts maintained in the Fund's Class A,
Class B and Class C shares by PaineWebber clients. 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 bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from the Fund or investors at the time Class
B or C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution
expenses.
The Plans and the related distribution contracts for Class A, Class B and
Class C shares ("Distribution Contracts") specify that the Fund must pay
service and distribution fees to Mitchell Hutchins for its activities, not as
reimbursement for specific expenses incurred. Therefore, even if Mitchell
Hutchins' expenses exceed the service or distribution fees it receives, the
Fund will not be obligated to pay more than those fees. On the other hand, if
Mitchell Hutchins' expenses are less than such fees, it will retain its full
fees and realize a profit. Expenses in excess of service and distribution fees
received or accrued through the termination date of any Plan will be Mitchell
Hutchins' sole responsibility and not that of the Fund. Annually, the board
reviews each Plan and Mitchell Hutchins' corresponding expenses for each class
separately from the Plans and expenses of the other classes.
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Prospectus Page 18
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Determining the Shares' Net Asset Value
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Dividends & Taxes
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The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the 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 market quotations are not readily
available, assets are valued at fair value as determined in good faith by or
under the direction of the board. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the Fund's board determines that this does not represent fair
value.
DIVIDENDS
The Fund pays an annual dividend, from its net investment income and any net
short-term capital gain. The Fund also distributes annually substantially all
of its net capital 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. If determined by the board to be in the best interests of the
shareholders, the Fund may also make additional distributions of net
investment income and any net short-term capital gain.
Dividends and other distributions paid on each class of shares of the Fund are
calculated at the same time and in the same manner. Dividends on Class A, B
and C shares are expected to be lower than those on its Class Y shares because
the other shares have higher expenses resulting from their service fees and,
in the case of Class B and Class C shares, their distribution fees. Dividends
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 resulting from
their distribution fees. Dividends on each class might be affected 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
requested cash payments. Shareholders who wish to receive dividends and other
distributions in cash, either mailed to them by check or credited to their
PaineWebber accounts, should contact their investment executives at
PaineWebber or one of its 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 Code so that it will not have to pay federal income tax on the part
of its investment company taxable income (generally consisting of net
investment income and net short-term capital gain) and net capital gain that
it distributes 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
ordinary income. Distributions of the Fund's net capital gain (whether paid in
cash or additional shares) are taxable to its shareholders as long-term
capital gain, regardless of how long they have held their Fund shares. Under
the Taxpayer Relief Act of 1997, as modified by recent legislation, the
maximum tax rate applicable to a non-corporate taxpayer's net capital gain
recognized on capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket). The Fund may divide each net
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Prospectus Page 19
<PAGE>
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PaineWebber Tax-Managed Equity Fund
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General Information
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capital gain distribution into 28% and 20% rate gain distributions (in
accordance with the holding periods for the securities it sold that generated
the distributed gain). The Fund's shareholders must then treat these portions
accordingly, irrespective of how long a shareholder has held Fund shares.
Shareholders 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)
by the Fund that year and any portion of those dividends that qualifies for
special tax treatment. The information regarding capital gain distributions
designates the portions thereof subject to the different maximum rates of tax
applicable to individuals' net capital gain indicated above.
BACKUP WITHHOLDING
The Fund must withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
A shareholder's sale (redemption) of Fund shares may result in a taxable gain
or loss. This depends upon 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 addition, if the Fund's shares are bought within 30 days before or after
selling other shares of the Fund (regardless of class) at a loss, all or a
portion of that loss will not be deductible and will increase the basis of the
newly purchased shares.
SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells (redeems) or exchanges Class
A shares within 90 days of purchase and subsequently acquires Class A shares
of the same or another PaineWebber mutual fund without paying a sales charge
due to the 365-day reinstatement privilege or the exchange privilege. In these
cases, any gain on the sale or exchange of the original Class A shares would
be increased, or any loss would be decreased, by the amount of the sales
charge paid when those shares were bought, and that amount would increase the
basis of the PaineWebber mutual fund shares subsequently acquired.
No gain or loss will be recognized to a shareholder as a result of conversion
of Class B shares into Class A shares.
* * * *
The foregoing only summarizes some of the important considerations affecting
the Fund and its shareholders. See the Statement of Additional Information for
further discussion. Prospective shareholders are urged to consult their tax
advisers.
ORGANIZATION
The Fund is a newly organized diversified series of PaineWebber Managed
Investments Trust ("Trust"), an open-end management investment company that
was formed on November 21, 1986 as a business trust under the laws of the
Commonwealth of Massachusetts. The board has authority to issue an unlimited
number 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. Each class of shares of the Fund
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 exclusively to each class,
Pros----------pect us Page 20
<PAGE>
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PaineWebber Tax-Managed Equity Fund
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 the Fund's different
classes of shares will differ.
VOTING RIGHTS
Shareholders of the Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, as a result, the holders of more than 50% of all the shares of the Trust
may elect all of the trustees of the Trust. The shares of the Fund will be
voted together except that only the shareholders of a particular class of the
Fund may vote on matters affecting only that class, such as the terms of a Plan
as it relates to the class. The shares of each series of Trust will be voted
separately except where an aggregate vote of all series is required by law.
SHAREHOLDER MEETINGS
The Fund does not hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. A meeting will be
called to vote on the removal of a trustee at the written request of holders of
10% of the Trust's outstanding shares.
REPORTS TO SHAREHOLDERS
The Fund sends its shareholders audited annual and unaudited semiannual
reports, 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
Additional Information, which is incorporated herein by reference, is available
to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Fund's custodian and recordkeeping
agent. 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.
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Prospectus Page 21
<PAGE>
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PaineWebber Tax-Managed Equity Fund
Prospectus -- October , 1998
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^PAINEWEBBER FUND OF FUNDS ^PAINEWEBBER BOND FUNDS
Mitchell Hutchins High Income Fund
Aggressive Portfolio Investment Grade Income Fund
Mitchell Hutchins Low Duration U.S. Government Income Fund
Moderate Portfolio Strategic Income Fund
Mitchell Hutchins U.S. Government Income Fund
Conservative Portfolio
^ PAINEWEBBER
ASSETALLOCATION FUNDS
^ PAINEWEBBER TAX-FREE BOND
Balanced Fund FUNDS
Tactical Allocation
Fund California Tax-Free Income Fund
Municipal High Income Fund
National Tax-Free Income Fund
^PAINEWEBBER STOCK FUNDS New York Tax-Free Income Fund
Financial Services
Growth Fund
Growth Fund
Growth and Income Fund ^PAINEWEBBER GLOBAL FUNDS
Mid Cap Fund
Small Cap Fund Asia Pacific Growth Fund
Tax-Managed Equity Fund Emerging Markets Equity Fund
S&P 500 Index Fund Global Equity Fund
Utility Income Fund Global Income Fund
^PAINEWEBBER MONEY MARKET
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) 1998 PaineWebber Incorporated
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<PAGE>
PAINEWEBBER TAX-MANAGED EQUITY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Tax-Managed Equity Fund ("Fund") is a diversified series of
PaineWebber Managed Investment Trust ("Trust"), a professionally managed,
open-end management investment company organized as a Massachusetts business
trust. The Fund's investment objective is to seek to maximize after-tax total
return by investing primarily in a diversified portfolio of equity securities
believed by Mitchell Hutchins to have the potential for above-average earnings
growth with reasonable valuation. No assurance can be given that the Fund will
be able to achieve its investment objective.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly
owned asset management subsidiary of PaineWebber Incorporated ("PaineWebber"),
serves as investment adviser, administrator and distributor for the Fund. As
distributor, Mitchell Hutchins has appointed PaineWebber as the exclusive
dealer for the sale of Fund shares.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Fund's current Prospectus, dated October ,
1998. 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 October , 1998.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Fund's investment policies and limitations. Except as otherwise
indicated in the Prospectus or Statement of Additional Information, there are
no policy limitations on the Fund's ability to use the investments or
techniques discussed in these documents.
MONEY MARKET INSTRUMENTS. Money market instruments in which the Fund may
invest include U.S. Treasury bills and other obligations issued or guaranteed
as to interest and principal by the U.S. government, its agencies and
instrumentalities; obligations of U.S. banks (including certificates of
deposit and bankers' acceptances); interest-bearing savings deposits in U.S.
commercial banks and savings associations; commercial paper and other short-
term corporate obligations; and variable and floating-rate securities and
repurchase agreements. In addition, the Fund may hold cash and may invest in
participation interests in the money market securities mentioned above without
limitation.
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 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.
Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality, and may be reduced after the Fund has
acquired the security. Mitchell Hutchins will consider such an event in
determining whether the Fund should continue to hold the security but is not
required to dispose of it. In the event that, due to a downgrade of one or
more debt securities, an amount in excess of the permitted percentage of the
Fund's net assets is held in securities rated below investment grade and
comparable unrated securities, the Fund will engage in an orderly disposition
of such securities to the extent necessary to ensure that its holdings of such
securities does not exceed that percentage.
Investment grade bonds are those rated within the four highest categories by
S&P or Moody's. Moody's fourth highest category (Baa) includes securities
that, in its opinion, have speculative features. For
<PAGE>
example, changes in economic conditions or other circumstances 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 Fund may also invest in
securities that are comparably rated by another NRSRO and in unrated
securities if they are deemed to be of comparable quality. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the volatility of a bond's value or its liquidity. There is a risk
that bonds will be downgraded by NRSROs. The NRSROs may fail to make timely
changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates.
Debt securities rated Ba or lower by Moody's, BB or lower by S&P, comparably
rated by another NRSRO or determined by Mitchell Hutchins to be of comparable
quality are below investment grade, are deemed by those agencies to be
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Lower rated debt securities generally offer a higher current yield
than that available for investment grade issues, but they involve higher
risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers and to price fluctuations in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial
stress which could adversely affect their ability to make payments of interest
and principal and increase the possibility of default. In addition, such
issuers may not have more traditional methods of financing available to them
and may be unable to repay debt at maturity by refinancing. The risk of loss
due to default by such issuers is significantly greater because such
securities frequently are unsecured and subordinated to the prior payment of
senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth generally paralleled a long economic expansion. In the
past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might
experience financial difficulties. As a result, the yields on lower rated debt
securities rose dramatically. However, such higher yields did not reflect the
value of the income stream that holders of such securities expected, but
rather the risk that holders of such securities could lose a substantial
portion of their value as a result of the issuers' financial restructuring or
defaults. There can be no assurance that such declines will not recur. The
market for lower rated debt issues generally is thinner and less active than
that for higher quality securities, which may limit 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.
RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. 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"). Generally, ADRs, in registered form, are denominated in
U.S. dollars and are designed for use in the U.S. securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. For purposes of the Fund's investment policies,
ADRs are deemed to have the same classification as the underlying securities
they represent. Thus, an ADR representing ownership of common stock will be
treated as common stock. ADRs are publicly traded on exchanges or over-the-
counter ("OTC") in the United States and are issued through "sponsored" or
"unsponsored" arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depositary's transaction
fees, whereas under an unsponsored arrangement, the foreign issuer assumes no
obligations and the depositary's transaction fees are paid directly by the ADR
holders. In addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR.
2
<PAGE>
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject.
ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and includes, among other things, purchased OTC options, repurchase
agreements maturing in more than seven days and restricted securities other
than those Mitchell Hutchins has determined are liquid pursuant to guidelines
established by the Trust's board of trustees (sometimes referred to as the
"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 option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
Restricted securities are not registered under the Securities Act of 1933
("1933 Act") and may be sold only in privately negotiated transactions or
other exempted transactions or after a 1933 Act registration statement has
become effective. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
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. A large institutional market has
developed for certain securities that are not registered under the 1933 Act.
Institutional investors generally will not seek to sell these instruments to
the general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily
resold or on an issuer's ability to honor a demand for repayment. Therefore,
the fact that there are contractual or legal restrictions on resale to the
general public or certain institutions is not dispositive of the liquidity of
such investments.
Institutional markets for restricted securities 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 Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities in the Fund's portfolio and reports periodically on such
decisions to the board.
CONVERTIBLE SECURITIES. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common
stocks of the same or similar issuers. Convertible securities rank
3
<PAGE>
senior to common stock in a corporation's capital structure but are usually
subordinated to comparable non-convertible securities.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. The value of a convertible security is
a function of its "investment value" (determined by its yield comparison with
the yields of other securities of comparable maturity and quality that do not
have a conversion privilege) and its "conversion value" (the security's worth,
at market value, if converted into the underlying common stock). The
investment value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value, and generally the conversion
value decreases as the convertible security approaches maturity. To the extent
the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into underlying common stock or sell it to a third party.
Lower rated convertible securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks,
in that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes
in the financial condition of the issuers and to price fluctuation in response
to changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress,
which could adversely affect their ability to make payments of principal and
interest (or, in the case of convertible preferred stock, dividends) and
increase the possibility of default. In addition, such issuers may not have
more traditional methods of financing available to them, and may be unable to
repay debt at maturity by refinancing. The risk of loss due to default by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
GOVERNMENT SECURITIES. Government securities in which the Fund may invest
include direct obligations of the U.S. Treasury and obligations issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities
("Government Securities"). Direct obligations of the U.S. Treasury include a
variety of securities that differ in their interest rates, maturities and
dates of issuance. Among the Government Securities that may be held by the
Fund are instruments that are supported by the full faith and credit of the
United States; instruments that are supported by the right of the issuer to
borrow from the U.S. Treasury; and instruments that are supported solely by
the credit of the agency or instrumentality.
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 or upon demand 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
4
<PAGE>
least equal to the repurchase price, plus any agreed-upon additional amount.
The difference between the total amount to be received upon repurchase of the
securities and the price that was paid by the Fund upon acquisition is accrued
as interest and included in its net investment income. Repurchase agreements
carry certain risks not associated with direct investments in securities,
including possible declines in the market value of the underlying securities
and delays and costs to the Fund if the other party to a repurchase agreement
becomes insolvent.
The Fund intends to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins to present minimal
credit risks in accordance with guidelines established by the board. Mitchell
Hutchins reviews and monitors the creditworthiness of those institutions under
the board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's net assets. Such agreements involve the sale of
securities held by the Fund subject to its agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary purposes. While a reverse repurchase agreement is
outstanding, the Fund's custodian segregates assets to cover the Fund's
obligations under the reverse repurchase agreement. See "Investment Policies
and Restrictions--Segregated Accounts."
Reverse repurchase agreements involve the risk that the buyer of the
securities sold by the Fund might be unable to deliver them when the Fund
seeks to repurchase. If the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the buyer or a trustee or
receiver may receive an extension of time to determine whether to enforce the
Fund's obligation to repurchase the securities, and the Fund's use of the
proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to lend portfolio
securities up to 33 1/3% of its total assets taken 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. The Fund
may reinvest any cash collateral in money market investments or other short-
term liquid investments. In determining whether to lend securities to a
particular broker-dealer or institutional investor, Mitchell Hutchins will
consider, and during the period of the loan will monitor, all relevant facts
and circumstances, including the creditworthiness of the borrower. The Fund
will retain authority to terminate any loans at any time. The Fund may pay
reasonable fees in connection with a loan and may pay the borrower or placing
broker a negotiated portion of the interest earned on the reinvestment of cash
held as collateral. The Fund will receive amounts equivalent to any dividends,
interest or other distributions on the securities loaned. The Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.
Pursuant to procedures adopted by the board governing the Fund's securities
lending program, PaineWebber has been retained to serve as lending agent for
the Fund. The board also has authorized the Fund to pay fees (including fees
calculated as a percentage of invested cash collateral) to PaineWebber for
these services. The board periodically reviews all portfolio securities loan
transactions for which PaineWebber acted as lending agent.
SHORT SALES "AGAINST THE BOX". The Fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To make delivery to the purchaser in a short sale, the executing broker
borrows the securities being sold short on behalf of the Fund, and the Fund is
obligated to replace the securities borrowed at a date in the future. When the
Fund sells short, it establishes a margin account with the broker effecting
the short sale, and deposits collateral with the broker. In addition, the Fund
maintains with its custodian, in a segregated account, the securities that
could be used to cover the short sale. The Fund will incur 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 that at any time during the coming year
exceed 5% of its net assets.
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The Fund might make a short sale "against the box" in order to hedge against
market risks when Mitchell Hutchins believes that the price of a security may
decline, thereby causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for a security owned by
the Fund. In such case, any loss in the Fund's long position after the short
sale should be reduced by a corresponding gain in the short position.
Conversely, any gain in the long position after the short sale should be
reduced by a corresponding 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a "when-issued" basis or may purchase or sell securities for
"delayed delivery." In when-issued or delayed delivery transactions, delivery
of the securities occurs beyond normal settlement periods, but the Fund
generally would not pay for such securities or start earning interest or
dividends on them until they are delivered. However, when the Fund purchases
securities on a when-issued or delayed delivery basis, it immediately assumes
the risks of ownership, including the risk of price fluctuation. Failure by a
counterparty to deliver a security purchased on a when-issued or delayed
delivery basis may result in a loss or missed opportunity to make an
alternative investment. Depending on market conditions, the Fund's when-issued
and delayed delivery purchase commitments could cause its net asset value per
share to be more volatile, because such securities may increase the amount by
which the Fund's total assets, including the value of when-issued and delayed
delivery securities held by the Fund, exceeds its net assets.
A security purchased on a when-issued or delayed delivery basis is recorded
as an asset on the commitment date and is subject to changes in market value,
generally based on 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 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
Mitchell Hutchins deems it advantageous to do so, which may result in capital
gain or loss to the Fund.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, such as reverse
repurchase agreements or the purchase of securities on a when-issued or
delayed delivery basis, 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 Strategies Using Derivative
Instruments," segregated accounts may also be required in connection with
certain transactions involving options and futures contracts.
FUNDAMENTAL INVESTMENT LIMITATIONS. The following fundamental investment
limitations cannot be changed for the Fund without the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of the Fund or (b) 67%
or more of the shares of the Fund present at a shareholders' meeting if more
than 50% of the outstanding shares are represented at the meeting in person or
by proxy. If a percentage restriction is adhered to at the time of an
investment or transaction, a later increase or decrease in percentage
resulting from a change in values of portfolio securities or amount of total
assets will not be considered a violation of any of the following limitations.
The Fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5% of
the Fund's total assets would be invested in securities of that issuer
or the Fund would own or hold more than 10% of the outstanding voting
securities of that issuer, except that up to 25% of the Fund's total
assets may be invested without regard to this limitation, and except
that this limitation does not apply to securities issued or guaranteed
by the U.S. government, its agencies and instrumentalities or to
securities issued by other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental limitation: Mortgage- and asset-backed securities will not
be considered to have been issued by the same issuer by reason of the
securities having the same sponsor, and mortgage- and asset-backed
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securities issued by a finance or other special purpose subsidiary that
are not guaranteed by the parent company will be considered to be
issued by a separate issuer from the parent company.
(2) purchase any security if, as a result of that purchase, 25% or more of
the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities or to
municipal securities.
(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ("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 in financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or
derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are not
fundamental and may be changed by the board without shareholder approval.
The Fund will not:
(1) invest more than 15% of its net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which it
has valued the securities and includes, among other things, repurchase
agreements maturing in more than seven days.
(2) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
(3) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Fund may
make margin deposits in connection with its use of financial options
and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.
(4) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b)
maintain short positions in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
(5) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act (and except that the Fund will not purchase
securities of registered open-end investment companies or registered
unit investment trusts in reliance on sections 12(d)(1)(F) or
12(d)(1)(G) of the 1940 Act) and except that this limitation does not
apply to securities received or acquired as dividends, through offers
of exchange, or as a result of reorganization, consolidation, or
merger.
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HEDGING STRATEGIES USING DERIVATIVE INSTRUMENTS
HEDGING INSTRUMENTS. Mitchell Hutchins may use a variety of financial
instruments ("Derivative Instruments"), including certain options, futures
contracts (sometimes referred to as "futures") and options on futures
contracts, to attempt to hedge the Fund's portfolio or to enhance returns. The
Fund may enter into transactions involving one or more types of Derivative
Instruments under which the full value of its portfolio is at risk. Under
normal circumstances, however, the Fund's use of Derivative Instruments will
place at risk a much smaller portion of its assets. In particular, the Fund
may use the Derivative Instruments described below:
OPTIONS ON EQUITY AND DEBT SECURITIES--A call option is a short-term
contract pursuant to which the purchaser of the option, in return for a
premium, has the right to buy the security underlying the option at a
specified price at any time during the term of the option or at specified
times or at the expiration of the option, depending on the type of option
involved. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right
to sell the underlying security at a specified price during the option term or
at specified times or at the expiration of the option, depending on the type
of option involved. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security at the exercise price.
OPTIONS ON SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. A securities index option operates in the same way
as a more traditional securities option, except that exercise of a securities
index option is effected with cash payment and does not involve delivery of
securities. Thus, upon exercise of a securities index option, the purchaser
will realize, and the writer will pay, an amount based on the difference
between the exercise price and the closing price of the securities index.
SECURITIES INDEX FUTURES CONTRACTS--A securities index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a specified
dollar amount times the difference between the securities index value at the
close of trading of the contract and the price at which the futures contract
is originally struck. No physical delivery of the securities comprising the
index is made. Generally, contracts are closed out prior to the expiration
date of the contract.
INTEREST RATE FUTURES CONTRACTS--Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures
contracts by their terms call for actual delivery or acceptance of debt
securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the
option, the delivery of the futures position to the holder of the option will
be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option on the future. The writer of an option, upon exercise, will assume a
short position in the case of a call and a long position in the case of a put.
GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be broadly
categorized as "short hedges" and "long hedges." A short hedge is a purchase
or sale of a Derivative Instrument intended to partially or fully offset
potential declines in the value of one or more investments held in the Fund's
portfolio. Thus, in a short hedge, the Fund takes a position in a Derivative
Instrument whose price is expected to move in the opposite direction of the
price of the investment being hedged. For example, the Fund might purchase a
put option on a security to hedge against a potential decline in the value of
that security. If the price of the security declined below the exercise price
of the put, the Fund
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could exercise the put and thus limit its loss below the exercise price to the
premium paid plus transaction costs. In the alternative, because the value of
the put option can be expected to increase as the value of the underlying
security declines, the Fund might be able to close out the put option and
realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Derivative Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge, the Fund takes a position in a Derivative Instrument whose price
is expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the
exercise price of the call, the Fund could exercise the call and thus limit
its acquisition cost to the exercise price plus the premium paid and
transaction costs. Alternatively, the Fund might be able to offset the price
increase by closing out an appreciated call option and realizing a gain.
The Fund may purchase and write (sell) straddles on securities or indices of
securities. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where the
exercise price of the put is less than or equal to the exercise price of the
call. The Fund might enter into a long straddle when Mitchell Hutchins
believes it likely that the prices of the securities will be more volatile
during the term of the option than the option pricing implies. A short
straddle is a combination of a call and a put written on the same security
where the exercise price of the put is less than or equal to the exercise
price of the call. The Fund might enter into a short straddle when Mitchell
Hutchins believes it unlikely that the prices of the securities will be as
volatile during the term of the option as the option pricing implies.
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the Fund
owns or intends to acquire. Derivative Instruments on stock indices, in
contrast, generally are used to hedge against price movements in broad equity
market sectors in which the Fund has invested or expects to invest. Derivative
Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.
The use of Derivative Instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded
and the Commodity Futures Trading Commission ("CFTC"). In addition, the Fund's
ability to use Derivative Instruments will be limited by tax considerations.
See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, Mitchell Hutchins expects to discover additional opportunities in
connection with Derivative Instruments and with hedging, income and gain
strategies. These new opportunities may become available as regulatory
authorities broaden the range of permitted transactions and as new Derivative
Instruments and other techniques are developed. Mitchell Hutchins may utilize
these opportunities to the extent that they are consistent with the Fund's
investment objective and permitted by the Fund's investment limitations and
applicable regulatory authorities. The Fund's Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Derivative Instruments
involves special considerations and risks, as described below. Risks
pertaining to particular Derivative Instruments are described in the sections
that follow.
(1) Successful use of most Derivative Instruments depends upon the ability
of Mitchell Hutchins to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. While Mitchell Hutchins
is experienced in the use of Derivative Instruments, there can be no
assurance that any particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments being hedged. For example, if
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the value of a Derivative Instrument used in a short hedge increased by
less than the decline in value of the hedged investment, the hedge would
not be fully successful. Such a lack of correlation might occur due to
factors affecting the markets in which Derivative Instruments are
traded, rather than the value of the investments being hedged.
The effectiveness of hedges using Derivative Instruments on indices will
depend on the degree of correlation between price movements in the index
and price movements in the securities being hedged. Because the Fund
invests primarily in common stocks of issuers meeting the specific
criteria described in the Prospectus, there might be a significant lack
of correlation between the portfolio and the stock indices underlying
any such Derivative Instruments used by the Fund.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements
in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if
the Fund entered into a short hedge because Mitchell Hutchins projected
a decline in the price of a security in the Fund's portfolio, and the
price of that security increased instead, the gain from that might be
wholly or partially offset by a decline in the price of the Derivative
Instrument. Moreover, if the price of the Derivative Instrument
declined by more than the increase in the price of the security, the
Fund could suffer a loss. In either such case, the Fund would have been
in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it
takes positions in Derivative Instruments involving obligations to
third parties (i.e., Derivative Instruments other than purchased
options). If the Fund were unable to close out its positions in such
Derivative Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the positions
expired or matured. These requirements might impair a Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to
close out a position in a Derivative Instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in
the absence of such a market, the ability and willingness of a contra
party to enter into a transaction closing out the position. Therefore,
there is no assurance that any hedging position can be closed out at a
time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. The Fund will not use Derivative Instruments
for speculative purposes or for purposes of leverage. Transactions using
Derivative Instruments, other than purchased options, expose the Fund to an
obligation to another party. The Fund will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, 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 Derivative Instrument is open, unless they
are replaced with similar assets. As a result, the committing of a large
portion of the Fund's assets to cover positions or to segregate accounts could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices.
The purchase of call options serves as a 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
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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 exist but are relatively new,
and these instruments are primarily traded on the OTC market. Exchange-traded
options in the United States are issued by a clearing organization affiliated
with the exchange on which the option is listed which, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and its contra party (usually a
securities dealer or a bank) with no clearing organization guarantee. Thus,
when the Fund purchases or writes an OTC option, it relies on the contra party
to make or take delivery of the underlying investment upon exercise of the
option. Failure by the contra party to do so would result in the loss of any
premium paid by the Fund as well as the loss of any expected benefit of the
transaction. The Fund will enter into OTC option transactions only with contra
parties that have a net worth of at least $20 million.
Generally, the OTC debt options used by the Fund are European-style options.
This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
The Fund's ability to establish and close out positions in exchange-traded
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears
to be a liquid secondary market. However, there can be no assurance that such
a market will exist at any particular time. Closing transactions can be made
for 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 indices in much the
same manner as the more traditional options discussed above, except the index
options may serve as a hedge against overall fluctuations in a securities
market (or market sector) rather than anticipated increases or decreases in
the value of a particular security.
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LIMITATIONS ON THE USE OF OPTIONS. The Fund's use of options is governed by
the following guidelines, which can be changed by the board without
shareholder vote:
(1) The Fund may purchase a put or call option, including any straddle or
spread, only if the value of its premium, when aggregated with the
premiums on all other options held by the Fund, does not exceed 5% of
its total assets.
(2) The aggregate value of underlying securities on which the Fund writes
covered calls will not exceed 50% of its total assets.
(3) To the extent cash or cash equivalents, including Government
Securities, are maintained in a segregated account to collateralize
options written on securities or stock indices, the Fund will limit
collateralization to 20% of its net assets.
FUTURES. The Fund may purchase and sell stock index futures contracts and
interest rate futures contracts. The Fund may also purchase put and call
options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve
as a long hedge, and the sale of futures or the purchase of put options
thereon can serve as a short hedge. Writing covered call options on futures
contracts can serve as a limited short hedge, and writing covered put options
on futures contracts can serve as a limited long hedge, using a strategy
similar to that used for writing covered options on securities or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit in a
segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash
obligations of the U.S. government or obligations fully guaranteed as to
principal and interest by the United States, in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing
a call option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
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.
12
<PAGE>
If the Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Fund would continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might
be increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The Fund's use of
futures and related options is governed by the following guidelines, which can
be changed by the board without shareholder vote:
(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 its net assets.
(2) The aggregate premiums paid on all options (including options on
securities and stock or bond indices and options on futures contracts)
purchased by the Fund that are held at any one time will not exceed 20%
of its net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any one time by the Fund will not exceed 5% of its
total assets.
13
<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The trustees and executive officers of the Trust, their ages, business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE TRUST OTHER DIRECTORSHIPS
---------------------------- ----------------- -----------------------------
<C> <C> <S>
Margo N. Alexander**; 51 Trustee and Mrs. Alexander is president,
President chief executive officer and
a director of Mitchell
Hutchins (since January
1995) and also an executive
vice president and a
director of PaineWebber
(since March 1984). Mrs.
Alexander is president and a
director or trustee of 31
investment companies for
which Mitchell Hutchins or
PaineWebber serves as
investment adviser.
Richard Q. Armstrong; 63 Trustee Mr. Armstrong is chairman and
78 West Brother Drive principal of RQA Enterprises
Greenwich, CT 06830 (management consulting firm)
(since April 1991 and prin-
cipal occupation since March
1995). He was chairman of
the board, chief executive
officer and co-owner of Adi-
rondack 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 (management
consulting firm) (December
1992-September 1993). He was
managing director of LVMH
U.S. Corporation (U.S. sub-
sidiary of the French luxury
goods conglomerate, Louis
Vuitton Moet Hennessey Cor-
poration) (1987-1991) and
chairman of its wine and
spirits subsidiary,
Schieffelin & Somerset Com-
pany (1987-1991). Mr. Arm-
strong is a director or
trustee of 30 investment
companies for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
E. Garrett Bewkes, Jr.**; 71 Trustee and Mr. Bewkes is a director of
Chairman of the Paine Webber Group Inc. ("PW
Board of Trustees Group") (holding company of
PaineWebber and Mitchell
Hutchins). Prior to December
1995, he was a consultant to
PW Group. Prior to 1988, he
was chairman of the board,
president and chief execu-
tive officer of American
Bakeries Company. Mr. Bewkes
is also a director of Inter-
state Bakeries Corporation
and NaPro BioTherapeutics,
Inc. Mr. Bewkes is a direc-
tor or trustee of 31 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
POSITION
WITH THE BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE TRUST OTHER DIRECTORSHIPS
---------------------------- -------- --------------------------------------
<C> <C> <S>
Richard R. Burt; 51 Trustee Mr. Burt is chairman of IEP Advisors,
1275 Pennsylvania Ave., N.W. Inc. (international investments and
Washington, D.C. 20004 consulting firm) (since March 1994)
and a partner of McKinsey & Company
(management consulting firm) (since
1991). He is also a director of Ar-
cher-Daniels-Midland Co. (agricul-
tural commodities), Hollinger Inter-
national Co. (publishing), Homestake
Mining Corp., Powerhouse Technologies
Inc. and Wierton Steel Corp. He was
the chief negotiator in the Strategic
Arms Reduction Talks with the former
Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of
Germany (1985-1989). Mr. Burt is a
director of trustee of 30 investment
companies for which Mitchell Hutchins
or Paine Webber serves as investment
adviser.
Mary C. Farrell**; 48 Trustee Ms. Farrell is a managing director,
senior investment strategist, and
member of the Investment Policy Com-
mittee of PaineWebber. Ms. Farrell
joined PaineWebber in 1982. She is a
member of the Financial Women's Asso-
ciation and Women's Economic Round-
table and appears as a regular panel-
ist 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 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Man- agement of the Graduate School
101 Uris Hall of Busi- ness, Columbia University.
New York, New York 10027 Prior to 1989, he was president of
the Illinois Institute of Technology.
Dean Feldberg is also a director of
Primedia Inc., Federated Department
Stores Inc., and Revlon, Inc. Dean
Feldberg is a director or trustee of
30 investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
George W. Gowen; 68 Trustee Mr. Gowen is a partner in the law firm
666 Third Avenue of Dunnington, Bartholow & Miller.
New York, New York 10017 Prior to May 1994, he was a partner
in the law firm of Fryer, Ross & Gow-
en. Mr. Gowen is also a director of
Columbia Real Estate Investments,
Inc. Mr. Gowen is a director or
trustee of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment ad-
viser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION
WITH THE BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE TRUST OTHER DIRECTORSHIPS
------------------------------ -------- ------------------------------------
<C> <C> <S>
Frederic V. Malek; 61 Trustee Mr. Malek is chairman of Thayer Cap-
1455 Pennsylvania Avenue, N.W. ital Partners (merchant bank). From
Suite 350 January 1992 to November 1992, he
Washington, D.C. 20004 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 em-
ployed by the Marriott Corporation
(hotels, restaurants, airline ca-
tering 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 Ameri-
can Management Systems, Inc. (man-
agement consulting and computer-re-
lated services), Automatic Data
Processing, Inc., CB Commercial
Group, Inc. (real estate services),
Choice Hotels International (hotel
and hotel franchising), FPL Group,
Inc. (electric services), Manor
Care, Inc. (health care) and North-
west Airlines Inc. Mr. Malek is a
director or trustee of 30 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Carl W. Schafer; 62 Trustee Mr. Schafer is president of the At-
66 Witherspoon Street lantic Foundation (charitable foun-
#1100 dation supporting mainly oceano-
Princeton, N.J. 08542 graphic exploration and research).
He is a director of Base Ten Sys-
tems, Inc. (software), Roadway Ex-
press, Inc. (trucking), The Guard-
ian Group of Mutual Funds, the
Hording, Loevner Funds, Evans Sys-
tems, Inc. (a motor fuels, conve-
nience store and diversified compa-
ny), Electronic Clearing House,
Inc. (financial transactions
processing), Frontier Oil Corpora-
tion and Nutraceutix Inc. (biotech-
nology). Prior to January 1993, Mr.
Schafer was chairman of the Invest-
ment Advisory Committee of the How-
ard Hughes Medical Institute.
Mr. Schafer is a director or
trustee of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE TRUST OTHER DIRECTORSHIPS
------------------------- ------------------- ------------------------------
<C> <C> <S>
John J. Lee; 29 Vice President and Mr. Lee is a vice president
Assistant Treasurer and manager of the mutual
fund finance department of
Mitchell Hutchins. Prior to
September 1997, he was an au-
dit manager in the financial
services practice of Ernst &
Young LLP. Mr. Lee is a vice
president and assistant trea-
surer of 30 investment compa-
nies for which Mitchell
Hutchins or PaineWebber
serves as investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president
Assistant Treasurer and a manager of the mutual
fund finance department of
Mitchell Hutchins. Ms. Moran
is a vice president and as-
sistant treasurer of 31 in-
vestment companies for which
Mitchell Hutchins and or
PaineWebber serves as invest-
ment adviser.
Dianne E. O'Donnell; 46 Vice President and Ms. O'Donnell is a senior vice
Secretary president and deputy general
counsel of Mitchell Hutchins.
Ms. O'Donnell is a vice pres-
ident and secretary of 30 in-
vestment companies and vice
president and assistant sec-
retary of one investment com-
pany for which Mitchell
Hutchins or PaineWebber
serves as investment adviser.
Emil Polito; 37 Vice President Mr. Polito is a senior vice
president and director of op-
erations and control for
Mitchell Hutchins. From March
1991 to September 1993, he
was director of the mutual
funds sales support and serv-
ice center for Mitchell
Hutchins and PaineWebber. Mr.
Polito is also vice president
of 31 investment companies
for which Mitchell Hutchins
or PaineWebber serves as in-
vestment adviser.
Victoria E. Schonfeld; 47 Vice President Ms. Schonfeld is a managing
director and general counsel
of Mitchell Hutchins. Prior
to May 1994, she was a part-
ner in the law firm of Arnold
& Porter. Ms. Schonfeld is a
vice president of 30 invest-
ment companies and a vice
president and secretary of
one investment company for
which Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
Paul H. Schubert; 35 Vice President and Mr. Schubert is a senior vice
Treasurer president and director of the
mutual fund finance depart-
ment of Mitchell Hutchins.
From August 1992 to August
1994, he was a vice president
at BlackRock Financial Man-
agement Inc. Mr. Schubert is
a vice president and trea-
surer of 31 investment compa-
nies for which Mitchell
Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE TRUST OTHER DIRECTORSHIPS
-------------------------- ------------------- -----------------------------
<C> <C> <S>
Barney A. Taglialatela; 37 Vice President and Mr. Taglialatela is a vice
Assistant Treasurer president and a manager of
the mutual fund finance de-
partment of Mitchell
Hutchins. Prior to February
1995, he was a manager of
the mutual fund finance di-
vision of Kidder Peabody As-
set Management, Inc. Mr.
Taglialatela is a vice pres-
ident and assistant trea-
surer of 31 investment com-
panies for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing di-
rector and chief investment
officer--equity investments
of Mitchell Hutchins. Prior
to March 1995, he was a vice
president and directed the
U.S. funds management and
equity research areas of
Chase Manhattan Private
Bank. Mr. Tincher is a vice
president of 13 investment
companies for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice
Assistant Secretary president and associate gen-
eral counsel of Mitchell
Hutchins. Prior to May 1995,
he was an attorney in pri-
vate practice. Mr. Weller is
a vice president and assis-
tant secretary of 30 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment 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
Trust as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber, and/or PW Group.
The Trust pays trustees who are not "interested persons" of the Trust $1,000
annually for each series. The Trust presently has seven series and thus pays
such trustees $7,000 annually. For each series, the Trust pays $150 for each
board meeting and separate meeting of the board committee (other than
committee meetings held on the same day as the board meeting). In addition,
the Trust pays any additional amounts due for board or committee meetings.
Each chairman of the audit and contract review committees of individual funds
within the PaineWebber fund complex receives additional compensation
aggregating $15,000 annually. All board members are reimbursed for any
expenses incurred in attending meetings. Because PaineWebber and Mitchell
Hutchins perform substantially all of the services necessary for the operation
of the Trust and the Fund, the Trust requires no employees. No officer,
director or employee of Mitchell Hutchins or PaineWebber presently receives
any compensation from the Trust for acting as a board member or officer.
18
<PAGE>
The table below includes certain information relating to the compensation of
the Trust's current trustees who held office with the Trust or with other
PaineWebber funds during the fiscal year indicated.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
ESTIMATED COMPENSATION
AGGREGATE FROM THE
COMPENSATION FUND AND
FROM THE THE FUND
NAME OF PERSON, POSITION FUND COMPLEX(1)
- ------------------------ ------------ ------------
<S> <C> <C>
Richard Q. Armstrong, Trustee......................... $1,750 $ 94,885
Richard R. Burt, Trustee.............................. $1,750 $ 87,085
Meyer Feldberg, Trustee............................... $1,750 $117,853
George W. Gowen, Trustee.............................. $2,205 $101,567
Frederic V. Malek, Trustee............................ $1,750 $ 95,845
Carl W. Schafer, Trustee.............................. $1,750 $ 94,885
</TABLE>
- --------
Only independent members of the board are compensated by the Trust and
identified above; trustees who are "interested persons," as defined by the
1940 Act, do not receive compensation.
(1) Represents total compensation paid to each Director during the calendar
year ended December 31, 1997; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September , 1998, Mitchell Hutchins owned of record 100% of the
outstanding Shares, and none of the Directors and officers of the Fund
beneficially owned any of the outstanding Shares.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the Fund pursuant to an advisory contract
("Advisory Contract") with the Trust. Under the Advisory Contract, the Fund
pays Mitchell Hutchins a fee, computed daily and paid monthly, at the annual
rate of 1.00% of the Fund's average daily net assets, computed daily and paid
monthly. PaineWebber provides transfer agency related services to the Fund
pursuant to a delegation of authority from PFPC Inc. and is compensated for
those services by PFPC Inc., not the Fund.
Under the terms of the Advisory Contract, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to trustees and officers who are not interested
persons (as defined in the 1940 Act) of the Fund or Mitchell Hutchins; (6) all
expenses incurred in connection with the trustees' services, including travel
expenses; (7) taxes (including any income or franchise taxes) and governmental
fees; (8) costs of any liability, uncollectible items of deposit and other
insurance or fidelity bonds; (9) any costs, expenses or losses arising out of
a liability of or claim for damages or other relief asserted against the Trust
or Fund for violation of any law; (10) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent
trustees; (11) charges of custodians, transfer agents and other agents; (12)
costs of preparing share certificates; (13) expenses of setting in type and
printing prospectuses, 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
19
<PAGE>
incurred in connection with membership in investment company organizations;
(16) costs of mailing and tabulating proxies and costs of meetings of
shareholders, the board and any committees thereof; (17) the cost of
investment company literature and other publications provided to trustees and
officers; and (18) costs of mailing, stationery and communications equipment.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the contracts, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the board 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.
NET ASSETS. The following table shows the approximate net assets as of
August 31, 1998, sorted by category of investment objective, of the investment
companies for which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
INVESTMENT CATEGORY NET ASSETS
------------------- ----------
($ MIL)
<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.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of each
class of shares of the Fund under a distribution contract with the Trust
("Distribution Contract") 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 an exclusive dealer
agreement between Mitchell Hutchins and PaineWebber relating to each class of
shares ("Exclusive Dealer Agreement"), PaineWebber and its correspondent firms
sell the Fund's shares.
Under a plan 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
for each class, except that the Class A Plans for the Fund provides that the
service fee paid with respect to shares sold prior to December 2, 1988 ("Old
Shares") is paid at the annual rate of 0.15% of the Fund's net assets
represented by such Old Shares. Shares acquired through new purchases,
reinvestment of dividends and other distributions and exchanges on/or after
December 2, 1988 are not considered "Old Shares" for this purpose. Under the
Class B Plan and the Class C Plan, the Fund also pays Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of
0.75% of the average daily net
20
<PAGE>
assets of the Class B shares and Class C shares, respectively. There is no
distribution plan with respect to the Fund's Class Y shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the trustees will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (2) the Plan will continue in effect only so long as
it is approved at least annually, and any material amendment thereto is
approved, by the board, including those trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan, acting in
person at a meeting called for that purpose, (3) payments by the Fund under
the Plan shall not be materially increased without the affirmative vote of the
holders of a majority of the outstanding shares of the relevant class of the
Fund, and (4) while the Plan remains in effect, the selection and nomination
of trustees who are not "interested persons" of the Trust shall be committed
to the discretion of the trustees who are not "interested persons" of the
Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins allocates expenses attributable to the sale of each class of 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,
the board considered several factors, including that implementation of
Flexible Pricing would (1) enable investors to choose the purchasing option
best suited to their individual situation, thereby encouraging current
shareholders to make additional investments in the Fund and attracting new
investors and assets to the Fund to the benefit of the Fund and its
shareholders, (2) facilitate distribution of the Fund's shares and (3)
maintain the competitive position of the Fund in relation to other funds that
have implemented or are seeking to implement similar distribution
arrangements.
In approving the Class A Plan, the board considered all the features of the
distribution system, including (1) the conditions under which initial sales
charges would be imposed and the amount of such charges, (2) Mitchell
Hutchins' belief that the initial sales charge combined with a service fee
would be attractive to PaineWebber 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
21
<PAGE>
firms, resulting in greater growth of the Fund than might otherwise be the
case, (4) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (5) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (6)
the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (7) Mitchell Hutchins' shareholder
service- and distribution-related expenses and costs. The trustees also
recognized that Mitchell Hutchins' willingness to compensate PaineWebber and
its 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 Fund purchase payments and instead having
the entire amount of an investor's 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 trustees also recognized that Mitchell Hutchins' willingness to
compensate PaineWebber and its investment executives without the concomitant
receipt by Mitchell Hutchins of initial sales charges or contingent deferred
sales charges upon redemption, was conditioned upon its expectation of being
compensated under the Class C Plan.
With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The board also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that
Mitchell Hutchins would receive service, distribution and advisory fees which
are calculated based upon a percentage of the average net assets of the Fund,
which fees would increase if the Plan were successful and the Fund attained
and maintained significant asset levels.
Under the Distribution Contract for the Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell
Hutchins earned the following approximate amounts of sales charges and
retained the following approximate amounts, net of concessions to PaineWebber
as exclusive dealer.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board, Mitchell Hutchins is
responsible for the execution of the Fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
Mitchell Hutchins seeks to obtain the best net results for the Fund, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved. While Mitchell Hutchins 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 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 PaineWebber and any of its
affiliates that is a member of a national security 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 PaineWebber, 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 its
board, Mitchell Hutchins may cause the Fund to purchase and sell portfolio
securities from and to dealers or through brokers who provide the Fund with
research, analysis, advice and similar services. In return for such services,
the Fund may pay to those brokers a higher commission than may be charged by
other brokers, provided that Mitchell Hutchins determines in good faith that
such commission is reasonable in terms either of that particular transaction
or of the overall responsibility of Mitchell Hutchins to the Fund and its
other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term.
For purchases or sales with broker-dealer firms which act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight were
attributed to the services provided by the executing dealer. Moreover,
Mitchell Hutchins will not enter into any explicit soft dollar arrangements
relating to principal transactions and will not receive in principal
transactions the types of services which could be purchased for hard dollars.
Mitchell Hutchins 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 Mitchell Hutchins 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 effect securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts and, conversely,
information and research services furnished to Mitchell Hutchins 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 Mitchell Hutchins under the Advisory Contracts.
Investment decisions for the Fund and for other investment accounts managed
by Mitchell Hutchins are made independently of each other in light of
differing considerations for the various accounts. However, the same
investment decision may occasionally be made for the Fund and one or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated between the
Fund and such other account(s) as to amount according to a formula deemed
equitable to the Fund and such account(s). While in some cases this practice
could have a detrimental effect upon the price or value of the security as far
as the Fund is concerned, or upon 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 the board
23
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pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the spread or commission paid in connection with such
a purchase be reasonable and fair, the purchase be at not more than the public
offering price prior to the end of the first business day after the date of
the public offering and that PaineWebber or any affiliate thereof not
participate in or benefit from the sale to the Fund.
PORTFOLIO TURNOVER. The Fund will be managed to minimize portfolio turnover.
The Fund's annual portfolio turnover rates may vary from year to year, but
they will not be a prohibitive 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 such individual(s);
(e) an individual (or eligible group of individuals) and a trust created by
the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's
spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer
controlling, controlled by or under common control with another
employer is deemed related to that other employer); or
(h) an individual's 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.
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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 Fund reserves
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Fund and valued in the same way as they would
be valued for purposes of computing the Fund's net asset value. Any such
redemption in kind will be made with readily marketable securities, to the
extent available. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for one
shareholder. This election is irrevocable unless the SEC permits its
withdrawal. The Fund may suspend redemption privileges or postpone the date of
payment during any period (1) when the New York Stock Exchange ("NYSE") is
closed or trading on the NYSE is restricted as determined by the SEC, (2) when
an emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its assets or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of the Fund's portfolio at the time.
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 under the Plan, the
investor will purchase more shares when the Fund's net asset value per share
is low and fewer shares when the net asset value per share is high. Using this
technique, an investor's average purchase price per share over any given
period will be lower than if the investor purchased a fixed number of shares
on a monthly basis during the period. Of course, investing through the
automatic investment plan does not assure a profit or protect against loss in
declining markets. Additionally, because the automatic investment plan
involves continuous investing regardless of price levels, an investor should
consider his or her financial ability to continue purchases through periods of
both high and 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 Fund shares concurrent with withdrawals
are ordinarily disadvantageous to shareholders because of tax liabilities and,
for Class A shares, initial sales charges. On or about the 20th of each month
for monthly, quarterly, semiannual or 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, a shareholder's
investment
25
<PAGE>
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 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
26
<PAGE>
shares when the price is lower and fewer shares when the price is higher,
thereby increasing his or her earning potential. Of course, dollar cost
averaging does not guarantee a profit or protect against a loss in a declining
market, and an investor should consider his or her financial ability to
continue investing through periods of both high and low share prices. However,
over time, dollar cost averaging generally results in a lower average original
investment cost than if an investor invested a larger dollar amount in a
mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the Plan,
an investor must have opened an RMA account with PaineWebber or one of its
correspondent firms. The RMA account is PaineWebber's comprehensive asset
management account and offers investors a number of features, including the
following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard (R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the six RMA money market funds--RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA New Jersey Municipal Money Fund and RMA New York
Municipal Money Fund. 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 $100 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 each class, as
of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of 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 to Class A shares, Class B shares purchased through the
reinvestment of dividends and other distributions paid in respect
27
<PAGE>
of Class B shares will be held in a separate sub-account. Each time any Class
B shares in the shareholder's regular account (other than those in the sub-
account) convert to Class A shares, a pro rata portion of the Class B shares
in the sub-account will also convert to Class A shares. The portion will be
determined by the ratio that the shareholder's Class B shares converting to
Class A shares bears to the shareholder's total Class B shares not acquired
through dividends and other distributions.
The availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and
other distributions paid on Class A and Class B shares will not result in
"preferential dividends" under the Internal Revenue Code and the conversion of
shares will not constitute a taxable event. If the conversion feature ceased
to be available, the Class B shares would not be converted and would continue
to be subject to the higher ongoing expenses of the Class B shares beyond six
years from the date of purchase. Mitchell Hutchins has no reason to believe
that this condition for the availability of the conversion feature will not be
met.
VALUATION OF SHARES
The Fund determines their net asset values per share separately for each
class of shares as of the close of regular trading (generally 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, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Securities that are listed on U.S. stock exchanges are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in
the OTC market and listed on The Nasdaq Stock Market ("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.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are
not intended to indicate future performance. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated
according to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. In calculating the ending redeemable value, for Class A shares,
the maximum 4.5% sales charge is deducted from the initial $1,000 payment and,
for Class B and Class C shares, the applicable contingent deferred sales
charge
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<PAGE>
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 Standard & Poor's 600 Small-Cap Index, the Standard & Poor's 400 Mid-Cap
Index, the Dow Jones Industrial Average ("DJIA"), the Nasdaq Composite Index,
the Russell 2000 Index, the Russell 1000 Index (including Value and Growth
sub-indexes), the Wilshire 5000 Index, the Lehman Bond Index, 30-year and 10-
year U.S. Treasury bonds, the Morgan Stanley Capital International World Index
and changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper, CDA, Wiesenberger, ICD or Morningstar. Performance
Advertisements also may refer to discussions of the Fund and comparative
mutual fund data and ratings reported in independent periodicals, including
THE WALL STREET JOURNAL, MONEY MAGAZINE, SMART MONEY, MUTUAL FUNDS, FORBES,
BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE
CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the Fund investment are
reinvested in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original
Fund investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase
more quickly than if dividends or other distributions had been paid in cash.
The Fund may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs
of major banks published by Banxquote(R) Money Markets. In comparing the
Fund's performance to CD performance, investors should keep in mind that bank
CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that bank
CD yields may vary depending on the financial institution offering the CD and
prevailing interest rates. Shares of the Fund are not insured or guaranteed by
the U.S. government and returns and net asset value will fluctuate. The debt
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.
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<PAGE>
The Fund may also compare their performance to general trends in the stock
and bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
[GRAPHICS -- CAMERA READY CHART]
The chart is shown for illustrative purposes only and does not represent the
Fund's performance. These returns consist of income and capital appreciation
(or depreciation) and should not be considered an indication or guarantee of
future investment results. Year-to-year fluctuations in certain markets have
been significant and negative returns have been experienced in certain markets
from time to time. Small cap stocks are represented by an index of the ninth
and tenth decile of the New York Stock Exchange (NYSE) plus stocks listed on
the American Stock Exchange (AMEX) and the over-the-counter (OTC) with the
same or less capitalization as the upper bound of the NYSE ninth decile.
Common stocks are measured by the S&P 500, an unmanaged weighted index
comprising 500 widely held common stocks and varying in composition. Unlike
investors in bonds and U.S. Treasury bills, common stock investors do not
receive fixed income payments and are not entitled to repayment of principal.
These differences contribute to investment risk. Returns shown for long-term
government bonds are based on U.S. Treasury bonds with 20-year maturities.
Inflation is measured by the Consumer Price Index. The indices are unmanaged
and are not available for investment.
- --------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM) Ibbotson Assoc.,
Chi., (annual updates work by Roger C. Ibbotson & Rex A. Sinquefield).
Over time, small cap and large cap stocks have outperformed all other
investments by a wide margin, offering a solid hedge against inflation. From
1925 to 1997, stocks beat all other traditional asset classes.
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TAXES
To qualify for treatment as a regulated investment company ("RIC") under the
Internal Revenue Code, the Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income and net short-term capital gain)
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition
of securities, or other income (including gains from options or futures)
derived with respect to its business of investing in securities ("Income
Requirement"); (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and
cash items, U.S. government securities, securities of other RICs and other
securities, 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 (3) at the close of each quarter of the Fund's taxable year,
not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer.
Dividends and other distributions declared by the Fund in December and
payable to shareholders of record on a date in that month will be deemed to
have been paid by the Fund and received by the shareholders on December 31
even if the distributions are paid by the Fund during the following January.
Accordingly, those distributions will be taxed to shareholders for the year in
which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or additional shares) may be eligible for the dividends-
received deduction allowed to corporations. The eligible portion may not
exceed the aggregate dividends received by the Fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
federal alternative minimum tax.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received 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 investor will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs") if such stock is a permissible investment. A PFIC is a foreign
corporation--other than a "controlled foreign corporation" (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of its voting stock or the total value of all of its stock
is owned, directly, indirectly, or constructively, by "U.S. shareholders,"
defined as U.S. persons that individually own, directly, indirectly, or
constructively, at least 10% of that voting power) as to which a Fund is a
shareholder--that, in general, meets either of the following tests: (1) at
least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, the Fund will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain from disposition of such stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included
in the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
31
<PAGE>
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
probably would 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.
The Fund may elect to "mark to market" its stock in any PFIC. "Marking-to-
market," in this context, means including in ordinary income each taxable year
the excess, if any, of the fair market value of the stock over the Fund's
adjusted basis therein as of the end of that year. Pursuant to the election,
the Fund also would be allowed to deduct (as an ordinary, not capital, loss)
the excess, if any, of its adjusted basis in PFIC stock over the fair market
value thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included in income by the Fund
for prior taxable years. The Fund's adjusted basis in each PFIC's stock
subject to election would be adjusted to reflect the amounts of income
included and deductions taken thereunder.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the
gains and losses the Fund realizes in connection therewith. Gains from options
and futures derived by the Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
If the Fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures contract or short sale) with
respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis--and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract or a futures contract entered into by the Fund or a related
person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such
a contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale. The foregoing will not apply,
however, to any transaction during any taxable year that otherwise would be
treated as a constructive sale if the transaction is closed within 30 days
after the end of that year and the Fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that
60-day period is the Fund's risk of loss with respect to that position reduced
by reason of certain specified transactions with respect to substantially
similar or related property, such as having an option to sell, being
contractually obligated to sell, making a short sale, or granting an option to
buy substantially identical stock or securities).
OTHER INFORMATION
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 Fund. However, the Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust or the Fund and requires that
notice of such disclaimer be given in each note, bond, contract, instrument,
certificate or undertaking made or issued by the trustees or by any officers
or officer by or on behalf of the Trust or Fund, the trustees or any of them
in connection with the Trust. The Declaration of Trust provides for
indemnification from the Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations, a possibility that Mitchell Hutchins believes is
remote and not material. Upon payment of any liability incurred by a
shareholder solely by reason of being or having been a shareholder, the
shareholder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The trustees intend to conduct
32
<PAGE>
the operations of the Fund in such a way as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to service and distribution fees) to the specific
classes of its shares to which those expenses are attributable. For example,
Class B shares and Class C shares bear higher transfer agency fees per
shareholder account than those borne by Class A shares or Class Y shares. The
higher fee is imposed due to the higher costs incurred by the Transfer Agent
in tracking shares subject to a contingent deferred sales charge because, upon
redemption, the duration of the shareholder's investment must be determined 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.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for its most recent fiscal year is
a separate document supplied with this Statement of Additional Information,
and the financial statements, accompanying notes and report of independent
auditors appearing therein are incorporated herein by this reference.
33
<PAGE>
APPENDIX
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
"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. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the higher rated
issues only in small degree; A. An obligation rated A is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still strong;
BBB. An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such debt will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions; BB. An
obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation; BB. An
obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation;
A-1
<PAGE>
B. An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation; CCC. An obligation rated CCC is
currently vulnerable to nonpayment and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitments on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation; CC. An obligation rated CC is
currently highly vulnerable to nonpayment; C. The C rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued; D. An
obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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.
A-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 FUND OR ITS DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information...................................... 1
Investment Policies and Restrictions..................................... 1
Hedging Strategies Using Derivative Instruments.......................... 8
Trustees and Officers; Principal Holders of Securities................... 14
Investment Advisory and Distribution Arrangements........................ 19
Portfolio Transactions................................................... 22
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 24
Conversion of Class B Shares............................................. 27
Valuation of Shares...................................................... 28
Performance Information.................................................. 28
Taxes.................................................................... 31
Other Information........................................................ 32
Financial Statements..................................................... 33
Appendix................................................................. A-1
</TABLE>
(C) 1998 PaineWebber Incorporated
PAINEWEBBER TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
October , 1998
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits
--------
(1) (a) Amended and Restated Declaration of Trust/1/
(b) Amendment to Declaration of Trust effective April 8, 1998
(filed herewith)
(c) Amendment to Declaration of Trust effective July 9, 1998
(filed herewith)
(2) Restated By-Laws/1/
(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest/2/
(4) (a) Investment Advisory and Administration Contract/1/
(b) Investment Advisory Fee Agreement with respect to
PaineWebber Utility Income Fund/1/
(c) Investment Advisory Fee Agreement with respect to
PaineWebber Low Duration U.S. Government Income Fund/1/
(d) Investment Advisory Fee Agreement with respect to
PaineWebber Asia Pacific Growth Fund/3/
(e) Form of Investment Advisory Fee Agreement with respect to
PaineWebber Tax-Managed Equity Fund (filed herewith)
(f) Sub-Investment Advisory Contract with respect to
PaineWebber Low Duration U.S. Government Income Fund/4/
(g) Sub-Advisory Contract with respect to PaineWebber Asia
Pacific Growth Fund/3/
(5) (a) Distribution Contract with respect to Class A Shares/1/
(b) Distribution Contract with respect to Class B Shares/1/
(c) Distribution Contract with respect to Class C Shares/5/
(d) Distribution Contract with respect to Class Y Shares/5/
(e) Exclusive Dealer Agreement with respect to Class A
Shares/1/
(f) Exclusive Dealer Agreement with respect to Class B
Shares/1/
(g) Exclusive Dealer Agreement with respect to Class C
Shares/5/
(h) Exclusive Dealer Agreement with respect to Class Y
Shares/5/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement/1/
(8) Transfer Agency Agreement/8/
(9) Opinion and consent of counsel (filed herewith)
(10) Auditor's Consent (not applicable)
(11) Financial statements omitted from prospectus - none
(12) Letter of investment intent/1/
(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares/1/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares/1/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C Shares/1/
C-1
<PAGE>
(d) Distribution Fee Addendum with respect to Class C shares of
PaineWebber Low Duration U.S. Government Income Fund/1/
(e) Distribution Fee Addendum with respect to Class C shares of
PaineWebber Asia Pacific Growth Fund/6/
(f) Form of Distribution Fee Addendum with respect to Class C
shares of PaineWebber Tax-Managed Equity Fund (filed
herewith)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3/7/
_________________
/1/ Incorporated by reference from Post-Effective Amendment No. 52 to the
Registration Statement, SEC File No. 2-91362, filed February 27, 1998.
/2/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Amended and Restated Declaration of Trust and from Articles
II, VII and X of Registrant's Restated By-Laws.
/3/ Incorporated by reference from Post Effective Amendment No. 50 to the
registration statement, SEC File No. 2-91362, filed July 7, 1997.
/4/ Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, SEC File No. 2-91362, filed March 31, 1995.
/5/ Incorporated by reference from Post-Effective Amendment No. 39 to the
registration statement, SEC File No. 2-91362, filed February 14, 1996.
/6/ Incorporated by reference from Post-Effective Amendment No. 46 to the
registration statement, SEC File No. 2-91362, filed October 4, 1996.
/7/ Incorporated by reference from Post-Effective Amendment No. 43 to the
registration statement, SEC File No. 2-91362, filed July 31, 1996.
/8/ Incorporated by referenced from Post-Effective Amendment No. 53, SEC File
No. 2-91362, filed March 31, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. 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.
C-2
<PAGE>
Additionally, "Limitation of Liability" in Article X of the Declaration of
Trust provides that the trustees or officers of the Registrant shall not be
personally liable to any person extending credit to, contracting with, or having
a claim against, the Trust; and that, provided they have exercised reasonable
care and have acted under the reasonable belief that their actions are in the
best interest of the Registrant, the trustees and officers shall not be liable
for neglect or wrongdoing by them or any officer, agent, employee or investment
adviser of the Registrant.
Section 2 of Article XI of the Declaration of Trust additionally provides
that, subject to the provisions of Section 1 of Article XI and to Article X, the
trustees shall not be liable for errors of judgment or mistakes of fact or law,
or for any act or omission in accordance with advice of counsel or other
experts, or failing to follow such advice, with respect to the meaning and
operation of the Declaration of Trust.
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 ("Advisory
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 Advisory 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 Advisory Contract. The sub-
advisory contracts with respect to PaineWebber Low Duration U.S. Government
Income Fund and PaineWebber Asia Pacific Growth Fund contain similar provisions
with respect to those sub-advisers. Section 10 of the Advisory Contract
provides that the trustees shall not be liable for any obligations of the Trust
under the Advisory 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 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 10 of each Distribution Contract contains provisions similar to
that of Section 10 of the Investment Advisory and Administration Contract, with
respect to Mitchell Hutchins and PaineWebber, as appropriate.
C-3
<PAGE>
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 26. 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 ADV, as
filed with the Securities and Exchange Commission (registration number 801-
13219), and is incorporated herein by reference.
Pacific Investment Management Company ("PIMCO") serves as sub-adviser for
PaineWebber Low Duration U.S. Government Income Fund. PIMCO, a Delaware general
partnership, is a registered investment adviser and a subsidiary partnership of
PIMCO Advisors L.P. ("PIMCO Advisors"). The general partners of PIMCO Advisors
are PIMCO Advisors Holding L.P., a publicly traded company listed on the New
York Stock Exchange under the symbol "PA" and PIMCO Partners, G.P., a a general
partnership between Pacific Life Insurance Company and PIMCO Partners, LLC., a
limited liability company controlled by the PIMCO managing directors. PIMCO is
primarily engaged in the investment advisory business. Information as to the
officers and managing directors and partners of PIMCO is included in its Form
ADV, as filed with the Securities and Exchange Commission (registration number
801-48187) and is incorporated herein by reference.
Schroder Capital Management International Inc. ("Schroder Capital") serves
as investment sub-adviser for PaineWebber Asia Pacific Growth Fund. Schroder
Capital, a New York corporation, is a registered investment adviser and a wholly
owned subsidiary of Schroders Incorporated, the wholly owned U.S. holding
company subsidiary of Schroders plc. Schroder Capital is primarily engaged in
the investment advisory business. Information as to the officers and directors
of Schroder Capital is included on its Form ADV, as filed with the Securities
and Exchange Commission (registration number 801-15834), and is incorporated
herein by reference.
Item 27. 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.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
C-4
<PAGE>
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
(b) Mitchell Hutchins is the 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. Unless otherwise indicated, the
principal business address of each person named is 1285 Avenue of the Americas,
New York, NY 10019.
<TABLE>
<CAPTION>
Position and Offices with
Name Position With Registrant Underwriter or Exclusive Dealer
- ----------------------------------- ------------------------------------- ------------------------------------------
<S> <C> <C>
Margo N. Alexander President and Trustee Director, President and Chief Executive
Officer of Mitchell Hutchins and
Executive Vice President of PaineWebber
Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and member of Investment
Policy Committee of PaineWebber
Julianna Berry Vice President Vice President and a Portfolio Manager of
Mitchell Hutchins
Karen L. Finkel Vice President First Vice President and a Portfolio
Manager of Mitchell Hutchins
James F. Keegan Vice President Senior Vice President and a Portfolio
Manager of Mitchell Hutchins
Thomas J. Libassi Vice President Senior Vice President and a Portfolio
Manager of Mitchell Hutchins
John J. Lee Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
Dennis McCauley Vice President Managing Director and Chief Investment
Officer - Fixed Income of Mitchell
Hutchins
Ann E. Moran Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Position and Offices with
Name Position With Registrant Underwriter or Exclusive Dealer
- ----------------------------------- ------------------------------------- ------------------------------------------
<S> <C> <C>
Dianne E. O'Donnell Vice President and Secretary Senior Vice President and Deputy General
Counsel of Mitchell Hutchins
Emil Polito Vice President Senior Vice President and Director of
Operations and Control of Mitchell
Hutchins
Victoria E. Schonfeld Vice President Managing Director and General Counsel of
Mitchell Hutchins
Paul H. Schubert Vice President and Treasurer First Vice President and Director of the
Mutual Fund Finance Department of
Mitchell Hutchins
Nirmal Singh Vice President First Vice President and a Portfolio
Manager of Mitchell Hutchins
Barney A. Taglialatela Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
Mark A. Tincher Vice President Managing Director and Chief Investment
Officer - U.S. Equity Investments of
Mitchell Hutchins
Craig M. Varrelman Vice President First Vice President and a Portfolio
Manager of Mitchell Hutchins
Keith A. Weller Vice President and Assistant First Vice President and Associate
Secretary General Counsel of Mitchell Hutchins
</TABLE>
(c) None.
Item 28. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of 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 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
None.
C-6
<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 16th day of July, 1998.
PAINEWEBBER MANAGED INVESTMENTS TRUST
By: /s/ Dianne E. O'Donnell
---------------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ----------------------------------- --------------------------
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee July 16, 1998
- --------------------------- (Chief Executive Officer)
Margo N. Alexander *
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman July 16, 1998
- --------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr. *
/s/ Richard Q. Armstrong Trustee July 16, 1998
- ---------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee July 16, 1998
- ---------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee July 16, 1998
- ---------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee July 16, 1998
- ---------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee July 16, 1998
- ---------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee July 16, 1998
- ---------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee July 16, 1998
- ---------------------------
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and Treasurer (Chief July 16, 1998
- --------------------------- Financial and Accounting Officer)
Paul H. Schubert
</TABLE>
<PAGE>
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
-------------
<TABLE>
<CAPTION>
Exhibit
Number
---------
<S> <C>
(1) (a) Amended and Restated Declaration of Trust/1/
(b) Amendment to Declaration of Trust effective April 8, 1998
(filed herewith)
(c) Amendment to Declaration of Trust effective July 9, 1998
(filed herewith)
(2) Restated By-Laws/1/
(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest/2/
(4) (a) Investment Advisory and Administration Contract/1/
(b) Investment Advisory Fee Agreement with respect to
PaineWebber Utility Income Fund/1/
(c) Investment Advisory Fee Agreement with respect to
PaineWebber Low Duration U.S. Government Income Fund/1/
(d) Investment Advisory Fee Agreement with respect to
PaineWebber Asia Pacific Growth Fund/3/
(e) Form of Investment Advisory Fee Agreement with respect to
PaineWebber Tax-Managed Equity Fund (filed herewith)
(f) Sub-Investment Advisory Contract with respect to
PaineWebber Low Duration U.S. Government Income Fund/4/
(g) Sub-Advisory Contract with respect to PaineWebber Asia
Pacific Growth Fund/3/
(5) (a) Distribution Contract with respect to Class A Shares/1/
(b) Distribution Contract with respect to Class B Shares/1/
(c) Distribution Contract with respect to Class C Shares/5/
(d) Distribution Contract with respect to Class Y Shares/5/
(e) Exclusive Dealer Agreement with respect to Class A
Shares/1/
(f) Exclusive Dealer Agreement with respect to Class B
Shares/1/
(g) Exclusive Dealer Agreement with respect to Class C
Shares/5/
(h) Exclusive Dealer Agreement with respect to Class Y
Shares/5/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement/1/
(8) Transfer Agency Agreement/8/
(9) Opinion and consent of counsel (filed herewith)
(10) Auditor's Consent (not applicable)
(11) Financial statements omitted from prospectus - none
(12) Letter of investment intent/1/
(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A Shares/1/
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
---------
<S> <C>
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares/1/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
C Shares/1/
(d) Distribution Fee Addendum with respect to Class C shares of
PaineWebber Low Duration U.S. Government Income Fund/1/
(e) Distribution Fee Addendum with respect to Class C shares of
PaineWebber Asia Pacific Growth Fund/6/
(f) Form of Distribution Fee Addendum with respect to Class C
shares of PaineWebber Tax-Managed Equity Fund (filed
herewith)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3/7/
</TABLE>
_________________
/1/ Incorporated by reference from Post-Effective Amendment No. 52 to the
Registration Statement, SEC File No. 2-91362, filed February 27, 1998.
/2/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Amended and Restated Declaration of Trust and from Articles
II, VII and X of Registrant's Restated By-Laws.
/3/ Incorporated by reference from Post Effective Amendment No. 50 to the
registration statement, SEC File No. 2-91362, filed July 7, 1997.
/4/ Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, SEC File No. 2-91362, filed March 31, 1995.
/5/ Incorporated by reference from Post-Effective Amendment No. 39 to the
registration statement, SEC File No. 2-91362, filed February 14, 1996.
/6/ Incorporated by reference from Post-Effective Amendment No. 46 to the
registration statement, SEC File No. 2-91362, filed October 4, 1996.
/7/ Incorporated by reference from Post-Effective Amendment No. 43 to the
registration statement, SEC File No. 2-91362, filed July 31, 1996.
/8/ Incorporated by referenced from Post-Effective Amendment No. 53, SEC File
No. 2-91362, filed March 31, 1998.
2
<PAGE>
Exhibit No. 1(b)
PAINEWEBBER MANAGED INVESTMENTS 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 at a meeting held on April 8, 1998, that
the resolutions became effective on that date and that the Amended and Restated
Schedule A attached to this certificate is a true copy of the Amended and
Restated Schedule A to the Trust's Declaration of Trust that was approved by the
board of trustees at its April 8, 1998 meeting:
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 International Fund; and be it further
RESOLVED, that an unlimited number of shares of beneficial interest of the
PaineWebber International Fund be, and they hereby are, established as
Class A shares; and be it further
RESOLVED, that an unlimited number of shares of beneficial interest of the
PaineWebber International Fund be, and they hereby are, established as
Class B shares; and be it further
RESOLVED, that an unlimited number of shares of beneficial interest of the
PaineWebber International Fund be, and they hereby are, established as
Class C shares; and be it further
RESOLVED, that an unlimited number of shares of beneficial interest of the
PaineWebber International Fund be, and they hereby are, established 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 International Fund represent interests in the
assets of only that Series and shall have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of shares, except as
provided in the Trust's Declaration of Trust and as set forth in Schedule A
with respect to the conversion of Class B shares into Class A shares; and
be it further
<PAGE>
RESOLVED, that Schedule A of the Trust's Declaration of Trust be, and it
hereby is, amended and restated to reflect the addition of this new Series
of the Trust and the four classes of shares established for such new
Series.
Dated: June 4, 1998
By: /s/ Dianne E. O'Donnell
------------------------------------
Dianne E. O'Donnell
Vice President and Secretary
PaineWebber Managed Investments Trust
District of Columbia (ss)
Subscribed and sworn before me this 4th day of June, 1998.
/s/Loretto E. Gaiser
- -----------------------------------
Notary Public
<PAGE>
SCHEDULE A
(AS AMENDED AND RESTATED APRIL 8, 1998)
Series of the Trust
- -------------------
PaineWebber Asia Pacific Growth Fund
PaineWebber High Income Fund
PaineWebber International Fund
PaineWebber Investment Grade Income Fund
PaineWebber Low Duration U.S. Government Income Fund
PaineWebber U.S. Government Income Fund
PaineWebber Utility Income Fund
Classes of Shares of Each Series
- --------------------------------
An unlimited number of shares of beneficial interest have been established by
the Board as Class A shares, Class B shares, Class C shares and Class Y shares
of each of the above Series. Each of the Class A shares, Class B shares, Class
C shares and Class Y shares of a Series represents interests in the assets of
only that Series and has the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of shares, except as provided in the Trust's
Declaration of Trust and as set forth below with respect to the Class B shares
of each Series:
1. Each Class B share, other than a share purchased through the
reinvestment of a dividend or a distribution with respect to the Class
B share, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares of the
same Series, based on the relative net asset value of each such class
at the time of the calculation of the net asset value of such class of
shares on the date that is the first Business Day (as defined in the
Series' prospectus and/or statement of additional information) of the
month in which the sixth anniversary of the issuance of such Class B
shares occurs (which, for the purpose of calculating the holding period
required for conversion, shall mean (i) the date on which the issuance
of such Class B shares occurred or (ii) for Class B shares obtained
through an exchange, the date on which the issuance of the Class B
shares of an eligible PaineWebber fund occurred, if such shares were
exchanged directly, or through a series of exchanges for the Series'
Class B shares (the "Conversion Date")).
2. Each Class B share purchased through the reinvestment of a dividend or
a distribution with respect to the Class B shares and the dividends and
distributions on such shares shall be segregated in a separate sub-
account on the stock records of the Series for each of the holders of
record thereof. On any Conversion Date, a number of the shares held in
the sub-account of the holder of record of the share or shares being
converted, calculated in accordance with the next following sentence,
shall be
<PAGE>
converted automatically, and without any action or choice on the part
of the holder thereof, into Class A shares of the same Series. The
number of shares in the holder's sub-account so converted shall bear
the same relation to the total number of shares maintained in the sub-
account on the Conversion Date as the number of shares of the holder
converted on the Conversion Date pursuant to Paragraph 2(a) hereof
bears to the total number of Class B shares of the holder on the
Conversion Date not purchased through the automatic reinvestment of
dividends or distributions with respect to the Class B shares.
3. The number of Class A shares into which a Class B share is converted
pursuant to paragraphs 1 and 2 hereof shall equal the number (including
for this purpose fractions of a share) obtained by dividing the net
asset value per share of the Class B shares for purposes of sales and
redemptions thereof at the time of the calculation of the net asset
value on the Conversion Date by the net asset value per share of the
Class A shares for purposes of sales and redemptions thereof at the
time of the calculation of the net asset value on the Conversion Date.
4. On the Conversion Date, the Class B shares converted into Class A
shares will cease to accrue dividends and will no longer be outstanding
and the rights of the holders thereof will cease (except the right to
receive declared but unpaid dividends to the Conversion Date).
For purposes of Paragraph 1 above, the term "eligible PaineWebber fund" includes
any and all mutual funds for which PaineWebber Incorporated or Mitchell Hutchins
Asset Management Inc. serves as investment adviser that offer shares with a
contingent deferred sales charge imposed upon certain redemptions of such shares
and that are exchangeable with the Class B shares of the Series.
2
<PAGE>
Exhibit No. 1(c)
PAINEWEBBER MANAGED INVESTMENTS 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 at a meeting held on July 9, 1998, that
the resolutions became effective on that date and that the Amended and Restated
Schedule A attached to this certificate is a true copy of the Amended and
Restated Schedule A to the Trust's Declaration of Trust that was approved by the
board of trustees at its July 9, 1998 meeting:
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 Tax-Managed Growth Fund ("Fund"); and be it further
RESOLVED, that an unlimited number of shares of beneficial interest of the
Fund be, and they hereby are, established as Class A shares; and be it
further
RESOLVED, that an unlimited number of shares of beneficial interest of the
Fund be, and they hereby are, established as Class B shares; and be it
further
RESOLVED, that an unlimited number of shares of beneficial interest of the
Fund be, and they hereby are, established as Class C shares; and be it
further
RESOLVED, that an unlimited number of shares of beneficial interest of the
Fund be, and they hereby are, established 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 Fund represent interests in the assets of only that Series
and shall have the same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms
and conditions of redemption of shares, except as provided in the Trust's
Declaration of Trust and as set forth in Schedule A with respect to the
conversion of Class B shares into Class A shares; and be it further
RESOLVED, that Schedule A of the Trust's Declaration of Trust be, and it
hereby is, amended and restated to reflect the addition of this new Series
of the Trust and the four classes of shares established for such new
Series.
Dated: July 14, 1998 By: /s/ Dianne E. O'Donnell
--------------------------------------
Dianne E. O'Donnell
Vice President and Secretary
PaineWebber Managed Investments Trust
Subscribed and sworn before me this 14th day of July, 1998.
/s/ Evelyn Chieffo
- -----------------------------------
Notary Public
<PAGE>
SCHEDULE A
(AS AMENDED AND RESTATED JULY 9, 1998)
Series of the Trust
- -------------------
PaineWebber Asia Pacific Growth Fund
PaineWebber High Income Fund
PaineWebber International Fund
PaineWebber Investment Grade Income Fund
PaineWebber Low Duration U.S. Government Income Fund
PaineWebber Tax-Managed Growth Fund
PaineWebber U.S. Government Income Fund
PaineWebber Utility Income Fund
Classes of Shares of Each Series
- --------------------------------
An unlimited number of shares of beneficial interest have been established by
the Board as Class A shares, Class B shares, Class C shares and Class Y shares
of each of the above Series. Each of the Class A shares, Class B shares, Class
C shares and Class Y shares of a Series represents interests in the assets of
only that Series and has the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of shares, except as provided in the Trust's
Declaration of Trust and as set forth below with respect to the Class B shares
of each Series:
1. Each Class B share, other than a share purchased through the
reinvestment of a dividend or a distribution with respect to the Class
B share, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares of the
same Series, based on the relative net asset value of each such class
at the time of the calculation of the net asset value of such class of
shares on the date that is the first Business Day (as defined in the
Series' prospectus and/or statement of additional information) of the
month in which the sixth anniversary of the issuance of such Class B
shares occurs (which, for the purpose of calculating the holding period
required for conversion, shall mean (i) the date on which the issuance
of such Class B shares occurred or (ii) for Class B shares obtained
through an exchange, the date on which the issuance of the Class B
shares of an eligible PaineWebber fund occurred, if such shares were
exchanged directly, or through a series of exchanges for the Series'
Class B shares (the "Conversion Date")).
2. Each Class B share purchased through the reinvestment of a dividend or
a distribution with respect to the Class B shares and the dividends and
distributions on such shares shall be segregated in a separate sub-
account on the stock records of the Series for each of the holders of
record thereof. On any Conversion Date, a number of the shares held in
the sub-account of the holder of record of the share or shares being
<PAGE>
converted, calculated in accordance with the next following sentence,
shall be converted automatically, and without any action or choice on
the part of the holder thereof, into Class A shares of the same Series.
The number of shares in the holder's sub-account so converted shall
bear the same relation to the total number of shares maintained in the
sub-account on the Conversion Date as the number of shares of the
holder converted on the Conversion Date pursuant to Paragraph 2(a)
hereof bears to the total number of Class B shares of the holder on the
Conversion Date not purchased through the automatic reinvestment of
dividends or distributions with respect to the Class B shares.
3. The number of Class A shares into which a Class B share is converted
pursuant to paragraphs 1 and 2 hereof shall equal the number (including
for this purpose fractions of a share) obtained by dividing the net
asset value per share of the Class B shares for purposes of sales and
redemptions thereof at the time of the calculation of the net asset
value on the Conversion Date by the net asset value per share of the
Class A shares for purposes of sales and redemptions thereof at the
time of the calculation of the net asset value on the Conversion Date.
4. On the Conversion Date, the Class B shares converted into Class A
shares will cease to accrue dividends and will no longer be outstanding
and the rights of the holders thereof will cease (except the right to
receive declared but unpaid dividends to the Conversion Date).
For purposes of Paragraph 1 above, the term "eligible PaineWebber fund" includes
any and all mutual funds for which PaineWebber Incorporated or Mitchell Hutchins
Asset Management Inc. serves as investment adviser that offer shares with a
contingent deferred sales charge imposed upon certain redemptions of such shares
and that are exchangeable with the Class B shares of the Series.
2
<PAGE>
Exhibit No. 4(e)
FORM OF INVESTMENT ADVISORY AND ADMINISTRATION FEE AGREEMENT
------------------------------------------------------------
Agreement made as of ___________________, 1998, between PAINEWEBBER MANAGED
INVESTMENTS TRUST, a Massachusetts business trust ("Trust"), on behalf of
PaineWebber Tax-Managed Equity 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 1.00% 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 Tax-Managed Equity Fund
By:________________________________________________
Name: Dianne E. O'Donnell
Title: Secretary and Vice President
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By:________________________________________________
Name:
Title:
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2/ND/ FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
FACSIMILE 202-778-9100
WWW.KL.COM
July 20, 1998
PaineWebber Managed Investments Trust
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion, as counsel to PaineWebber Managed Investments
Trust ("Trust"), as to certain matters regarding the issuance of certain Shares
of the Trust. As used in this letter, the term "Shares" means the Class A,
Class B, Class C and Class Y shares of beneficial interest of the series of the
Trust listed below during the time that Post-Effective Amendment No. 54 to the
Trust's Registration Statement on Form N-1A ("PEA") is effective and has not
been superseded by another post-effective amendment. This series of the Trust
is PaineWebber Tax-Managed Growth Fund. We understand that the name of the
series is to be changed to PaineWebber Tax-Managed Equity Fund.
As such counsel, we have examined certified or other copies, believed by us to
be genuine, of the Trust's Declaration of Trust and by-laws and such resolutions
and minutes of meetings of the Trust's Board of Trustees as we have deemed
relevant to our opinion, as set forth herein. Our opinion is limited to the laws
and facts in existence on the date hereof, and it is further limited to the laws
(other than the conflict of law rules) in the Commonwealth of Massachusetts that
in our experience are normally applicable to the issuance of shares by
unincorporated voluntary associations and to the Securities Act of 1933 ("1933
Act"), the Investment Company Act of 1940 ("1940 Act") and the regulations of
the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the Shares
has been duly authorized by the Trust and that, when sold in accordance with the
terms contemplated by the PEA, including receipt by the Trust of full payment
for the Shares and compliance with the 1933 Act and the 1940 Act, the Shares
will have been validly issued, fully paid and non-assessable.
We note, however, that 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 shall look only to the assets of
the Trust for 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: (1) for
indemnification from the assets of the Trust or the appropriate series for all
loss and expense of any shareholder held personally liable for the obligations
of the
<PAGE>
PaineWebber Managed Investments Trust
July 20, 1998
Page 2
Trust or any series by virtue of ownership of shares of the Trust or such
series; and (2) for the Trust or appropriate series to assume the defense of any
claim against the shareholder for any act or obligation of the Trust or 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 this opinion accompanying the PEA when it is filed with
the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
<PAGE>
Exhibit No. 13(f)
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 PaineWebber Tax-Managed Equity 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.
<PAGE>
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 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: ________________, 1998
PAINEWEBBER MANAGED INVESTMENTS TRUST
Attest:
By:_____________________________ By:________________________________
Name: Name:
Title: Title:
