<PAGE>
As filed with the Securities and Exchange Commission on August 21, 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. 56 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 49
(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 International 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 International Equity Fund
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No. and Caption Prospectus Caption
--------------------------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis The Fund at a Glance; Expense Table
3. Condensed Financial 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 Not applicable
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
--------------------------- -------------------------------------------
<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; 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
19. Purchase, Redemption and Pricing of Securities Reduced Sales Charges, Additional Exchange and Redemption
Being Offered Information and Other Services; Valuation of Shares
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. and Caption Statement of Additional Information Caption
--------------------------- -------------------------------------------
<S> <C>
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 International Equity Fund
1285 Avenue of the Americas, New York, New York 10019
Prospectus -- 1998
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PaineWebber International Equity Fund is designed for investors who seek long-
term growth of capital by investing primarily in equity securities of foreign
companies. The Fund is newly organized and has no operating history.
This Prospectus concisely sets forth information that a prospective investor
should know about the Fund before investing. Please read this Prospectus
carefully and retain a copy for future reference.
A Statement of Additional Information, dated , 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
obtained without charge, and further inquiries can be made, by contacting the
Fund, your investment executive at PaineWebber or one of its correspondent
firms or by calling toll-free 1-800-647-1568. In addition, the Commission
maintains a website (http://www.sec.gov) that contains the Statement of
Additional Information, 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 GLOBAL
category.
. MONEY MARKET FUND for . STOCK FUNDS for long-term growth by investing
income and stability by mainly in stocks.
investing in high-quality,
short-term investments. . GLOBAL FUNDS for long-term growth by investing
mainly in foreign stocks or high current income
. BOND FUNDS for income by by investing mainly in global debt instruments.
investing mainly in bonds.
. FUND OF FUNDS for either long-term growth of
. TAX-FREE BOND FUNDS for capital; total return; or income and,
income exempt from federal secondarily, growth of capital by investing in
income tax and, in some other PaineWebber mutual funds.
cases, state and local
income taxes, by investing
in municipal bonds.
. ASSET ALLOCATION FUNDS for
high total return by
investing in stocks and
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. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE FUND OR ITS DISTRIBU-
TOR 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 International Equity Fund
Table of Contents
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Page
----
The Fund at a Glance....................................................... 3
Expense Table.............................................................. 5
Investment Objective & Policies............................................ 7
Investment Philosophy & Process............................................ 7
Performance................................................................ 7
The Fund's Investments..................................................... 8
Flexible PricingSM......................................................... 12
How to Buy Shares.......................................................... 15
How to Sell Shares......................................................... 17
Other Services............................................................. 17
Management................................................................. 18
Determining the Shares' Net Asset Value.................................... 20
Dividends & Taxes.......................................................... 20
General Information........................................................ 22
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Prospectus Page 2
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PaineWebber International Equity Fund
The Fund at a Glance
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The Fund offered by this Prospectus is not intended to provide a complete or
balanced investment program, but may be appropriate as a component of an
investor's overall portfolio. Some common reasons to invest in the 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.
INTERNATIONAL FUND
GOAL: To increase the value of your investment by investing primarily in equity
securities of foreign companies.
INVESTMENT OBJECTIVE: Long-term growth of capital.
WHO SHOULD INVEST: The Fund is for investors who want long-term capital
appreciation and can withstand market volatility. Accordingly, the Fund is
designed for investors seeking long term growth who are able to bear risks that
are not normally associated with investments in the United States and that come
with investments in equity securities of foreign companies. Investors must be
willing to tolerate greater fluctuations in the value of the Fund's investment.
The Fund may be appropriate as a longer-term component of an investor's overall
portfolio, but it is not intended to provide current income.
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 International Fund. Mitchell Hutchins
has appointed Invista Capital Management Inc. ("Invista") as the Fund's
investment sub-adviser.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors need
only $100.
RISKS
The Fund invests primarily in equity securities. Historically, equity
securities have shown greater growth potential than other types of securities,
but they also have shown greater volatility. The Fund invests in foreign equity
securities, including emerging market securities. Investors in the Fund should
be able to assume the special risks of investing in these securities. These
include possible adverse political, social and economic developments abroad and
differing characteristics of foreign economies and markets. These risks are
greater with respect to securities of issuers located in emerging markets. Most
of the Fund's foreign securities are denominated in foreign currencies, and the
value of these investments can be adversely affected by fluctuations in foreign
currency values. Foreign currency values and security prices in some countries
recently have been highly volatile, and recent currency devaluations in some
foreign countries have resulted in high interest rate levels and sharp
reductions in economic activity. The Fund may also invest in bonds, which are
subject to interest rate 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 and share price. Credit risk is the risk that an issuer may
be unable or unwilling to pay interest and principal. The Fund may use
derivatives, such as options, futures and forward currency contracts and swap
agreements, all of which may involve additional risks. The Fund's share price
will rise and fall, and investors may lose money by investing in the Fund.
Investment in the Fund is not guaranteed.
HOW TO PURCHASE SHARES OF THE FUND
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.
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Prospectus Page 3
<PAGE>
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PaineWebber International Equity Fund
The Fund at a Glance
(Continued)
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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 sales charge is
called a "contingent deferred sales charge" and applies when investors sell
their Class B shares within six years after purchase. After six years, Class B
shares convert to Class A shares, which have lower ongoing expenses and no
contingent deferred sales charge.
CLASS C SHARES
The price is 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. See "How to Buy
Shares." 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 International Equity Fund
Expense Table
- --------------------------------------------------------------------------------
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" shown below represent those
estimated for the first year of operations.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
SHAREHOLDER TRANSACTION EXPENSES ------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares
(as a % of offering price) 4.5% 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................................ 0.62 0.62 0.62 0.62
---- ---- ---- ----
Total Operating Expenses...................... 1.87% 2.62% 2.62% 1.62%
==== ==== ==== ====
</TABLE>
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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 a shareholder sells these shares within
one year after purchase, a contingent deferred sales charge of 1% of the
offering price or the net asset value of the shares at the time of sale by
the shareholder, whichever is less, is imposed.
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 by the
shareholder, 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 an 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 Programs
participants also are permitted to purchase Class Y Shares.
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Prospectus Page 5
<PAGE>
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PaineWebber International Equity Fund
Expense Table
(Continued)
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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......................... 0.00 0.75 0.75 None
</TABLE>
For more information, see "Management" and "Flexible Pricing SM."
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example should assist investors in understanding various costs
and expenses they would incur as shareholders of the Fund. The assumed 5%
annual return shown in the examples is required by regulations of the SEC
applicable to all mutual funds. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES OF A FUND MAY BE MORE OR
LESS THAN THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in a Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A ......................................................... $63 $ 98
Class B (Assuming sale of all shares at end of period)........... $76 $108
Class B (Assuming no sale of shares)............................. $26 $ 78
Class C (Assuming sale of all shares at end of period)........... $36 $ 78
Class C (Assuming no sale of shares)............................. $26 $ 78
Class Y.......................................................... $16 $ 48
</TABLE>
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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 sale, which declines over a period of six
years. Ten-year figures assume that Class B shares convert to Class A
shares at the end of the sixth year.
. 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 International Equity Fund
Investment Objective & Policies
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The Fund's investment objective is long-term growth of capital. The Fund's
investment objective may not be changed without shareholder approval. Except
where noted, the Fund's other investment policies are not fundamental and may
be changed by its board.
The Fund invests at least 65% of its assets, under normal circumstances, in
equity securities of companies domiciled outside the U.S. Except under unusual
conditions, the Fund invests in a minimum of three foreign countries. The Fund
may invest anywhere in the world, but primarily will consider investing in
countries of the Morgan Stanley Capital International Europe, Australia, and
Far East Index ("MSCI EAFE Index"). The MSCI EAFE Index is a well-known index
that reflects common stocks of companies in major foreign equity markets. The
Fund may also invest in companies located outside the countries of the MSCI
EAFE Index, including investments in companies located in emerging markets.
Invista chooses equity securities of foreign companies by paying close
attention to long-term earnings prospects and the relationship of then-current
prices to such prospects.
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Investment Philosophy & Process
- --------------------------------------------------------------------------------
Invista will make qualitative analysis of a company's fundamental business
prospects and then analyzes the long-term ability of the company to generate
free cash flow. Invista will consider factors such as competitive position,
market share, competitive strengths, industry supply and demand trends,
economic conditions, balance sheet strength, earnings, book value, return on
equity, revenue growth and margin development in analyzing the quality of the
target company. Invista will also make a quantitative assessment of country
risk, which it considers in assessing the companies under analysis, and will
analyze a large universe of companies to determine the most appropriate
investments for the Fund. Invista may make changes in the Fund's investments as
opportunities or prospects change for particular countries, industries, or
corporations.
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Performance
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The Fund has no operating history. The Fund will perform a standardized
computation of annualized total return and may show this return in
advertisements or promotional materials. Standardized return shows the change
in value of an investment in a Fund as a steady compound annual rate of return.
Actual year-by-year returns fluctuate and may be higher or lower than
standardized return. Standardized returns for Class A shares of the Fund
reflect deduction of the Funds' 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,
known as "Life." Total return calculations assume reinvestment of dividends and
other distributions.
The Fund may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for
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Prospectus Page 7
<PAGE>
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PaineWebber International Equity Fund
standardized return and may include cumulative returns, average annual rates,
actual year-by-year rates or any combination thereof. Non-standardized returns
do 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
- --------------------------------------------------------------------------------
EQUITY SECURITIES include common stocks, most preferred stocks and securities
that are convertible into them, including common stock purchase warrants and
rights, equity interests in trusts, partnerships, joint ventures or similar
enterprises and depository receipts. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation.
Preferred stock has certain fixed income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, that may be converted into
or exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula.
Depository receipts typically are issued by banks or trust companies and
evidence ownership of underlying equity securities.
BONDS are fixed or variable rate debt obligations, including notes, debentures,
and similar instruments and securities. Mortgage- and asset-backed securities
are types of bonds, and income-producing, non-convertible preferred stocks may
be treated as bonds for investment purposes. Bonds are used by corporations and
governments to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and normally must repay the amount borrowed
on or before maturity. Bonds have varying degrees of investment risk and
varying levels of sensitivity to changes in interest rates.
RISKS
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities, and reflect changes in a company's financial condition and in
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that the Fund may experience a
substantial or complete loss on an individual equity investment.
BONDS. Bonds 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 bonds. Credit risk is the risk
that an issuer may be unable or unwilling to pay interest and principal on the
bond. In addition, there is a risk that bonds will be downgraded by rating
agencies, which can be expected to lower value and liquidity. The Fund will
limit its investments in bonds to investment grade obligations, which are rated
by a ratings agency in its top four rating categories or considered by Invista
to be of comparable quality. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the volatility of the
security's value or its liquidity and do not guarantee the performance of the
issuer. Rating agencies 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.
CURRENCY. Currency risk is the risk that changes in foreign exchange rates may
reduce the U.S. dollar value of the Fund's foreign investments. The Fund's
share value may change significantly when investments are denominated in
foreign currencies. Generally, currency exchange rates are determined by supply
and demand in the foreign exchange markets and the relative merits of
investments in different countries. Currency exchange rates can also be
affected by the intervention of the U.S. and foreign governments or central
banks, the imposition of currency controls, speculation or other political or
economic developments inside and outside the United States.
CURRENCY-LINKED INVESTMENTS. The Fund may invest in securities that are indexed
to specific foreign
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Prospectus Page 8
<PAGE>
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PaineWebber International Equity Fund
currency exchange rates. The principal amount of these securities may be
adjusted up or down (but not below zero) at maturity to reflect changes in the
exchange rate between two currencies. The Fund may experience loss of principal
due to these adjustments.
FOREIGN INVESTING. Investing in foreign securities involves more risks than
investing in the United States. 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. Investments in foreign countries could be affected by other
factors not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations. Transactions in foreign
securities may be subject to less efficient settlement practices, including
extended clearance and settlement periods.
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. Foreign securities markets may be less liquid and subject to less
regulation than the U.S. securities markets. The costs of investing outside the
United States frequently are higher than those in the United States. These
costs include relatively higher brokerage commissions and foreign custody
expenses.
Investments in foreign government bonds involve special risks. The issuer of
the bond or the governmental authorities that control the repayment of the bond
may be unable or unwilling to pay interest or repay principal when due in
accordance with the terms of the bond, and the Fund may have limited legal
recourse in the event of default. Political conditions, especially a sovereign
entity's willingness to meet the terms of its debt obligations, are of
considerable significance.
INVESTING IN EMERGING MARKETS. Investing in securities issued by companies
located in emerging markets involves additional risks. These countries
typically have economic and political systems that are relatively less mature,
and can be expected to be less stable, than those of developed countries.
Emerging market countries may have policies that restrict investment by
foreigners in those countries, and there is a risk of government expropriation
or nationalization of private property. The possibility of low or nonexistent
trading volume in the securities of companies in emerging markets may also
result in a lack of liquidity and in price volatility. Issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities that are
rated investment grade by a ratings agency or considered by Invista to be of
comparable quality. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest or dividends until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock because they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. While no securities investment is
without some risk, investments in convertible securities generally entail less
risk than the issuer's common stock. However, the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
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, forward currency contracts,
swap agreements and similar instruments. There is limited consensus as to what
constitutes a "derivative" security. However, in Mitchell Hutchins' and
Invista's view, derivative securities also include "stripped" securities and
dollar denominated securities whose value is linked to foreign
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Prospectus Page 9
<PAGE>
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PaineWebber International Equity Fund
currencies. 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. Invista 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 and
Invista, subject to the supervision of the Fund's board, monitor and evaluate
the creditworthiness of the parties with which each Fund does business.
YEAR 2000 RISKS. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by its investment adviser, sub-adviser and 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 major service providers. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
OTHER INVESTMENT TECHNIQUES AND STRATEGIES
STRATEGIES USING DERIVATIVE INSTRUMENTS. The Fund may use certain instruments
and strategies designed to adjust the overall risk of its investment portfolio
("hedge") or to enhance income or realize gains. Use of derivative instruments
solely to enhance income or realize gains may be considered a form of
speculation. These strategies involve derivative instruments, including options
(both exchange traded and over-the-counter), futures contracts and forward
currency contracts. New financial products and risk management techniques
continue to be developed, and they may be used by the Fund if consistent with
its investment objective and policies. The Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations. In addition, in some countries there may not be a market for
derivative instruments, or it may be too small to permit effective hedging. The
Statement of Additional Information contains further information on these
derivative instruments and related strategies.
The Fund might not use any derivative instruments or strategies, and there can
be no assurance that using any strategy will succeed. If Invista is incorrect
in its judgment on market values, interest rates or other economic factors in
using a derivative instrument or 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 derivative instruments are different
from those needed to select securities for the Fund;
. the possibility of imperfect correlation, or even no correlation, between
price movements of derivative instruments used in hedging strategies and
price movements of the securities or currencies being hedged;
. possible constraints placed on the Fund's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Fund to
maintain "cover" or to segregate securities; and
. the possibility that the Fund is unable to close out or liquidate its hedged
position.
REPURCHASE AGREEMENTS. The Fund may use repurchase agreements. Repurchase
agreements are transactions in which the Fund purchases obligations from a bank
or securities dealer (or its affiliate) and simultaneously commits to resell
the obligations to that counterparty at an agreed-upon date or upon demand and
at a price reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities. Repurchase agreements carry certain risks
not associated with direct investments in securities, including a possible
decline in the market value of the underlying obligations. Repurchase
agreements involving obligations other than U.S. government securities (such as
commercial paper and corporate bonds) may be subject to special risks and may
not have the benefit of certain protections in the event of the counterparty's
insolvency. If the seller or guarantor becomes insolvent, the Fund may suffer
delays, costs and possible losses in connection with the disposition of the
collateral. The Fund intends to enter into repurchase agreements only with
counterparties in transactions believed by Mitchell Hutchins or Invista to
present minimum credit risks in accordance with guidelines established by the
board.
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Prospectus Page 10
<PAGE>
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PaineWebber International Equity Fund
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to the percentages specified
below under "Other Information." Such agreements involve the sale of securities
held by the Fund subject to its agreement to repurchase the securities at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest. Such agreements are considered to be borrowings and may be entered
into only for temporary or emergency purposes.
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, i.e., for issuance or delivery to the Fund later than the normal
settlement date for such securities at a stated price and yield. The Fund
generally would not pay for such securities or start earning interest on them
until they are received. However, when the Fund undertakes a when-issued or
delayed-delivery obligation, it immediately assumes the risks of ownership,
including the risks of price fluctuation. Failure of the issuer to deliver a
security purchased by the Fund on a when-issued or delayed-delivery basis may
result in that Fund's incurring or missing an 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 that Fund, exceeds its net assets.
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's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Invista deems portfolio
changes appropriate. A higher turnover rate (100% or more) for the Fund will
involve correspondingly greater transaction costs, which will be borne directly
by the Fund, and may increase the potential for short-term capital gains.
TEMPORARY AND DEFENSIVE POSITIONS. When Invista believes that unusual
circumstances warrant a defensive posture, the Fund may temporarily commit all
or any portion of its assets to cash (U.S. dollars or foreign currencies) or
investment grade money market instruments of U.S. or foreign issuers, including
repurchase agreements. The Fund also may commit up to 35% of its total assets
to cash (U.S. dollars or foreign currencies) or investment grade money market
instruments, including repurchase agreements, of U.S. or foreign issuers for
liquidity purposes, pending investment in other securities or to reinvest cash
collateral from securities lending.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities including certain cover for over-the-counter options and
securities whose disposition is restricted under the federal securities laws
other than those Mitchell Hutchins, or Invista, as applicable, has determined
to be liquid pursuant to guidelines established by the Fund's board. To the
extent that securities are freely tradeable in the country in which they are
principally traded, they are not considered illiquid even if they are not
freely tradeable in the United States. The Fund may invest in restricted
securities that are eligible for resale to qualified institutional buyers
pursuant to SEC Rule 144A, but a Fund will not consider those securities to be
illiquid if Mitchell Hutchins or Invista determines them to be liquid in
accordance with procedures approved by the Fund's board. The lack of the liquid
secondary market for illiquid securities may make it more difficult for the
Fund to assign a value to those securities for purposes of valuing its
portfolio and calculating its net asset value.
OTHER INFORMATION. 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 involving up to 5% of its net assets. However, the Fund
will not purchase portfolio securities while borrowings (including reverse
repurchase agreements) in excess of 5% of the value of its total assets are
outstanding. The Fund may sell securities short "against the box." When a
security is sold against the box, the seller owns the security. In addition,
the Fund may invest up to 10% of its total assets in the securities of other
investment companies. To the extent the Fund invests in other investment
companies, its shareholders incur duplicative fees and expenses, including
investment advisory fees.
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Prospectus Page 11
<PAGE>
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PaineWebber International Equity Fund
- --------------------------------------------------------------------------------
Flexible Pricing/SM/
- --------------------------------------------------------------------------------
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 the ongoing expenses 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
NET AMOUNT DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE 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. 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 withdraw annually no 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 & 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 in either case, please refer to the charts above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. any company controlled by the investor;
. trusts created by the investor;
. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of 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;
. is the spouse, parent or child of any of the above;
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Prospectus Page 12
<PAGE>
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PaineWebber International Equity Fund
. 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 amount of plan assets, 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 also 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.
. acquires Class A shares in connection with the disposition of proceeds from
the sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that fund's initial public offering of shares and that meet certain
other conditions described in its prospectus.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568. 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
- --------------------------------------------------------------------------------
Prospectus Page 13
<PAGE>
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PaineWebber International Equity Fund
calculated by multiplying 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, by the percentage shown on
the following table. Investors who own shares for more than six years do not
have to pay a sales charge when selling those shares.
<TABLE>
<CAPTION>
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES'
SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED:
- ----------------------- -------------------------------
<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A shares
of equal dollar value after the investor has owned them for six years. Dividends
and other distributions paid to the investor by the 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 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 Class C shares of the
PaineWebber mutual fund originally purchased. Class C shares representing
reinvestment of any dividends or capital gain distributions will not be subject
to the 1% charge. Withdrawals under the Systematic Withdrawal Plan also will not
be subject to this charge. However, investors may withdraw no 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
- --------------------------------------------------------------------------------
Prospectus Page 14
<PAGE>
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PaineWebber International Equity Fund
calculated after PaineWebber's New York City headquarters or the Transfer Agent
receives the 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 Rule 12b-1 distribution or service
fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
. a participant in the PW Program 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 SystemSM;
. 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 effective
maximum annual rate of 1.5% of assets. Employees of PaineWebber and its
affiliates are entitled to a waiver of this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE Multi-Advisor Program.
- --------------------------------------------------------------------------------
How to Buy Shares
- --------------------------------------------------------------------------------
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. 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.
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 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.
Investors who are new to PaineWebber may complete and sign an account
application and mail it along with a check. Investors may also open an account
in person.
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Prospectus Page 15
<PAGE>
-------------------------------------
PaineWebber International Equity Fund
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;
. participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan; or
. transactions in Class A and Class Y shares made in certain investment
programs.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, B and C
shares for 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 jurisdictions where the sale of the Fund shares to be acquired is
authorized. This exchange privilege may be modified or terminated at any time
and, when required by SEC rules, upon 60 days' notice. See the back cover of
this Prospectus for a list of other PaineWebber mutual funds. PaineWebber S&P
500 Index Fund does not participate in the Flexible Pricing SystemSM and is not
available for exchanges.
- --------------------------------------------------------------------------------
Prospectus Page 16
<PAGE>
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PaineWebber International Equity Fund
How to Sell Shares
- --------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the
share price for that class as next calculated after the order is received and
accepted (less any applicable contingent deferred sales charge). Share prices
are normally calculated at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time).
Investors who own more than one class of shares should specify which class they
are selling. If they do not, the Fund will assume they are first selling their
Class A shares, then Class C, 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.
- --------------------------------------------------------------------------------
Other Services
- --------------------------------------------------------------------------------
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, 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 a 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 PaineWebber Mutual Fund accounts. Minimum
balances and withdrawals vary according to the class of shares:
. CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.
. CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly, 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
- --------------------------------------------------------------------------------
Prospectus Page 17
<PAGE>
- --------------------------------------------------------------------------------
PaineWebber International Equity Fund
charge. An investor may withdraw no more than 12% of the value of the Fund
account when the investor signed up for the Plan (for Class B shares, annually;
for Class A and Class C shares, during the first year under the Plan).
Shareholders who elect to receive dividends or other distributions in cash may
not participate in this Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed IRAs are available through PaineWebber in which purchases of
PaineWebber mutual funds and other investments may be made. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of 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.
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Management
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The Fund is governed by a 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). Mitchell Hutchins has appointed Invista the investment sub-
adviser to be responsible for the day-to-day management of the Fund's
investments. The Fund has applied for exemptive relief from the SEC to permit
Mitchell Hutchins and the Fund's board to hire or replace sub-advisers without
obtaining shareholder approval.
In accordance with procedures adopted by the board, brokerage transactions for
the Fund may be conducted through PaineWebber or its affiliates or the
affiliates of Invista, and the Fund may pay fees to PaineWebber for its
services as lending agent in its portfolio securities lending program.
Personnel of Mitchell Hutchins and Invista may engage in securities
transactions for their own accounts pursuant to each firm's code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York
10019, is an asset management subsidiary of PaineWebber, which is wholly owned
by Paine Webber Group Inc., a publicly owned financial services holding
company. On September 30, 1998, Mitchell Hutchins was adviser or sub-adviser of
investment companies with separate portfolios and aggregate assets of
over billion.
ABOUT THE SUB-ADVISER
The investment sub-adviser, Invista is located at 1800 Hub Tower, 699 Walnut,
Des Moines, Iowa 50309. It is an indirect wholly owned subsidiary of Principal
Life Insurance Company. It is registered under the Investment Advisers Act of
1940, as amended, as an investment adviser and manages substantially all of
Principal Life's equity accounts in addition to providing investment advice to
other affiliated and non-affiliated customers. Invista was founded in 1984. On
July 31, 1998, it managed approximately $30 billion in client assets. Scott D.
Opsal is primarily responsible for the day-to-day management of the Fund. Mr.
Opsal has served as Executive Vice President and Chief Investment Officer of
Invista since 1997. Previously, he served as Vice President from 1986-1997.
MANAGEMENT FEES & OTHER EXPENSES
The Fund pays Mitchell Hutchins a monthly fee for its services at the annual
rate of 1.00% of its average daily net assets up to $100 million.
Mitchell Hutchins (not the Fund) pays Invista a monthly fee for sub-advisory
services at an annual rate of 0.42% of the Fund's average daily net assets up
to $100 million and 0.29% of the Fund's average daily net assets in excess of
$100 million up to and including $300 million and $0.26% of the Fund's average
daily net assets in excess of $300 million.
The Fund incurs various other expenses in its operations, such as custody and
transfer agency fees,
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Prospectus Page 18
<PAGE>
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PaineWebber International Equity Fund
brokerage commissions, professional fees, expenses of 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, organizational
expenses and extraordinary expenses, including costs or losses in any
litigation.
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 Funds' 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 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.
Mitchell Hutchins uses the service fees under the Plans for Class A, B and C
shares primarily to pay PaineWebber for shareholder servicing, currently at the
annual rate of 0.25% of the aggregate investment amounts maintained in the Fund
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 any of the Funds or investors at the time
Class B or C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related distribution contracts for Class A, Class B and Class
C shares ("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 of the Fund
reviews the Plans and Mitchell Hutchins' corresponding expenses for each class
separately from the Plans and expenses of the other classes.
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Prospectus Page 19
<PAGE>
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PaineWebber International Equity Fund
Determining the Shares' Net Asset Value
- --------------------------------------------------------------------------------
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 Fund's board. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining to
maturity, unless the board determines that this does not represent fair value.
Investments denominated in foreign currencies are valued daily in U.S. dollars
based on the then-prevailing exchange rates. It should be recognized that
judgment plays a greater role in valuing thinly traded securities in which the
Fund may invest, because there is less reliable, objective data available.
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Dividends & Taxes
- --------------------------------------------------------------------------------
DIVIDENDS
The Fund pays an annual dividend from its net investment income, net short-term
capital gain and net realized gains from foreign currency transactions, if any.
The Fund also distributes annually substantially all of its net 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 gains.
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, Class
B and Class C shares are expected to be lower than those on 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 of a Fund are expected to be lower than
those on its Class A shares because Class B and Class C shares have higher
expenses resulting from their distribution fees. Dividends on each class also
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 Internal Revenue Code so that it will not have to pay federal income
tax on that part of its investment company taxable income (generally consisting
of net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) and net capital gain that it distributes
to its share-holders.
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
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Prospectus Page 20
<PAGE>
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PaineWebber International Equity 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). In the case of a regulated
investment company such as the Fund, the relevant holding period is determined
by how long the Fund has held the portfolio securities on which the gain was
realized, not by how long the shareholders have held their Fund shares.
Shareholders not subject to tax on their income generally will not be required
to pay tax on distributions.
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)
for that year, their share of any foreign taxes paid by the Fund that year and
any portion of those dividends that qualifies for special treatment. The
information regarding capital gain distributions designates the portions
thereof subject to the different maximum rates of tax applicable to non-
corporate taxpayers' net capital gain indicated above.
BACKUP WITHHOLDING
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund 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 shares may result in a taxable gain or
loss. This depends upon whether the shareholder receives more or less than his
or her adjusted basis for the shares (which normally includes any initial sales
charge paid on Class A shares). An exchange of 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 or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of a
PaineWebber mutual fund without paying a sales charge due to the 365-day
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 will increase the basis of the PaineWebber
mutual fund shares subsequently acquired.
No gain or loss will be recognized by a shareholder as a result of a conversion
from Class B shares into Class A shares.
* * * *
The foregoing only summarizes some of the important federal income tax
considerations affecting the Fund and its shareholders; see the Statement of
Additional Information for a further discussion. Prospective shareholders are
urged to consult their tax advisers.
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Prospectus Page 21
<PAGE>
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PaineWebber International Equity Fund
General Information
- --------------------------------------------------------------------------------
ORGANIZATION
The Fund is a diversified series of PaineWebber Managed Investments Trust
("Trust"), an open-end management investment company that was organized as a
business trust under the laws of the Commonwealth of Massachusetts by
Declaration of Trust dated November 21, 1986. The trustees have authority to
issue an unlimited 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. A share of each class represents an identical
interest in the Fund's investment portfolio and has the same rights, privileges
and preferences. However, each class may differ with respect to sales charges,
if any, distribution and/or service fees, if any, other expenses allocable
exclusively to each class, voting rights on matters exclusively affecting that
class, and its exchange privilege, if any. The different sales charges and
other expenses applicable to the different classes of shares of the Fund will
affect the performance of those classes.
Each share of the Fund is entitled to participate equally in dividends, other
distributions and the proceeds of any liquidation of the Fund. However, due to
the differing expenses of the classes, dividends on Class A, B, C and Y 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 board members 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 all the series of the Trust will be
voted separately, except when an aggregate vote of all the series is required
by law.
SHAREHOLDER MEETINGS
The Fund does not intend to hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a board member through a declaration in writing or by vote
cast in person or by proxy at a meeting called for that purpose. A meeting will
be called to vote on the removal of a board member at the written request of
holders of 10% of the outstanding shares of the Trust.
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 AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as custodian and recordkeeping agent for
and employs foreign sub-custodians approved by the board in accordance with
applicable requirements under the 1940 Act to provide custody of the Fund's
foreign assets. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as the Fund's
transfer and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809.
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Prospectus Page 22
<PAGE>
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PaineWebber International Equity Fund
Prospectus -- , 1998
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. PAINEWEBBER BOND FUNDS . PAINEWEBBER STOCK FUNDS
High Income Fund Financial Services Growth Fund
Investment Grade Income Fund Growth Fund
Low Duration U.S. Government Growth and Income Fund
Income Fund Mid-Cap Fund
Strategic Income Fund Small Cap Fund
U.S. Government Income Fund S&P 500 Index Fund
Utility Income Fund
. PAINEWEBBER TAX-FREE BOND FUNDS
. PAINEWEBBER GLOBAL FUNDS
California Tax-Free Income Fund
Municipal High Income Fund Asia Pacific Growth Fund
National Tax-Free Income Fund Emerging Markets Equity Fund
New York Tax-Free Income Fund Global Equity Fund
Global Income Fund
. PAINEWEBBER ASSET ALLOCATION
FUNDS . PAINEWEBBER MONEY MARKET FUND
Balanced Fund . MITCHELL HUTCHINS PORTFOLIOS
Tactical Allocation Fund
Aggressive Portfolio
Moderate Portfolio
Conservative Portfolio
A prospectus containing more complete information for any of these funds,
including charges and expenses, can be obtained from a PaineWebber investment
executive or correspondent firm. Please read it carefully before investing. 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 INTERNATIONAL EQUITY FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber International Equity Fund ("Fund") is a diversified series of
PaineWebber Managed Investments Trust ("Trust"), a professionally managed
open-end management investment company organized as a Massachusetts business
trust. The Fund seeks long-term capital appreciation by investing primarily in
equity securities of foreign companies. The Fund is newly organized and has no
operating history.
The investment adviser, administrator and distributor for the Fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"). As
distributor for the Fund, Mitchell Hutchins has appointed PaineWebber to serve
as the exclusive dealer for the sale of Fund shares. Invista Capital
Management, Inc. ("Invista") serves as investment sub-adviser for the Fund and
is sometimes referred to as the "Sub-Adviser."
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Funds' current Prospectus, dated ,
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 , 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 the Statement of Additional Information, there
are no policy limitations on the Fund's ability to use the investments or
techniques discussed in these documents.
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 (bonds) and certain other securities. A description of the ratings
assigned to corporate bonds by Moody's and S&P is included in the Appendix to
this Statement of Additional Information. The process by which S&P and Moody's
determine ratings for mortgage-backed securities includes consideration of the
likelihood of the receipt by security holders of all distributions, the nature
of the underlying securities, the credit quality of the guarantor, if any, and
the structural, legal and tax aspects associated with such securities. Not
even the highest such ratings represents an assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments may differ from that originally anticipated, nor do such ratings
address the possibility that investors may suffer a lower than anticipated
yield or that investors in such securities may fail to recoup fully their
initial investment due to prepayments.
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.
<PAGE>
In addition to ratings assigned to individual bond issues, the Sub-Adviser
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds are dependent on a variety of factors, including general
money market conditions, general conditions in the bond market, the financial
condition of the issuer, the size of the offering, the maturity of the
obligation and its rating. There is a wide variation in the quality of bonds,
both within a particular classification and between classifications. An
issuer's obligations under its bonds are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
bond holders or other creditors of an issuer; litigation or other conditions
may also adversely affect the power or ability of issuers to meet their
obligations for the payment of interest and principal on their bonds.
RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Investors should
recognize that investing in non-U.S. securities involves certain risks and
special considerations, including those set forth below, which are not
typically associated with investing in securities of U.S. companies.
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. These risks may include expropriation, confiscatory
taxation, withholding taxes on interest and/or dividends, limitations on the
use of or transfer of Fund assets and political or social instability or
diplomatic developments. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Securities of many foreign
companies may be less liquid and their prices more volatile than securities of
comparable U.S. companies. While the Fund generally invests only in securities
that are traded on recognized exchanges or in over-the-counter markets
("OTC"), from time to time foreign securities may be difficult to liquidate
rapidly without significantly depressing the price of such securities. There
may be less publicly available information concerning foreign issuers of
securities held by the Fund than is available concerning U.S. companies.
Transactions in foreign securities may be subject to less efficient settlement
practices. Foreign securities trading practices, including those involving
securities settlement where Fund assets may be released prior to receipt of
payment, may expose the Fund to increased risk in the event of a failed trade
or the insolvency of a foreign broker-dealer. Legal remedies for defaults and
disputes may have to be pursued in foreign courts, whose procedures differ
substantially from those of U.S. courts.
Securities of foreign issuers may not be registered with the Securities and
Exchange Commission ("SEC"), and the issuers thereof may not be subject to its
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by 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 depository receipts,
including American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs"), or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a U.S. bank or trust company evidencing ownership of the underlying
securities. They generally are in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. EDRs are
European receipts evidencing a similar arrangement, may be denominated in
other currencies and are designed for use in European securities markets. GDRs
are similar to EDRs and are designed for use in several international
financial markets. For purposes of the Fund's investment policies, ADRs, EDRs
and GDRs are deemed to have the same classification as the underlying
2
<PAGE>
securities they represent. Thus, an ADR, EDR or GDR representing ownership of
common stock will be treated as common stock.
ADRs are publicly traded on exchanges or 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.
The Fund anticipates that its brokerage transactions involving foreign
securities of companies headquartered in countries other than the United
States will be conducted primarily on the principal exchanges of such
countries. Although the Fund will endeavor to achieve the best net results in
effecting its portfolio transactions, transactions on foreign exchanges are
usually subject to fixed commissions that are generally higher than negotiated
commissions on U.S. transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than
in the United States.
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to
which the Fund would be subject. In addition, substantial limitations may
exist in certain countries with respect to the Fund's ability to repatriate
investment capital or the proceeds of sales of securities.
FOREIGN SOVEREIGN DEBT. Investment by the Fund in debt securities issued by
foreign governments and their political subdivisions or agencies ("Sovereign
Debt") involves special risks. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal and/or interest when due in accordance with the terms of
such debt, and the Fund may have limited legal recourse in the event of a
default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same
sovereign entity may not contest payments to the holders of Sovereign Debt in
the event of default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could
also adversely affect its exports. Such events could diminish a country's
trade account surplus, if any, or the credit standing of a particular local
government or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their
3
<PAGE>
Sovereign Debt. While the Sub-Adviser manages the Fund's portfolio in a manner
that is intended to minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause the Fund to suffer a
loss of interest or principal on any of its holdings.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. From time to time, investments in
other investment companies may be the most effective available means by which
the Fund may invest in securities of issuers in certain countries. Such
investments may include, for example, World Equity Benchmark SharesSM
(commonly known as "WEBS"), which are exchange-traded shares of series of an
investment company that are designed to replicate the composition and
performance of publicly traded issuers in particular foreign countries.
Investment in such investment companies may involve the payment of management
expenses and, in connection with some purchases, sales loads and payment of
substantial premiums above the value of such companies' portfolio securities.
At the same time, the Fund would continue to pay its own management fees and
other expenses. The Fund may invest in such investment companies when, in the
judgment of the Sub-Adviser, the potential benefits of such investment
outweigh the payment of any applicable premium, sales load and expenses. In
addition, the Fund's investments in such investment companies are subject to
limitations under the Investment Company Act of 1940 ("1940 Act") and market
availability, and may result in special federal income tax consequences.
FOREIGN CURRENCY TRANSACTIONS. A significant portion of the Fund's assets
may be invested in foreign securities, and substantially all related income
may be received by the Fund in foreign currencies. The Fund values its assets
daily in U.S. dollars and intends to convert its holdings of foreign
currencies to U.S. dollars on a daily basis. From time to time the Fund's
foreign currencies may be held as "foreign currency call accounts" at foreign
branches of foreign or domestic banks. These accounts bear interest at
negotiated rates and are payable upon relatively short demand periods. If a
bank became insolvent, the Fund could suffer a loss of some or all of the
amounts deposited. The Fund may convert foreign currency to U.S. dollars from
time to time.
The value of the assets of the Fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations. Further, the Fund may incur costs in connection
with conversions between various currencies. Currency exchange dealers realize
a profit based on the difference between the prices at which they are buying
and selling various currencies. Thus, a dealer normally will offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire immediately to resell that currency to the
dealer. The Fund conducts its currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward, futures or options
contracts to purchase or sell foreign currencies.
SPECIAL CONSIDERATIONS RELATING TO EMERGING MARKET INVESTMENTS. Certain of
the risks associated with international investments are heightened for
investments in emerging markets. For example, many of the currencies of
emerging market countries recently have experienced significant devaluations
relative to the U.S. dollar, and major adjustments have been made periodically
in various emerging market currencies.
Investment and Repatriation Restrictions. Foreign investment in the
securities markets of several emerging market countries is restricted or
controlled to varying degrees. These restrictions may limit the Fund's
investment in these countries and may increase its expenses. For example,
certain countries may require governmental approval prior to investments by
foreign persons in a particular company or industry
4
<PAGE>
sector or limit investment by foreign persons to only a specific class of
securities of a company, which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals.
Certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. In addition, the
repatriation of both investment income and capital from some emerging market
countries is subject to restrictions, such as the need for certain government
consents. Even where there is no outright restriction on repatriation of
capital, the mechanics of repatriation may affect certain aspects of the
Fund's operations. These restrictions may in the future make it undesirable to
invest in the countries to which they apply. In addition, if there is a
deterioration in a country's balance of payments or for other reasons, a
country may impose restrictions on foreign capital remittances abroad. The
Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investments.
If, because of restrictions on repatriation or conversion, the Fund were
unable to distribute substantially all of its net investment income, including
net short-term capital gains and net long-term capital gains within applicable
time periods, the Fund could be subject to federal income and excise taxes
that would not otherwise be incurred and could cease to qualify for the
favorable tax treatment afforded to regulated investment companies ("RICs")
under the Internal Revenue Code ("Code"). In such case, it would become
subject to federal income tax on all of its income and net gains.
Differences Between the U.S. and Emerging Market Securities Markets. Most of
the securities markets of emerging market countries have substantially less
volume than the New York Stock Exchange, and equity securities of most
companies in emerging market countries are less liquid and more volatile than
equity securities of U.S. companies of comparable size. Some of the stock
exchanges in emerging market countries, such as those in China, are in the
earliest stages of their development. As a result, security settlements may in
some instances be subject to delays and related administrative uncertainties.
Many companies traded on securities markets in emerging market countries are
smaller, newer and less seasoned than companies whose securities are traded on
securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market-making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that an emerging
market country experiences rapid increases in its money supply and investment
in equity securities for speculative purposes, the equity securities traded in
that country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable.
Government Supervision of Emerging Market Securities Markets; Legal
Systems. There is also less government supervision and regulation of
securities exchanges, listed companies and brokers in emerging market
countries than exists in the United States. Therefore, less information may be
available to the Fund than with respect to investments in the United States.
Further, in certain countries, less information may be available to the Fund
than to local market participants. Brokers in other countries may not be as
well capitalized as those in the United States, so that they are more
susceptible to financial failure in times of market, political or economic
stress. In addition, existing laws and regulations are often inconsistently
applied. As legal systems in some of the emerging market countries develop,
foreign investors may be adversely affected by new laws and regulations,
changes to existing laws and regulations and preemption of local laws
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and regulations by national laws. In circumstances where adequate laws exist,
it may not be possible to obtain swift and equitable enforcement of the law.
Financial Information and Standards. Issuers in emerging market countries
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable
to U.S. issuers. In particular, the assets and profits appearing on the
financial statements of an emerging market issuer may not reflect its
financial position or results of operations in the way they would be reflected
had the financial statements been prepared in accordance with U.S. generally
accepted accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules may require,
for both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may indirectly
generate losses or profits. Consequently, financial data may be materially
affected by restatements for inflation and may not accurately reflect the real
condition of those issuers and securities markets.
Social, Political and Economic Factors. Many emerging market countries may
be subject to a greater degree of social, political and economic instability
than is the case in the United States. Such instability may result from, among
other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, and changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection. Such social,
political and economic instability could significantly disrupt the financial
markets in those countries and elsewhere and could adversely affect the value
of the Fund's assets. In addition, there may be the possibility of asset
expropriations or future confiscatory levels of taxation affecting the Fund.
The economies of many emerging market countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners. The enactment by
principal trading partners of protectionist trade legislation, reduction of
foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of these countries. In addition, the economies of some
countries are vulnerable to weakness in world prices for their commodity
exports, including crude oil.
Formerly Communist Countries. The emerging markets in which the Fund may
invest include formerly communist countries of Eastern Europe, the
Commonwealth of Independent States (formerly the Soviet Union) and the
People's Republic of China. Upon the accession to power of communist regimes
approximately 50 to 80 years ago, the governments of a number of these
countries expropriated a large amount of property. The claims of many property
owners against those governments were never finally settled. There can be no
assurance that the Fund's investments in these countries, if any, would not
also be expropriated, nationalized or otherwise confiscated, in which case the
Fund could lose its entire investment in the country involved. In addition,
any change in the leadership or policies of these countries may halt the
expansion of or reverse the liberalization of foreign investment policies now
occurring. The Fund may invest in Hong Kong, which reverted to Chinese
administration on July 1, 1997. The long-term effects of this reversion are
not known at this time. However, the Fund's investments in Hong Kong may now
be subject to the same or similar risks as any investment in China.
U.S. GOVERNMENT SECURITIES. The Fund may invest in various direct
obligations of the U.S. Treasury and obligations issued or guaranteed by the
U.S. government or one of it agencies or instrumentalities
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(collectively, "U.S. government securities"). Among the U.S. government
securities that may be held by the Fund are securities that are supported by
the full faith and credit of the United States; securities that are supported
primarily or solely by the creditworthiness of the government-related issuer;
and securities, such as mortgage-backed securities, that are supported in part
by pools of assets.
CONVERTIBLE SECURITIES. The Fund is permitted to invest in convertible
securities. Before conversion, convertible securities have characteristics
similar to non-convertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common
stocks of the same or similar issuers. Convertible securities rank senior to
common stock in a corporation's capital structure but are usually subordinated
to comparable non-convertible securities.
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. 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.
WARRANTS. Warrants are securities permitting, but not obligating, holders to
subscribe for other securities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets
of the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does
not necessarily change with the value of the underlying securities, and a
warrant ceases to have value if it is not exercised prior to its expiration
date.
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 or a Sub-Adviser, as applicable, has determined
are liquid pursuant to guidelines established by the Fund's board. The assets
used as cover for OTC options written by the Fund will be considered illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund
may repurchase any OTC options they write at a maximum price to be calculated
by a formula set forth in the option agreements. The cover for an OTC option
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
Restricted securities are not registered under the Securities Act of 1933
("1933 Act") and may be sold only in privately negotiated 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
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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. To the extent that foreign
securities are freely tradeable in the country in which they are principally
traded, they are not considered illiquid, even if they are restricted in the
United States. A large institutional market has developed for many U.S. and
foreign 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 also have developed as a
result of Rule 144A, which establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. 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 or the Sub-Adviser, pursuant to guidelines
approved by the board. The Sub-Adviser 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
bids are solicited and the mechanics of transfer). The Sub-Adviser monitors
the liquidity of restricted securities in the Fund's portfolio and reports
periodically on such decisions to the board.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
Fund purchases obligation from a bank or securities dealer (or its affiliate)
and simultaneously commits to resell the securities to the counterparty at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Fund maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the counterparty to pay the repurchase
price on the date agreed to or upon demand is, in effect, secured by such
securities. If the value of these securities is less than the repurchase
price, plus any agreed-upon additional amount, the other party to the
agreement must provide additional collateral so that at all times the
collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received upon
repurchase of the securities and the price that was paid by the Fund upon
acquisition is accrued as interest and included in its net investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Fund if the counterparty
becomes insolvent.
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The Fund intend to enter into repurchase agreements only with counterparties
in transactions believed by Mitchell Hutchins or the Sub-Adviser to present
minimal credit risks in accordance with guidelines established by each board.
Mitchell Hutchins reviews and monitors the creditworthiness of those
institutions under the board's general supervision.
MONEY MARKET INSTRUMENTS. Money market instruments of U.S. and foreign
issuers 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. or foreign commercial and savings banks; investment
grade 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.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate of 5% of the
Fund's net assets. While a reverse repurchase agreement is outstanding, a Fund
will maintain, in a segregated account with its custodian, cash or liquid
securities, marked to market daily, in an amount at least equal to its
obligations under the reverse repurchase agreement.
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. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
trustee or receiver may receive an extension of time to determine whether to
enforce 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 up to 33
1/3% of its total assets to broker-dealers or institutional investors that
Mitchell Hutchins deems qualified, but only when the borrower maintains
acceptable collateral with the Fund's custodian in an amount, marked to market
daily, at least equal to the market value of the securities loaned, plus
accrued interest and dividends. Acceptable collateral is limited to cash, U.S.
government securities and irrevocable letters of credit that meet certain
guidelines established by Mitchell Hutchins. 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 of its 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, 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 payment of fees (including fees
calculated as a percentage of invested cash collateral) to PaineWebber for
these services. The board periodically reviews all portfolio securities loan
transactions for which PaineWebber acted as lending agent.
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SHORT SALES "AGAINST THE BOX." The Fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box"). To 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, in a segregated account with its custodian, the securities that
could be used to cover the short sale. The Fund incurs transaction costs,
including interest expense, in connection with opening, maintaining and
closing short sales "against the box."
The Fund might make a short sale "against the box" in order to hedge against
market risks when the Sub-Adviser believes that the price of a security may
decline, thereby causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for a security owned by
the Fund. In such case, any loss in 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.
SEGREGATED ACCOUNTS. When the Fund enters into certain transactions that
involve obligations to make future payments to third parties, including the
purchase of securities on a when-issued or delayed delivery basis, or reverse
repurchase agreements, it will maintain with an approved custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the Fund's obligation or commitment under such
transactions. As described below under "Hedging and Other Strategies Using
Derivative Instruments," segregated accounts may also be required in
connection with certain transactions involving options, futures or forward
currency contracts.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a "when-issued" basis or may purchase or sell for delayed
delivery. A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in
market value, generally based upon changes in the level of interest rates.
Thus, fluctuation in the value of the security from the time of the commitment
date will affect the Fund's net asset value. When the Fund commits to purchase
securities on a when-issued or delayed delivery basis, its custodian
segregates assets to cover the amount of the commitment. See "Investment
Policies and Restrictions--Segregated Accounts." The Fund purchases when-
issued securities only with the intention of taking delivery, but may sell the
right to acquire the security prior to delivery if the Sub-Adviser deems it
advantageous to do so, which may result in a gain or loss to the Fund.
INVESTMENT LIMITATIONS OF THE FUND
FUNDAMENTAL LIMITATIONS. The following 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, later changes in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of any of the following limitations.
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The Fund will not:
(1) purchase any security if, as a result of that purchase, 25% or more
of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities or to municipal
securities.
(2) issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance
or borrowing, except that the Fund may borrow up to an additional 5% of its
total assets (not including the amount borrowed) for temporary or emergency
purposes.
(3) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers'
acceptances or similar instruments will not be considered the making of a
loan.
(4) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter under
the federal securities laws in connection with its disposition of portfolio
securities.
(5) purchase or sell real estate, except that investments in securities
of issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except
that the Fund may exercise rights under agreements relating to such
securities, including the right to enforce security interests and to hold
real estate acquired by reason of such enforcement until that real estate
can be liquidated in an orderly manner.
(6) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell or
enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
(7) purchase securities of any one issuer if, as a result, more than 5%
of the Fund's total assets would be invested in securities of that issuer
or the Fund would own or hold more than 10% of the outstanding voting
securities of that issuer, except that up to 25% of the Fund's total assets
may be invested without regard to this limitation, and except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities or to securities issued by
other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.
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NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are non-
fundamental and may be changed by the vote of the board without shareholder
approval.
The Fund will not:
(1) invest more than 15% of its net assets in illiquid securities;
(2) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding;
(3) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Fund may make
margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments;
(4) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short "against the box" and (b) maintain
short positions in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments; or
(5) purchase securities of other investment companies, except to the
extent permitted by 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 (and
except that a 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).
STRATEGIES USING DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. The Sub-Adviser may use a
variety of financial instruments ("Derivative Instruments"), including certain
options, futures contracts (sometimes referred to as "futures"), options on
futures contracts and forward currency contracts, to attempt to hedge the
Fund's portfolio or to enhance income or realize gains. 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 these 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 AND FOREIGN CURRENCIES--A call
option is a short-term contract pursuant to which the purchaser of the
option, in return for a premium, has the right to buy the security or
currency underlying the option at a specified price at any time during the
term of the option 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 or
currency against payment of the exercise price. A put option is a similar
contract that gives its purchaser, in return for a premium, the right to
sell the underlying security or currency at a specified price during the
option term 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 or currency 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
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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 AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to
which one party agrees to make, and the other party agrees to accept,
delivery of a specified type of debt security or currency at a specified
future time and at a specified price. Although such futures contracts by
their terms call for actual delivery or acceptance of debt securities or
currency, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures
contract gives the purchaser the right, in return for the premium, to
assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put), rather than to purchase
or sell a security or currency, at a specified price at any time during the
option term. Upon exercise of the option, the delivery of the futures
position to the holder of the option will be accompanied by delivery of the
accumulated balance that represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in
the case of a put, the exercise price of the option on the future. The
writer of an option, upon exercise, will assume a short position in the
case of a call and a long position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future
date, which may be any fixed number of days from the contract date agreed
upon by the parties, at a price set at the time the contract is entered
into.
GENERAL DESCRIPTION OF STRATEGIES USING DERIVATIVE INSTRUMENTS. Hedging
strategies can be broadly categorized as "short hedges" and "long hedges." A
short hedge is a purchase or sale of a Derivative Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in 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 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
13
<PAGE>
in the same direction as the price of the prospective investment being hedged.
For example, the Fund might purchase a call option on a security it intends to
purchase in order to hedge against an increase in the cost of the security. If
the price of the security increased above the exercise price of the call, the
Fund could exercise the call and thus limit its acquisition cost to the
exercise price plus the premium paid and transactions costs. Alternatively,
the Fund might be able to offset the price increase by closing out an
appreciated call option and realizing a gain.
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 the Sub-Adviser believes
it likely that the prices of the securities will be more volatile during the
term of the option than the option pricing implies. A short straddle is a
combination of a call and a put written on the same security where the
exercise price of the put is less than or equal to the exercise price of the
call. The Fund might enter into a short straddle when the Sub-Adviser believes
it unlikely that the prices of the securities will be as volatile during the
term of the option as the option pricing implies.
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."
Income strategies that the Fund may use include the writing of covered
options to obtain the related option premiums. Gain strategies that the Fund
may use include the use of Derivative Instruments to increase or reduce the
Fund's exposure to an asset class without buying or selling the underlying
instruments.
In addition to the products, strategies and risks described below and in the
Prospectus, the Sub-Adviser may 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 techniques are developed. The Sub-Adviser may utilize these
opportunities for the Fund to the extent that they are consistent with the
Fund's investment objective and permitted by its 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 STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative Instruments involves special considerations and risks, as described
below. Risks pertaining to particular Derivative Instruments are described in
the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the ability
of the Sub-Adviser to predict movements of the overall securities, interest
rate or currency exchange markets, which requires different skills than
predicting changes in the prices of individual securities. While the Sub-
Adviser is experienced in the use of Derivative Instruments, there can be no
assurance that any particular strategy adopted will succeed.
14
<PAGE>
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments that are being hedged. For example, if the value of a Derivative
Instrument used in a short hedge increased by less than the decline in value
of the hedged investment, the hedge would not be fully successful. Such a lack
of correlation might occur due to factors affecting the markets in which
Derivative Instruments are traded, rather than the value of the investments
being hedged. The effectiveness of hedges using Derivative Instruments on
indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because the Sub-Adviser projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the 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 was
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 the
Fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to close out
a position in a 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 STRATEGIES USING DERIVATIVE INSTRUMENTS. 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, currencies or other options or futures contracts or (2) cash or
liquid securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. The Fund will
comply with SEC guidelines regarding cover for such transactions and will, if
the guidelines so require, set aside cash or liquid securities in a segregated
account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Derivative Instrument is open, unless they
are replaced with similar assets. As a result, committing a large portion of
the Fund's assets to cover positions or to segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
OPTIONS. The Fund may purchase put and call options, and write (sell)
covered put or call options. The purchase of call options may serve as a long
hedge, and the purchase of put options may serve as a short hedge. Writing
covered put or call options can enable the Fund to enhance income by reason of
the premiums paid by the purchasers of such options. Writing covered call
options serves as a limited short hedge, because
15
<PAGE>
declines in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be exercised and the affected Fund will
be obligated to sell the security at less than its market value. Writing
covered put options serves as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase
the security at more than its market value. The securities or other assets
used as cover for OTC options written by the Fund would be considered illiquid
to the extent described under "Investment Policies and Restrictions--Illiquid
Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration
dates of up to nine months. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize
profits or limit losses on an option position prior to its exercise or
expiration.
The Fund may purchase and write both exchange-traded and OTC options.
Exchange markets for options on debt securities and foreign currencies exist
but are relatively new, and these instruments are primarily traded on the OTC
market. Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases or writes an OTC option, it relies on
the contra party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in
the loss of any premium paid by the Fund as well as the loss of any expected
benefit of the transaction. The Fund will enter into OTC option transactions
only with contra parties that have a net worth of at least $20 million.
Generally, the OTC debt options or foreign currency options used by the Fund
is 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. There are also other types of options exercisable on certain specified
dates before expiration.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appears
to be a liquid secondary market. However, there can be no assurance that such
a market will exist at any particular time. Closing transactions can be made
for OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option
16
<PAGE>
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.
LIMITATIONS ON THE USE OF OPTIONS. The use of options is governed by the
following guidelines, which can be changed by the Fund's board without
shareholder vote:
(1) The Fund may purchase a put or call option, including any 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 securities underlying put options written by the
Fund, determined as of the date the put options are written will not exceed
50% of its net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock and bond indices and options on
futures contracts) purchased by the Fund that are held at any time will not
exceed 20% of its net assets.
FUTURES. The Fund may purchase and sell securities index futures contracts,
interest rate futures contracts, bond index future contracts and foreign
currency futures contracts. The Fund may also purchase put and call options,
and write covered put and call options, on futures in which it is allowed to
invest. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options on futures contracts can
serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options on securities or indices.
If the Sub-Adviser wishes to shorten the average duration of the Fund's
portfolio, the Fund may sell a futures contract or a call option thereon, or
purchase a put option on that futures contract. If the Sub-Adviser wishes to
lengthen the average duration of the Fund's portfolio, the Fund may buy a
futures contract or a call option thereon, or sell a put option thereon.
The Fund may also write put options on futures contracts while at the same
time purchasing call options on the same futures contracts in order
synthetically to create a long futures contract position. Such options would
have the same strike prices and expiration dates. The Fund will engage in this
strategy only when it is more advantageous to the Fund than is purchasing the
futures contract.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract 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 United States
17
<PAGE>
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 intend to enter into futures transactions only on exchanges
or boards of trade where there appears to be a liquid secondary market.
However, there can be no assurance that such a market will exist for a
particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If 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,
18
<PAGE>
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 use of futures
and related options is governed by the following guidelines, which can be
changed by the Fund's board without shareholder vote:
(1) To the extent the Fund enters into futures contracts and options on
futures positions that are not for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are "in-the-money") may not exceed 5%
of its net assets.
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on
futures contracts) purchased by the Fund that are held at any time will not
exceed 20% of its net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by the Fund will not exceed 5% of its total assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. The Fund may
use options and futures on foreign currencies, as described above, and forward
currency contracts, as described below, to hedge against movements in the
values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security the Fund owns or intends to acquire that are attributable to changes
in the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are
attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no Derivative Instruments on that currency are available or such
Derivative Instruments are considered expensive. In such cases, the Fund may
hedge against price movements in that currency by entering into transactions
using Derivative Instruments on another currency or a basket of currencies,
the value of which the Sub-Adviser believes will have a positive correlation
to the value of the currency being hedged. For example, if the Fund owned
securities denominated in a foreign currency and the Sub-Adviser believed that
currency would decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. Transactions that use
two foreign currencies are sometimes referred to as "cross hedging." The risk
that movements in the price of the Derivative Instrument will not correlate
perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.
The value of Derivative Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Derivative
Instruments, the Fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are
19
<PAGE>
closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the Derivative Instruments
until they reopen.
Settlement of Derivative Instruments involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. Such transactions may serve as long
hedges--for example, the Fund may purchase a forward currency contract to lock
in the U.S. dollar price of a security denominated in a foreign currency that
the Fund intends to acquire. Forward currency contract transactions may also
serve as short hedges--for example, the Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
The Fund may seek to hedge against changes in the value of a particular
currency by using forward contracts on another foreign currency or a basket of
currencies, the value of which the Sub-Adviser believes will have a positive
correlation to the values of the currency being hedged. In addition, the Fund
may use forward currency contracts to shift exposure to foreign currency
fluctuations from one country to another. For example, if the Fund owned
securities denominated in a foreign currency and the Sub-Adviser believes that
currency would decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency. The purpose of
entering into these contracts is to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. and foreign currencies.
Transactions that use two foreign currencies are sometimes referred to as
"cross hedging." Use of a different foreign currency magnifies the risk that
movements in the price of a hedging instrument will not correlate or will
correlate unfavorably with the foreign currency being hedged.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract at
a favorable price prior to maturity. In addition, in the event of insolvency
of the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities in a
segregated account.
20
<PAGE>
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, the Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. The Fund may enter
into forward currency contracts or maintain a net exposure to such contracts
only if (1) the consummation of the contracts would not obligate the Fund to
deliver an amount of foreign currency in excess of the value of the position
being hedged by such contracts or (2) the Fund segregates with its custodian
cash or liquid securities in an amount not less than the value of its total
assets committed to the consummation of the contract and not covered as
provided in (1) above, as marked to market daily.
SWAP TRANSACTIONS. The Fund may enter into currency swap transactions. Swap
transactions include swaps, caps, floors and collars. Interest rate swaps
involve an agreement between two parties to exchange payments that are based,
for example, on variable and fixed rates of interest and that are calculated
on the basis of a specified amount of principal (the "notional principal
amount") for a specified period of time. Interest rate cap and floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the contra party when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which payments are made when a designated market interest rate either goes
above a designated ceiling level or goes below a designated floor level on
predetermined dates or during a specified time period. Currency swaps, caps,
floors and collars are similar to interest rate swaps, caps, floors and
collars but they are based on currency exchange rates rather than interest
rates.
The Fund may enter into interest rate swap transactions to preserve a return
or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities it anticipates purchasing at a
later date. The Fund intends to use these transactions as a hedge and not as a
speculative investment. Interest rate swap transactions are subject to risks
comparable to those described above with respect to other hedging strategies.
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these interest rate swap transactions are entered
into for good faith hedging purposes, and inasmuch as segregated accounts will
be established with respect to such transactions, Mitchell Hutchins and the
Sub-Adviser believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to the Fund's borrowing
restrictions. The net amount of the excess, if any, of the Fund's obligations
over its entitlements with respect to each interest rate swap will be accrued
on a daily basis, and appropriate Fund assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account as described above in "Investment Policies and Restrictions--
Segregated Accounts." The Fund also will establish and maintain such
segregated accounts with respect to its total obligations under any swaps that
are not entered into on a net basis and with respect to any caps, floors and
collars that are written by the Fund.
21
<PAGE>
The Fund will enter into swap transactions only with banks and recognized
securities dealers believed by Mitchell Hutchins and the Sub-Adviser to
present minimal credit risk in accordance with guidelines established by the
Fund's board. If there is a default by the other party to such a transaction,
the Fund will have to rely on its contractual remedies (which may be limited
by bankruptcy, insolvency or similar laws) pursuant to the agreements related
to the transaction.
22
<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>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Margo N. Alexander**; 51 Trustee and President Mrs. Alexander is presi-
dent, 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 pres-
ident and a director or
trustee of 31 invest-
ment companies for
which Mitchell Hutchins
or PaineWebber serves
as investment adviser.
Richard Q. Armstrong; 63 Trustee Mr. Armstrong is chair-
78 West Brother Drive man and principal of
Greenwich, CT 06830 RQA Enterprises (man-
agement consulting
firm) (since April 1991
and principal occupa-
tion since March 1995).
Mr. Armstrong is also a
director of Hi Lo Auto-
motive, Inc. He was
chairman of the board,
chief executive officer
and co-owner of Adiron-
dack Beverages (pro-
ducer 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 con-
sulting firm) (December
1992-September 1993).
He was managing direc-
tor of LVMH U.S. Corpo-
ration (U.S. subsidiary
of the French luxury
goods conglomerate,
Louis Vuitton Moet
Hennessey Corporation)
(1987-1991) and chair-
man of its wine and
spirits subsidiary,
Schieffelin & Somerset
Company (1987-1991).
Mr. Armstrong is a di-
rector or trustee of 30
investment companies
for which Mitchell
Hutchins or PaineWebber
serves as investment
adviser.
E. Garrett Bewkes, Jr.**; 71 Trustee and Chairman Mr. Bewkes is a director
of the Board of Trustees of Paine Webber Group
Inc. ("PW Group")
(holding company of
PaineWebber and Mitch-
ell Hutchins).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Prior to December 1995,
he was a consultant to
PW Group. Prior to
1988, he was chairman
of the board, president
and chief executive of-
ficer of American Bak-
eries Company. Mr.
Bewkes is also a direc-
tor of Interstate Bak-
eries Corporation and
NaPro BioTherapeutics,
Inc. Mr. Bewkes is a
director or trustee of
31 investment companies
for which Mitchell
Hutchins or PaineWebber
serves as investment
adviser.
Richard R. Burt; 51 Trustee Mr. Burt is chairman of
1275 Pennsylvania Ave, N.W. IEP Advisors, Inc. (in-
Washington, D.C. 20004 ternational investments
and consulting firm)
(since March 1994) and
a partner of McKinsey &
Company (management
consulting firm) (since
1991). He is also a di-
rector of Archer-Dan-
iels-Midland Co. (agri-
cultural commodities),
Hollinger International
Co. (publishing), Home-
stake Mining Corp.,
Powerhouse Technologies
Inc. and Wierton Steel
Corp. He was the chief
negotiator in the Stra-
tegic Arms Reduction
Talks with the former
Soviet Union (1989-
1991) and the U.S. Am-
bassador to the Federal
Republic of Germany
(1985-1989). Mr. Burt
is a director or
trustee of 30 invest-
ment companies for
which Mitchell Hutchins
or PaineWebber serves
as investment adviser.
Mary C. Farrell**; 48 Trustee Ms. Farrell is a manag-
ing director, senior
investment strategist
and member of the In-
vestment Policy Commit-
tee of PaineWebber. Ms.
Farrell joined
PaineWebber in 1982.
She is a member of the
Financial Women's Asso-
ciation and Women's
Economic Roundtable and
appears as a regular
panelist on Wall $treet
Week with Louis
Rukeyser. She also
serves on the Board of
Overseers of New York
University's Stern
School of Business. Ms.
Farrell is a director
or trustee of 30 in-
vestment companies for
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
which Mitchell Hutchins
or PaineWebber serves
as investment adviser.
Meyer Feldberg; 56 Trustee Mr. Feldberg is Dean and
Columbia University Professor of Management
101 Uris Hall of the Graduate School
New York, New York 10027 of Business, Columbia
University. Prior to
1989, he was president
of the Illinois Insti-
tute of Technology.
Dean Feldberg is also a
director of Primedia,
Inc., Federated Depart-
ment Stores, Inc. and
Revlon, Inc. Dean
Feldberg is a director
or trustee of 32 in-
vestment companies for
which Mitchell
Hutchins, PaineWebber
or their affiliates
serves as investment
adviser.
George W. Gowen; 68 Trustee Mr. Gowen is a partner
666 Third Avenue in the law firm of Dun-
New York, New York 10017 nington, Bartholow &
Miller. Prior to May
1994, he was a partner
in the law firm of Fry-
er, Ross & Gowen.
Mr. Gowen is a director
or trustee of 30 in-
vestment companies for
which Mitchell Hutchins
or PaineWebber serves
as investment adviser.
Frederic V. Malek; 61 Trustee Mr. Malek is chairman of
1455 Pennsylvania Avenue, N.W. Thayer Capital Partners
Suite 350 (merchant bank). From
Washington, D.C. 20004 January 1992 to Novem-
ber 1992, he was cam-
paign manager of Bush-
Quayle '92. From 1990
to 1992, he was vice
chairman and, from 1989
to 1990, he was presi-
dent of Northwest Air-
lines Inc., NWA Inc.
(holding company of
Northwest Airlines
Inc.) and Wings Hold-
ings Inc. (holding com-
pany of NWA Inc.).
Prior to 1989, he was
employed by the
Marriott Corporation
(hotels, restaurants,
airline catering and
contract feeding),
where he most recently
was an executive vice
president and pres-
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
ident of Marriott Hotels
and Resorts. Mr. Malek is
also a director of Ameri-
can Management Systems,
Inc. (management consult-
ing and computer related
services), Automatic Data
Processing, Inc., CB Com-
mercial Group, Inc. (real
estate services), Choice
Hotels International (ho-
tel and hotel franchis-
ing), FPL Group, Inc.
(electric services),
Integra, Inc. (bio-medi-
cal), Manor Care, Inc.
(health care), National
Education Corporation and
Northwest Airlines Inc.
Mr. Malek is a director or
trustee of 30 investment
companies for which Mitch-
ell Hutchins or
PaineWebber serves as in-
vestment adviser.
Carl W. Schafer; 62 Trustee Mr. Schafer is president of
#1100 66 Witherspoon St. the Atlantic Foundation
Princeton, NJ 08542 (charitable foundation
supporting mainly oceano-
graphic exploration and
research). He is a direc-
tor of Bare Ten Systems,
Inc. (software) Roadway
Express, Inc. (trucking),
The Guardian Group of Mu-
tual Funds, the Harding,
Loevner Funds, Evans Sys-
tems, Inc. (motor fuels,
convenience store and di-
versified company), Elec-
tronic Clearing House,
Inc., (financial transac-
tions processing), Fron-
tier Oil Corporation and
Nutraceutix, Inc. (bio-
technology company). Prior
to January 1993, he was
chairman of the Investment
Advisory Committee of the
Howard Hughes Medical In-
stitute. Mr. Schafer is a
director or trustee of 30
investment companies for
which Mitchell Hutchins or
PaineWebber serves as an
investment adviser.
Julieanna Berry; 40 Vice President Ms. Berry is a first vice
president and a portfolio
manager of Mitchell
Hutchins. Ms. Berry is a
vice president of two in-
vestment companies for
which Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
Karen L. Finkel; 40 Vice President Mrs. Finkel is a senior vice
president and a portfolio man-
ager of Mitchell Hutchins.
Mrs. Finkel is a vice presi-
dent of two investment compa-
nies for which Mitchell
Hutchins serves as investment
adviser.
James F. Keegan; 37 Vice President Mr. Keegan is a senior vice
president and a portfolio Man-
ager of Mitchell Hutchins.
Prior to March 1996, he was a
director of fixed income
strategy and research of
Merrion Group, L.P. From 1987
to 1994, he was a vice presi-
dent of global investment man-
agement of Bankers Trust. Mr.
Keegan is a vice president of
three investment companies for
which Mitchell Hutchins or
PaineWebber serves as invest-
ment adviser.
John J. Lee; 29 Vice President and Mr. Lee is a vice president and
Assistant Treasurer manager of the mutual fund fi-
nance department of Mitchell
Hutchins. Prior to September
1997, he was an audit manager
in the financial services
practice of Ernst &
Young LLP. Mr. Lee is a vice
president and assistant trea-
surer of 30 investment compa-
nies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Thomas J. Libassi; 39 Vice President Mr. Libassi is a senior vice
president and portfolio man-
ager of Mitchell Hutchins.
Prior to May 1994, he was a
vice president of Keystone
Custodian Funds Inc. with
portfolio management responsi-
bility. Mr. Libassi is a vice
president of six investment
companies for which Mitchell
Hutchins or PaineWebber serves
as investment adviser.
Dennis McCauley; 51 Vice President Mr. McCauley is a managing di-
rector and chief investment
officer--fixed income of
Mitchell Hutchins. Prior to
December 1994, he was director
of fixed income investments of
IBM Corporation. Mr. McCauley
is a vice president of 21
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
---------------------- ----------------------- --------------------
<C> <C> <S>
investment companies for
which Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Ann E. Moran; 41 Vice President and Ms. Moran is a vice presi-
Assistant Treasurer dent and a manager of the
mutual fund finance depart-
ment of Mitchell Hutchins.
Ms. Moran is a vice presi-
dent and assistant trea-
surer of 31 investment com-
panies for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
Dianne E. O'Donnell; 46 Vice President Ms. O'Donnell is a senior
and Secretary vice president and deputy
general counsel of Mitchell
Hutchins. Ms. O'Donnell is
a vice presi-dent and sec-
retary of 30 investment
companies and a vice presi-
dent and assistant secre-
tary of one investment com-
pany for which Mitchell
Hutchins or PaineWebber
serves as investment advis-
er.
Emil Polito; 37 Vice President Mr. Polito is a senior vice
president and director of
operations and control for
Mitchell Hutchins. From
March 1991 to September
1993, he was director of
the mutual funds sales sup-
port and service center for
Mitchell Hutchins and
PaineWebber. Mr. Polito is
a vice president of 31 in-
vestment 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 coun-
sel of Mitchell Hutchins.
Prior to May 1994, she was
a partner in the law firm
of Arnold & Porter. Ms.
Schonfeld is a vice presi-
dent of 30 investment com-
panies and a vice president
and secretary of one in-
vestment company for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Paul H. Schubert; 35 Vice President Mr. Schubert is a senior
and Treasurer vice president and director
of the mutual fund finance
department of Mitchell
Hutchins. From August 1992
to August 1994, he was a
vice
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------------ --------------------
<C> <C> <S>
president at BlackRock
Financial Management L.P.
Mr. Schubert is a vice
president and treasurer
of 31 investment compa-
nies for which Mitchell
Hutchins or PaineWebber
serves as investment ad-
viser.
Nirmal Singh; 42 Vice President Mr. Singh is a senior vice
president and a portfolio
manager of Mitchell
Hutchins. Prior to 1993,
he was a member of the
portfolio management team
at Merrill Lynch Asset
Management, Inc. Mr.
Singh is a vice president
of four investment compa-
nies for which Mitchell
Hutchins or PaineWebber
serves as investment ad-
viser.
Barney A. Taglialatela; 37 Vice President and Mr. Taglialatela is a vice
Assistant Treasurer president and a manager
of the mutual fund fi-
nance department of
Mitchell Hutchins. Prior
to February 1995, he was
a manager of the mutual
fund finance division of
Kidder Peabody Asset Man-
agement, Inc.
Mr. Taglialatela is a
vice president and assis-
tant treasurer of 31 in-
vestment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing
director and chief in-
vestment officer--U. S.
equity investments of
Mitchell Hutchins. Prior
to March 1995, he was a
vice president and di-
rected the U.S. funds
management and equity re-
search areas of Chase
Manhattan Private Bank.
Mr. Tincher is a vice
president of 13 invest-
ment companies for which
Mitchell Hutchins or
PaineWebber serves as in-
vestment adviser.
Craig M. Varrelman; 39 Vice President Mr. Varrelman is a senior
vice president and a
portfolio manager of
Mitchell Hutchins. Mr.
Varrelman is a vice
president of four
investment companies for
which Mitchell Hutchins
or PaineWebber serves as
investment adviser.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE POSITION WITH EACH TRUST OTHER DIRECTORSHIPS
---------------------- ------------------------ --------------------
<C> <C> <S>
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
Fund as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber, and/or PW Group.
The Trust presently has eight series and pays each trustee who is not an
"interested person" of the Trust $1,000 annually for each series. Therefore,
the Trust pays each such trustee $8,000 annually plus any additional amounts
due for board of committee meetings. The Trust pays an additional $150 for
each board meeting and each separate meeting of a board committee with respect
to each series. Each chairman of the audit and contract review committees of
individual funds within the PaineWebber fund complex receives additional
compensation, aggregating $15,000 annually, from the relevant funds. All board
members are reimbursed for any expenses incurred in attending meetings. Board
members and officers own in the aggregate less than 1% of the outstanding
shares of the Fund. Because PaineWebber, Mitchell Hutchins and the Sub-Adviser
perform substantially all the services necessary for the operation of the
Trust and the Fund, the Trust requires no employees. No officer, director or
employee of Mitchell Hutchins or PaineWebber presently receives any
compensation from the Trust for acting as a board member or officer.
The table below includes certain information relating to the estimated
compensation of the current board members who held office with the Trust or
with other PaineWebber funds during the Fund's initial fiscal year.
COMPENSATION TABLE+
<TABLE>
<CAPTION>
TOTAL
ESTIMATED COMPENSATION
AGGREGATE FROM THE
COMPENSATION TRUST AND
FROM THE THE FUND
NAME OF PERSON, POSITION TRUST* COMPLEX**
- ------------------------ ------------ ------------
<S> <C> <C>
Richard Q. Armstrong, Trustee......................... $12,350 $ 94,885
Richard R. Burt, Trustee.............................. $11,450 $ 87,085
Meyer Feldberg, Trustee............................... $12,350 $117,853
George W. Gowen, Trustee.............................. $13,423 $101,567
Frederic V. Malek, Trustee............................ $12,350 $ 95,845
Carl W. Schafer, Trustee.............................. $12,350 $ 94,885
</TABLE>
- --------
+ Only independent board members are compensated by the Trust and identified
above; board members who are "interested persons," as defined by the 1940
Act, do not receive compensation.
* Represents estimated fees to be paid to each Trustee from the Trust for the
initial fiscal year of the Fund.
** Represents total compensation paid to each board member during the calendar
ended December 31, 1997; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
30
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of , 1998, Mitchell Hutchins owned of record 100% of the Fund's
outstanding shares, and none of the trustees 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 Investment Advisory and
Administration Contract with the Trust dated , 1998 ("Advisory
Contract"). 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.
Under the terms of the Advisory Contracts, the Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3)
organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and state
securities laws and maintenance of such registrations and qualifications; (5)
fees and salaries payable to board members and officers who are not interested
persons (as defined in the 1940 Act) of the Trust or Mitchell Hutchins; (6)
all expenses incurred in connection with the board members' services,
including travel expenses; (7) taxes (including any income or franchise taxes)
and governmental fees; (8) costs of any liability, uncollectible items of
deposit and other insurance or fidelity bonds; (9) any costs, expenses or
losses arising out of a liability of or claim for damages or other relief
asserted against the applicable Trust or Fund for violation of any law; (10)
legal, accounting and auditing expenses, including legal fees of special
counsel for the independent board members; (11) charges of custodians,
transfer agents and other agents; (12) costs of preparing share certificates;
(13) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto, reports and proxy materials
for existing shareholders, and costs of mailing such materials to
shareholders; (14) any extraordinary expenses (including fees and
disbursements of counsel) incurred by the Fund; (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof;
(17) the cost of investment company literature and other publications provided
to board members and officers; and (18) costs of mailing, stationery and
communications equipment.
Under the Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. The Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the Fund's board or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.
The Advisory Contract authorizes Mitchell Hutchins to retain one or more
sub-advisers, but does not require Mitchell Hutchins to do so. Mitchell
Hutchins has entered into a separate contract with Invista dated , 1998
("Sub-Advisory Contract"), pursuant to which Invista determines what
securities will be
31
<PAGE>
purchased, sold or held by the Fund. Under the Sub-Advisory Contract, Mitchell
Hutchins (not the Fund) pays Invista a fee, computed daily and paid monthly,
at an annual rate of 0.42% of the Fund's average daily net assets up to and
including $100 million, 0.29% of the Fund's average daily net assets in excess
of $100 million up to and including $300 million and at an annual rate of
0.26% of the Fund's average daily net assets in excess of $300 million.
Invista bears all expenses incurred by it in connection with its services
under the Sub-Advisory Contract.
Under the Sub-Advisory Contract, Invista will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust,
International Fund, its shareholders or Mitchell Hutchins in connection with
the Sub-Advisory Contract, except any liability to Managed Trust, the Fund,
its shareholders or Mitchell Hutchins to which Invista would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under the Sub-Advisory Contract.
The Sub-Advisory Contract terminates automatically upon its assignment or
the termination of the Advisory Contract and is terminable at any time without
penalty by Managed Trust's board or by vote of the holders of a majority of
the Fund's outstanding voting securities on 60 days' notice to Invista, or by
Invista on 120 days' written notice to Mitchell Hutchins. The Sub-Advisory
Contract may also be terminated by Mitchell Hutchins (1) upon material breach
by Invista of its representations and warranties, which breach shall not have
been cured within a 20-day period after notice of such breach; (2) if Invista
becomes unable to discharge its duties and obligations under the Sub-Advisory
Contract or (3) on 120 days' notice to Invista.
NET ASSETS. The following table shows the approximate net assets as of
September 30, 1998, sorted by category of investment objective, of the
investment companies as to which Mitchell Hutchins serves as adviser or sub-
adviser. An investment company may fall into more than one of the categories
below.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ 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. Personnel of the Sub-Adviser may
also invest in securities for their own accounts pursuant to comparable codes
of ethics.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of each
class of shares of the Fund under separate distribution contracts with the
Trust (collectively, "Distribution Contracts"). The Distribution Contract
requires Mitchell Hutchins to use its best efforts, consistent with its other
businesses,
32
<PAGE>
to sell shares of the Fund. Shares of the Fund are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
relating to each class of shares of the Fund (collectively, "Exclusive Dealer
Agreements"), PaineWebber and its correspondent firms sell the Fund's shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares of the Fund adopted by the Trust in the manner prescribed under
Rule 12b-1 under the 1940 Act (each, respectively, a "Class A Plan," "Class B
Plan" and "Class C Plan," and collectively, "Plans"), the Fund pays Mitchell
Hutchins a service fee, accrued daily and payable monthly, at the annual rate
of 0.25% of the average daily net assets of each class of shares. Under the
Class B Plan, the Fund pays Mitchell Hutchins a distribution fee, accrued
daily and payable monthly, at the annual rate of 0.75% of the average daily
net assets of the Class B shares. Under the Class C Plan, the Fund pays
Mitchell Hutchins a distribution fee, accrued daily and payable monthly, at
the annual rate of 0.75% of the average daily net assets of the Class C
shares. 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 board members will review,
reports regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, (2) the Plan will continue in effect only
so long as it is approved at least annually, and any material amendment
thereto is approved, by the applicable board, including those board members
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 and (4) while the Plan remains in effect, the
selection and nomination of board members who are not "interested persons" of
the Trust shall be committed to the discretion of the board members who are
not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the board members, Mitchell
Hutchins allocates expenses attributable to the sale of each class of the
Fund's shares to such class based on the ratio of sales of shares of such
class to the sales of all three classes of shares. The fees paid by one class
of the Fund's shares will not be used to subsidize the sale of any other class
of Fund shares.
"Marketing and advertising" includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing the Fund's shares. These
internal costs encompass office rent, salaries and other overhead expenses of
various departments and areas of operations of Mitchell Hutchins. "Branch
network costs allocated and interest expense" consist of an allocated portion
of the expenses of various PaineWebber departments involved in the
distribution of the Fund's shares, including the PaineWebber retail branch
system.
In approving the Fund's overall Flexible PricingSM system of distribution,
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.
33
<PAGE>
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 of the Fund considered all the
features of the distribution system, including (1) the conditions under which
contingent deferred sales charges would be imposed and the amount of such
charges, (2) the advantage to investors in having no initial sales charges
deducted from Fund purchase payments and instead having the entire amount of
their purchase payments immediately invested in Fund shares, (3) Mitchell
Hutchins' belief that the ability of PaineWebber investment executives and
correspondent firms to receive sales commissions when Class B shares are sold
and continuing service fees thereafter while their customers invest their
entire purchase payments immediately in Class B shares would prove attractive
to the investment executives and correspondent firms, resulting in greater
growth of the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The board members also recognized that Mitchell Hutchins' willingness
to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.
In approving the Class C Plan, the board considered all the features of the
distribution system, including (1) the advantage to investors in having no
initial sales charges deducted from Fund purchase payments and instead having
the entire amount of their purchase payments immediately invested in Fund
shares, (2) the advantage to investors in being free from contingent deferred
sales charges upon redemption for shares held more than one year and paying
for distribution on an ongoing basis, (3) Mitchell Hutchins' belief that the
ability of PaineWebber investment executives and correspondent firms to
receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and generally do not
face contingent deferred sales charges, would prove attractive to the
investment executives and correspondent firms, resulting in greater growth to
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The board members also recognized that Mitchell Hutchins' willingness
to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges or
contingent deferred sales charges upon redemption, was conditioned upon its
expectation of being compensated under the Class C Plan.
With respect to the 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
34
<PAGE>
accrue to Mitchell Hutchins under each Plan in that Mitchell Hutchins would
receive service, distribution and advisory fees that are calculated based upon
a percentage of the average net assets of the Fund, which fees would increase
if the Plan were successful and the Fund attained and maintained significant
asset levels.
PORTFOLIO TRANSACTIONS
Subject to policies established by the board, the Sub-Adviser is responsible
for the execution of the Fund's portfolio transactions and the allocation of
brokerage transactions. In executing portfolio transactions, the Sub-Adviser
seeks to obtain the best net results for 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 the Sub-Adviser generally seeks reasonably
competitive commission rates, payment of the lowest commission is not
necessarily consistent with obtaining the best net results. Prices paid to
dealers in principal transactions, 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.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Fund contemplates that,
consistent with the policy of obtaining the best net results, brokerage
transactions may be conducted through Mitchell Hutchins or its affiliates,
including PaineWebber, or brokerage affiliates of Invista. The board has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to PaineWebber or brokerage affiliates of
the Sub-Adviser are reasonable and fair. Specific provisions in the Advisory
Contract and the Sub-Advisory Contract authorize Mitchell Hutchins and the
Sub-Adviser and any of their affiliates that is a member of a national
securities exchange to effect portfolio transactions for the Fund on such
exchange and to retain compensation in connection with such transactions. Any
such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations.
Transactions in futures contracts are executed through futures commission
merchants ('FCMs'), who receive brokerage commissions for their services. The
Fund's procedures in selecting FCMs to execute its transactions in futures
contracts, including procedures permitting the use of Mitchell Hutchins and
its affiliates or brokerage affiliates of the Sub-Adviser are similar to those
in effect with respect to brokerage transactions in securities.
Consistent with the interests of the Fund and subject to the review of the
board, the Sub-Adviser may cause the Fund to purchase and sell portfolio
securities through brokers who provide the Sub-Adviser 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 the Sub-Adviser determines in good faith that such
commission is reasonable in terms either of that particular transaction or of
the overall responsibility of the Sub-Adviser to the Fund and its other
clients, and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term to brokers chosen
research services.
For purchases or sales with broker-dealer firms that act as principal, the
Sub-Adviser seeks best execution. Although the Sub-Adviser may receive certain
research or execution services in connection with these transactions, the Sub-
Adviser will not purchase securities at a higher price or sell securities at a
lower price than would otherwise be paid if no weight was attributed to the
services provided by the executing
35
<PAGE>
dealer. Moreover, the Sub-Adviser will not enter into any explicit soft dollar
arrangements relating to principal transactions and will not receive in
principal transactions the types of services that could be purchased for hard
dollars. The Sub-Adviser 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 the Sub-Adviser
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 the
Sub-Adviser in advising other funds or accounts and, conversely, research
services furnished to the Sub-Adviser by brokers or dealers in connection with
other funds or accounts that 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 Contract or the Sub-Adviser under the
Sub-Advisory Contract.
Investment decisions for the Fund and for other investment accounts managed
by the Sub-Adviser are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for 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 the Fund's ability to complete the 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 or an affiliate of the Sub-Adviser is a member of the
underwriting or selling group, except pursuant to procedures adopted by each
board pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures require that the spread or commission paid in connection with such
a purchase be reasonable and fair, the purchase be at not more than the public
offering price prior to the end of the first business day after the date of
the public offering and that PaineWebber or any affiliate thereof or an
affiliate of the Sub-Adviser not participate in or benefit from the sale to
the Fund.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may vary
greatly from year to year, but it will not be a limiting factor when
management deems portfolio changes appropriate. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of securities in the portfolio during the year.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups
of related Fund investors may combine purchases of Class A shares of the Fund
with concurrent purchases of Class A shares of any other PaineWebber mutual
fund and thus take advantage of the reduced sales charges indicated in the
tables of sales charges for Class A shares in the Prospectus. The sales charge
payable on the purchase of
36
<PAGE>
Class A shares of the Funds and Class A shares of such other funds will be at
the rates applicable to the total amount of the combined concurrent purchases.
An "eligible group of related Fund investors" can consist of any combination
of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by the individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that other employer); or
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.
RIGHTS OF ACCUMULATIONS--CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the Fund among related accounts at the offering price applicable to
the total of (1) the dollar amount then being purchased plus (2) an amount
equal to the then-current net asset value of the purchaser's combined holdings
of Class A Fund shares and Class A shares of any other PaineWebber mutual
fund. The purchaser must provide sufficient information to permit confirmation
of his or her holdings, and the acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or terminated at
any time.
WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the death of the
shareholder. The contingent deferred sales charge waiver is available where
the decedent is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship. This waiver applies only
to redemption of shares held at the time of death.
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. Shareholders will
receive at least 60 days' notice of any termination or material modification
of the exchange offer, except no notice need be given if, under extraordinary
circumstances, either redemptions are suspended under the circumstances
described below or the Fund temporarily delays or ceases the sales of its
shares
37
<PAGE>
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 Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
it is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of its net asset value during any 90-day period for one shareholder.
This election is irrevocable unless the SEC permits its withdrawal.
The 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 an
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 low and high price levels.
SYSTEMATIC WITHDRAWAL PLAN. An investor's participation in the systematic
withdrawal plan will terminate automatically if the 'Initial Account Balance'
(a term that means the value of the Fund account at the time the investor
elects to participate in the systematic withdrawal plan) less aggregate
redemptions made other than pursuant to the systematic withdrawal plan is less
than $5,000 for Class A and Class C shareholders or $20,000 for Class B
shareholders. Purchases of additional shares of the Fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, initial sales charges. On or about the
20th of a month for monthly, quarterly, semiannual and annual plans,
PaineWebber will arrange for redemption by the Fund of sufficient Fund shares
to provide the withdrawal payments specified by participants in the Fund's
systematic withdrawal plan. The payments generally are mailed approximately
five Business Days (defined under "Valuation of Shares") after the redemption
date. Withdrawal payments should not be considered dividends, but redemption
proceeds, with the tax consequences described under "Dividends & Taxes" in the
Prospectus. If periodic withdrawals continually exceed reinvested dividends
and other distributions, a shareholder's investment may be correspondingly
reduced. A shareholder may change the amount of the systematic withdrawal or
terminate participation in the systematic withdrawal plan at any time without
charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in
the plan, change the withdrawal amount or terminate participation in the plan
will not be effective until five days after written instructions with
signatures guaranteed are received by the Transfer Agent. Shareholders may
request the
38
<PAGE>
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 Class A shares of the Fund may reinstate their
account 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
39
<PAGE>
amount in mutual fund shares at established intervals, an investor purchases
more shares when the price is lower and fewer shares when the price is higher,
thereby increasing his or her earning potential. Of course, dollar cost
averaging does not guarantee a profit or protect against a loss in a declining
market, and an investor should consider his or her financial ability to
continue investing through periods of both low and high share prices. However,
over time, dollar cost averaging generally results in a lower average original
investment cost than if an investor invested a larger dollar amount in a
mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the Plan,
an investor must have opened an RMA account with PaineWebber or one of its
correspondent firms. The RMA account is PaineWebber's comprehensive asset
management account and offers investors a number of features, including the
following:
. 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 the two classes,
as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of such Class
40
<PAGE>
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 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 Code and that the conversion of shares does
not constitute a taxable event. If the conversion feature ceased to be
available, the Class B shares would not be converted and would continue to be
subject to 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
continue to be met.
VALUATION OF SHARES
The Fund determines its net asset value per share separately for each class
of shares as of the close of regular trading (currently 4:00 p.m., Eastern
time) on the NYSE on each Business Day, which is defined as each Monday
through Friday when the NYSE is open. Currently the NYSE is closed on the
observance of the following holidays: New Year's Day, 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. and foreign stock exchanges are valued at
the last sale price on the day the securities are valued or, lacking any sales
on such day, at the last available bid price. In cases where securities are
traded on more than one exchange, the securities are generally valued on the
exchange considered by Mitchell Hutchins or the Sub-Adviser as the primary
market. Securities traded in the OTC market and listed on the Nasdaq Stock
Market ("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 (other than short-term investments that mature in 60 days
or less which are valued as described further below). 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. It should
be recognized that judgment often plays a greater role in valuing thinly
traded securities than is the case with respect to securities for which a
broader range of dealer quotations and last-sale information is available. The
amortized cost method of valuation generally is used to value debt obligations
with 60 days or less remaining until maturity, unless the board determines
that this does not represent fair value.
All investments quoted in foreign currency will be valued daily in U.S.
dollars on the basis of the foreign currency exchange rate prevailing at the
time such valuation is determined by the Fund's custodian. Foreign currency
exchange rates are generally determined prior to the close of regular trading
on the NYSE. Occasionally events affecting the value of foreign investments
and such exchange rates occur between the time at which they are determined
and the close of trading on the NYSE, which events would not be reflected in
the computation of the Fund's net asset value on that day. If events
materially affecting the value of such
41
<PAGE>
investments or currency exchange rates occur during such time period, the
investments will be valued at their fair value as determined in good faith by
or under the direction of the applicable board. The foreign currency exchange
transactions of the Fund conducted on a spot (that is, cash) basis are valued
at the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. Under normal market conditions this rate differs from the
prevailing exchange rate by less than one-tenth of one percent due to the
costs of converting from one currency to another.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in the Fund's Performance Advertisements are calculated
according to the following formula:
<TABLE>
<S> <C>
P(1 + T)n = ERV
a hypothetical initial payment of $1,000 to purchase shares of a
where: P = specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. In calculating the ending redeemable value, for Class A shares,
the maximum 4.5% sales charge is deducted from the initial $1,000 payment and,
for Class B and Class C shares, the applicable contingent deferred sales
charge imposed on a redemption of Class B or Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The Fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in Fund
shares and assuming the reinvestment of all dividends and other distributions.
The rate of return is determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the initial
value. Neither initial nor contingent deferred sales charges are taken into
account in calculating Non-Standardized Return; the inclusion of those charges
would reduce the return.
Both Standardized Return and Non-Standardized Return for Class B shares for
periods of over six years reflect conversion of the Class B shares to Class A
shares at the end of the sixth year.
OTHER INFORMATION. In Performance Advertisements, the Fund may compare its
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
42
<PAGE>
("Wiesenberger"), Investment Company Data, Inc. ("ICD") or Morningstar Mutual
Funds ("Morningstar"), with the performance of recognized stock and other
indices, including (but not limited to) the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"), the Dow Jones Industrial Average, the
International Finance Corporation Global Total Return Index, the Nasdaq
Composite Index, the Russell 2000 Index, the Wilshire 5000 Index, 30-year and
10-year U.S. Treasury bonds, the Morgan Stanley Capital International
Perspective Indices, the Morgan Stanley Capital International Energy Sources
Index, the Standard & Poor's Oil Composite Index, the Morgan Stanley Capital
International World Index (including Asia Pacific regional indices), Morgan
Stanley Capital International EAFE (Europe, Australia and Far East) Index and
World Index, the Salomon Brothers Non-U.S. Dollar Index, the Salomon Brothers
Non-U.S. World Government Bond Index, the Salomon Brothers World Government
Index, other similar Salomon Brothers indices or components thereof 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 Funds and comparative
mutual fund data and ratings reported in independent periodicals, including
(but not limited to) THE WALL STREET JOURNAL, MONEY MAGAZINE, FORBES, BUSINESS
WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO
TRIBUNE, THE WASHINGTON POST AND THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding' refers to the fact
that, if dividends or other distributions on the 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 values will fluctuate. The debt
securities held by the Fund generally have longer maturities than most CDs and
may reflect interest rate fluctuations for longer term debt securities. An
investment in the Fund involves greater risks than an investment in either a
money market fund or a CD.
43
<PAGE>
The Fund may also compare its performance to general trends in the stock and
bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
[CHART]
[TO BE UPDATED]
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. Stocks are measured by the S&P 500, an unmanaged
weighted index comprising 500 widely held common stock and varying in
composition. Unlike investors in bonds and U.S. Treasury bills, common stock
investors do not receive fixed income payments and are not entitled to
repayment of principal. These differences contribute to investment risk.
Returns shown for long-term government bonds are based on U.S. Treasury bonds
with 20- year maturities. Inflation is measured by the Consumer Price Index.
The indexes are unmanaged and are not available for investment.
- --------
Source: Ibbotson Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex
A. Sinquefield).
Over time, 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. A $10,000 investment in the S&P 500 grew to
$18,272,762, significantly more than any other investment.
TAXES
In order to qualify for treatment as a RIC under the Code, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign
currency transactions) ("Distribution Requirement") and must meet several
additional requirements. For the Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable
44
<PAGE>
year from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or foreign currencies,
or other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) 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. If the Fund failed to qualify for
treatment as a RIC for any taxable year, it would be taxed as an ordinary
corporation on its taxable income for that year (even if that income was
distributed to its shareholders) and all distributions out of its earnings and
profits would be taxable to its shareholders, as dividends (that is, ordinary
income).
Dividends and other distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid by
the Fund during the following January. Accordingly, those distributions will
be taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or 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
alternative minimum tax.
If shares of the Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for any dividend or capital gain distribution, the shareholder
will pay full price for the shares and receive some portion of the price back
as a taxable distribution.
Dividends and interest received, and gains realized, by the Fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that
would reduce the yield and/or total return on its securities. However, tax
conventions between certain countries and the United States may reduce or
eliminate foreign taxes and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors. If more than 50%
of the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, it will be eligible to, and
may, file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign taxes paid by it. Pursuant to the election, the Fund
would treat those taxes as dividends paid to its shareholders and each
shareholder would be required to (1) include in gross income, and treat as
paid by him or her, his or her proportionate share of those taxes, (2) treat
his or her share of those taxes and of any dividend paid by the Fund that
represents income from foreign or U.S. possessions sources as his or her own
income from those sources, and (3) either deduct the foreign taxes deemed paid
by him or her in computing his or her taxable income or, alternatively, use
the foregoing information in calculating the foreign tax credit against his or
her federal
45
<PAGE>
income tax. If the Fund makes this election, it will report to its
shareholders, shortly after each taxable year, their respective shares of the
foreign taxes paid by the Fund on its income from foreign countries and U.S.
possession sources.
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 of 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 the Fund is
U.S. shareholder (effective for their taxable years beginning November 1,
1998)--that, in general, meets either of the following tests: (1) at least 75%
of its gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, the Fund will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain from
disposition of such stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it
to the extent that income is distributed to its shareholders. If a Fund
invests in a PFIC and elects to treat the PFIC as a "qualified electing fund"
("QEF"), then in lieu of the foregoing tax and interest obligation, the Fund
will be required to include in income each year its pro rata share of the
QEF's annual ordinary earnings and net capital gain (the excess of net long-
term capital gain over net short-term capital loss)--which may have to be
distributed by the Fund to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax--even if those earnings and gain are not
distributed to the Fund by the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain of its
requirements.
Effective for their taxable years beginning November 1, 1998, 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 a PFIC's 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 by the Fund for prior taxable years.
The Fund's adjusted basis in each PFIC's stock with respect to which it has
made this election will be adjusted to reflect the amounts of income included
and deductions taken under the election. Regulations proposed in 1992 would
have provided a similar election with respect to the stock of certain PFIC's.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the amount,
character and timing of recognition of the gains and losses the Fund realizes
in connection therewith. Gains from the disposition of foreign currencies
(except certain gains that may be excluded by future regulations), and gains
from options, futures and forward currency contracts derived by the Fund with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement.
The Fund may acquire zero coupon or other securities issued with original
issue discount, on which principal is adjusted based on changes in the
Consumer Price Index. The Fund must include in its gross income the portion of
the original issue discount that accrues on such securities during the taxable
year, even if the Fund receives no corresponding payment on them during the
year. Because the Fund annually must distribute substantially all of its
investment company taxable income, including any accrued original issue
46
<PAGE>
discount, to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from the Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gain.
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 Fund or the Trust. However, each Trust's Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust or the Fund and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the board members or
by any officers or officer by or on behalf of the Trust or the Fund, the board
members or any of them in connection with the Trust. The Declaration of Trust
provides for indemnification from the relevant 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 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 would be entitled to reimbursement from the
general assets of the relevant Fund. The board members intend to conduct each
Fund's operations in such a way as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. The Fund may determine to allocate certain of its
expenses (in addition to service and distribution fees) to the specific
classes of its shares to which those expenses are attributable. For example,
Class B and Class C shares bear higher transfer agency fees per shareholder
account than those borne by Class A or Class Y shares. The higher fee is
imposed due to the higher costs incurred by the Transfer Agent in tracking
shares subject to a contingent deferred sales charge because, upon redemption,
the duration of the shareholder's investment must be determined in order to
determine the applicable charge. Although the transfer agency fee will differ
on a per account basis as stated above, the specific extent to which the
transfer agency fees will differ between the classes as a percentage of net
assets is not certain, because the fee as a percentage of net assets will be
affected by the number of shareholder accounts in each class and the relative
amounts of net assets in each class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Fund.
Kirkpatrick & Lockhart LLP also acts as counsel to PaineWebber and Mitchell
Hutchins in connection with other matters.
AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
serves as independent auditors for the Fund.
47
<PAGE>
APPENDIX
RATINGS INFORMATION
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 edged." 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 risk 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 payment 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 applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through CAA. The modifier 1 indicates that the
obligation 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 highest rated
issues only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong; 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
A-1
<PAGE>
significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations 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; 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 commitment 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.
r. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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 A FUND OR ITS DISTRIBUTOR. THE PROSPECTUS AND
THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY ANY
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>
Investment Policies and Restrictions..................................... 1
Strategies Using Derivative Instruments.................................. 12
Trustees and Officers; Principal Holders of Securities................... 23
Control Persons and Principal Holders of Securities...................... 31
Investment Advisory and Distribution Arrangements........................ 31
Portfolio Transactions................................................... 35
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 36
Conversion of Class B Shares............................................. 40
Valuation of Shares...................................................... 41
Performance Information.................................................. 42
Taxes.................................................................... 44
Other Information........................................................ 47
Appendix................................................................. A-1
</TABLE>
(C)1998 PaineWebber Incorporated
PAINEWEBBER
INTERNATIONAL
EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
, 1998
- --------------------------------------------------------------------------------
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
-------------------------
<TABLE>
<CAPTION>
Item 23. Exhibits
--------
<S> <C>
(1) (a) Amended and Restated Declaration of Trust 1/
-
(b) Amendment to Declaration of Trust effective April 8, 1998 9/
-
(c) Amendment to Declaration of Trust effective July 9, 1998 9/
-
(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 9/
-
(f) Form of Investment Advisory and Administration Contract with respect to
PaineWebber International Equity Fund (filed herewith)
(g) Sub-Investment Advisory Contract with respect to PaineWebber Low Duration U.S.
Government Income Fund 4/
-
(h) Sub-Advisory Contract with respect to PaineWebber Asia Pacific Growth Fund 3/
-
(i) Form of Sub-Advisory Contract with respect to PaineWebber International
Equity Fund (filed herewith)
(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
</TABLE>
C-1
<PAGE>
(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/
-
(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 9/
-
(g) Form of Distribution Fee Addendum with respect to Class C
shares of PaineWebber International 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 reference from Post-Effective Amendment No. 53, SEC
- - File No. 2-91362, filed March 31, 1998.
9/ Incorporated by reference from Post-Effective Amendment No. 54, Sec
- - File No. 2-91362, filed July 21, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
C-2
<PAGE>
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.
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 each 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, PaineWebber Asia Pacific Growth Fund and
PaineWebber International Equity 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
C-3
<PAGE>
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.
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.
Invista Capital Management, Inc. ("Invista") is expected to serve as
investment sub-adviser for PaineWebber International Equity Fund. Invista, an
Iowa corporation, is a registered investment adviser and is an indirect, wholly
owned subsidiary of Principal Life Insurance Company. Invista is engaged
primarily in the investment advisory business. Information as to the officers
and directors of Invista is included in its Form ADV, as filed with the
Securities and Exchange Commission (registration number 801-23020), and is
incorporated herein by reference.
C-4
<PAGE>
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 INSTITUTIONAL SERIES
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
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 President, Chief Executive Officer and a
Director of Mitchell Hutchins and
Executive Vice President and a Director
of PaineWebber
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Position and Offices with
Name Position With Registrant Underwriter or Exclusive Dealer
- ---- ------------------------ -------------------------------
<S> <C> <C>
Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and member of Investment
Policy Committee of PaineWebber
Julianna Berry Vice President First Vice President and a Portfolio
Manager of Mitchell Hutchins
Karen L. Finkel Vice President Senior 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
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 Senior Vice President and Director of the
Mutual Fund Finance Department of
Mitchell Hutchins
Nirmal Singh Vice President Senior 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 Senior 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
(c) None.
</TABLE>
C-6
<PAGE>
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-7
<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 20th day of August, 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 August 20, 1998
Margo N. Alexander * (Chief Executive Officer)
/s/ E. Garrett Bewkes, Jr.
- -------------------------------------------- Trustee and Chairman August 20, 1998
E. Garrett Bewkes, Jr. * of the Board of Trustees
/s/ Richard Q. Armstrong
- -------------------------------------------- Trustee August 20, 1998
Richard Q. Armstrong *
/s/ Richard R. Burt
- -------------------------------------------- Trustee August 20, 1998
Richard R. Burt *
/s/ Mary C. Farrell
- -------------------------------------------- Trustee August 20, 1998
Mary C. Farrell *
/s/ Meyer Feldberg
- -------------------------------------------- Trustee August 20, 1998
Meyer Feldberg *
/s/ George W. Gowen
- -------------------------------------------- Trustee August 20, 1998
George W. Gowen *
/s/ Frederick V. Malek
- -------------------------------------------- Trustee August 20, 1998
Frederic V. Malek *
/s/ Carl W. Schafer
- -------------------------------------------- Trustee August 20, 1998
Carl W. Schafer *
/s/ Paul H. Schubert
- -------------------------------------------- Vice President and Treasurer (Chief August 20, 1998
Paul H. Schubert Financial and Accounting Officer)
</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 9/
-
(c) Amendment to Declaration of Trust effective July 9, 1998 9/
-
(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 9/
-
(f) Form of Investment Advisory and Administration Contract with respect to
PaineWebber International Equity Fund (filed herewith)
(g) Sub-Investment Advisory Contract with respect to PaineWebber Low Duration
U.S. Government Income Fund 4/
-
(h) Sub-Advisory Contract with respect to PaineWebber Asia Pacific Growth Fund 3/
-
(i) Form of Sub-Advisory Contract with respect to PaineWebber International
Equity Fund (filed herewith)
(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)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(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/
-
(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 9/
-
(g) Form of Distribution Fee Addendum with respect to Class C shares
of PaineWebber International Equity Fund (filed herewith)
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 7/
-
</TABLE>
- -----------------
<TABLE>
<S> <C>
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 reference from Post-Effective Amendment No. 53, SEC File
- -
No. 2-91362, filed March 31, 1998.
9/ Incorporated by reference from Post-Effective Amendment No. 54, Sec File
- -
No. 2-91362, filed July 21, 1998.
</TABLE>
<PAGE>
Exhibit No. 4(f)
FORM OF INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of _________, 1998 between PAINEWEBBER MANAGED INVESTMENTS
TRUST, a Massachusetts business trust ("Trust"), and MITCHELL HUTCHINS ASSET
MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended ("1934
Act"), and as an investment adviser under the Investment Advisers Act of 1940,
as amended,
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company, and
offers for public sale two distinct series of shares of beneficial interest,
which correspond to distinct portfolios, one of which has been designated as
PaineWebber International Equity Fund; and
WHEREAS the Trust desires to retain Mitchell Hutchins as investment adviser
and administrator to furnish certain administrative, investment advisory and
portfolio management services to the Trust with respect to PaineWebber
International Equity Fund and any other Series as to which this Contract may
hereafter be made applicable (each a "Series"), and Mitchell Hutchins is willing
to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints Mitchell Hutchins as investment
-----------
adviser and administrator of the Trust and each Series for the period and on the
terms set forth in this Contract. Mitchell Hutchins accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Duties as Investment Adviser.
----------------------------
(a) Subject to the supervision of the Trust's Board of Trustees ("Board"),
Mitchell Hutchins will provide a continuous investment program for a Series,
including investment research and management with respect to all securities and
investments and cash equivalents in the Series, and may allocate the Series'
portfolio investments between countries, regions or types of investments.
Mitchell Hutchins will determine from time to time what securities and other
investments will be purchased, retained or sold by the Series. Mitchell
Hutchins may delegate to a sub-adviser, in whole or in part, Mitchell Hutchins'
duty to provide a continuous investment management program with respect to any
Series, including the provision of investment management services with respect
to a portion of the Series' assets, in accordance with paragraph 5 of this
Agreement.
<PAGE>
(b) Mitchell Hutchins agrees that in placing orders with brokers, it will
attempt to obtain the best net result in terms of price and execution; provided
that, on behalf of any Series, Mitchell Hutchins may, in its discretion, use
brokers who provide the Series with research, analysis, advice and similar
services to execute portfolio transactions on behalf of the Series, and Mitchell
Hutchins may pay to those brokers in return for brokerage and research services
a higher commission than may be charged by other brokers, subject to Mitchell
Hutchins' determining in good faith that such commission is reasonable in terms
either of the particular transaction or of the overall responsibility of
Mitchell Hutchins to such Series and its other clients and that the total
commissions paid by such Series will be reasonable in relation to the benefits
to the Series over the long term. In no instance will portfolio securities be
purchased from or sold to Mitchell Hutchins, or any affiliated person thereof,
except in accordance with the federal securities laws and the rules and
regulations thereunder, or any applicable exemptive orders. Whenever Mitchell
Hutchins simultaneously places orders to purchase or sell the same security on
behalf of a Series and one or more other accounts advised by Mitchell Hutchins,
such orders will be allocated as to price and amount among all such accounts in
a manner believed to be equitable to each account. The Trust recognizes that in
some cases this procedure may adversely affect the results obtained for the
Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series, and will
furnish the Board with such periodic and special reports as the Board reasonably
may request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Mitchell Hutchins hereby agrees that all records which it maintains for the
Trust are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-l under the 1940
Act and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) Mitchell Hutchins will oversee the computation of the net asset value
and the net income of each Series as described in the currently effective
registration statement of the Trust under the Securities Act of 1933, as
amended, and the 1940 Act and any supplements thereto ("Registration Statement)
or as more frequently requested by the Board.
(e) The Trust hereby authorizes Mitchell Hutchins and any entity or person
associated with Mitchell Hutchins which is a member of a national securities
exchange to effect any transaction on such exchange for the account of any
Series, which transaction is permitted by Section 11(a) of the 1934 Act and the
rules thereunder, and the Trust hereby consents to the retention of compensation
by Mitchell Hutchins or any person or entity associated with Mitchell Hutchins
for such transaction.
3. Duties as Administrator. Mitchell Hutchins will administer the
-----------------------
affairs of the Trust and each Series subject to the supervision of the Board and
the following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of the
Trust and each Series, including oversight of transfer agency, custodial and
accounting services, except as hereinafter set forth; provided, however, that
nothing herein contained shall be deemed to relieve
2
<PAGE>
or deprive the Board of its responsibility for and control of the conduct of the
affairs of the Trust and each Series.
(b) Mitchell Hutchins will provide the Trust and each Series with such
corporate, administrative and clerical personnel (including officers of the
Trust) and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the Trust and
each Series.
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement, proxy material, tax returns and required reports to each
Series' shareholders and the Securities and Exchange Commission and other
appropriate federal or state regulatory authorities.
(d) Mitchell Hutchins will provide the Trust and each Series with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery supplies and
similar items.
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
4. Further Duties. In all matters relating to the performance of this
--------------
Contract, Mitchell Hutchins will act in conformity with the Declaration of
Trust, By-Laws, and Registration Statement of the Trust and with the
instructions and directions of the Board and will comply with the requirements
of the 1940 Act, the rules thereunder, and all other applicable federal and
state laws and regulations.
5. Delegation of Mitchell Hutchins' Duties as Investment Adviser and
-----------------------------------------------------------------
Administrator. With respect to any or all Series, Mitchell Hutchins may enter
- -------------
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
one or more sub-advisers or sub-administrators in which Mitchell Hutchins
delegates to such sub-advisers or sub-administrators any or all of its duties
specified in Paragraphs 2 and 3 of this Contract, provided that each Sub-
Advisory or Sub-Administration Contract imposes on the sub-adviser or sub-
administrator bound thereby all the corresponding duties and conditions to which
Mitchell Hutchins is subject by Paragraphs 2 and 3 of this Contract and all the
duties and conditions of paragraph 4 of this Contract, and further provided that
each Sub-Advisory or Sub-Administration Contract meets all requirements of the
1940 Act and rules thereunder. Furthermore, to the extent consistent with the
regulations and orders of the Securities and Exchange Commission, the
appointment and engagement of any sub-advisor and delegation to it of duties
hereunder by Mitchell Hutchins shall be subject only to the approval of the
Board of Trustees of the Trust.
6. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby or unless otherwise agreed to by the parties hereunder
in writing. Nothing in this Contract shall limit or restrict the
3
<PAGE>
right of any director, officer or employee of Mitchell Hutchins, who may also be
a Trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature.
7. Expenses.
--------
(a) During the term of this Contract, each Series will bear all expenses,
not specifically assumed by Mitchell Hutchins, incurred in its operations and
the offering of its shares.
(b) Expenses borne by each series will include but not be limited to the
following (or each Series' proportionate share of the following): (i) the cost
(including brokerage commissions) of securities purchased or sold by the Series
and any losses incurred in connection therewith; (ii) fees payable to and
expenses incurred on behalf of the Series by Mitchell Hutchins under this
Contract; (iii) expenses of organizing the Trust and the Series; (iv) filing
fees and expenses relating to the registrations and qualification of the Series'
shares and the Trust under federal and/or securities laws and maintaining such
registration and qualifications; (v) fees and salaries payable to the Trust's
Trustees and officers who are not interested persons of the Trust or Mitchell
Hutchins; (vi) all expenses incurred in connection with the Trustees' services,
including travel expenses; (vii) taxes (including any income or franchise taxes)
and governmental fees; (viii) costs of any liability, uncollectible items of
deposit and other insurance and fidelity bonds; (ix) any costs, expenses or
losses arising out of a liability of or claim for damages or other relief
asserted against the Trust or Series for violation of any law; (x) legal,
accounting and auditing expenses, including legal fees of special counsel for
those Trustees of the Trust who are not interested persons of the Trust; (xi)
charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders;
(xiv) costs of mailing prospectuses and supplements thereto, statements of
additional information and supplements thereto, reports and proxy materials to
existing shareholders; (xv) any extraordinary expenses (including fees and
disbursements of counsel, costs of actions, suits or proceedings to which the
Trust is a party and the expenses the Trust may incur as a result of its legal
obligation to provide indemnification to its officers, Trustees, agents and
shareholders) incurred by the Trust or Series; (xvi) fees, voluntary assessments
and other expenses incurred in connection with membership in investment company
organizations; (xvii) cost of mailing and tabulating proxies and costs of
meetings of shareholders, the Board and any committees thereof; (xviii) the cost
of investment company literature and other publications provided by the Trust to
its Trustees and officers; (xix) costs of mailing, stationery and communications
equipment; (xx) expenses incident to any dividend, withdrawal or redemption
options; (xxi) charges and expenses of any outside pricing service used to value
portfolio securities; and (xxii) interest on borrowings of the Fund.
(c) The Trust or a Series may pay directly any expenses incurred by it in
its normal operations and, if any such payment is consented to by Mitchell
Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to
this Contract, the Series may reduce the fee
4
<PAGE>
payable to Mitchell Hutchins pursuant to Paragraph 8 thereof by such amount. To
the extent that such deductions exceed the fee payable to Mitchell Hutchins on
any monthly payment date, such excess shall be carried forward and deducted in
the same manner from the fee payable on succeeding monthly payment dates.
(d) Mitchell Hutchins will assume the cost of any compensation for
services provided to the Trust received by the officers of the Trust and by
those Trustees who are interested persons of the Trust.
(e) The payment or assumption by Mitchell Hutchins of any expenses of the
Trust or a Series that Mitchell Hutchins is not required by this Contract to pay
or assume shall not obligate Mitchell Hutchins to pay or assume the same or any
similar expense of the Trust or a Series on any subsequent occasion.
8. Compensation.
------------
(a) For the services provided and the expenses assumed pursuant to this
Contract, with respect to International Equity Fund, the Trust will pay to
Mitchell Hutchins a fee, computed daily and paid monthly, at an annual rate of
____% of the average daily net assets of such Series.
(b) For the services provided and the expenses assumed pursuant to this
Contract with respect to any other Series, the Trust will pay to Mitchell
Hutchins from the assets of such Series a fee in an amount to be agreed upon in
a written fee agreement ("Fee Agreement") executed by the Trust on behalf of
such Series and by Mitchell Hutchins. All such Fee Agreements shall provide that
they are subject to all terms and conditions of this Contract.
(c) The fee shall be computed daily and paid monthly to Mitchell Hutchins
on or before the first business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective day to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
9. Limitation of Liability of Mitchell Hutchins. Mitchell Hutchins and
--------------------------------------------
its delegates, including any Sub-Adviser or Sub-Administrator to any Series or
the Trust, shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Series, the Trust or any of its shareholders, in
connection with the matters to which this Contract relates, except to the extent
that such a loss results from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Contract. Any person, even though also an
officer, director, employee, or agent of Mitchell Hutchins, who may be or become
an officer, Trustee, employee or agent of the Trust shall be deemed, when
rendering services to any Series or the Trust or acting with respect to any
business of such Series or the Trust, to be rendering such service to or acting
solely for the Series
5
<PAGE>
or the Trust and not as an officer, director, employee, or agent or one under
the control or direction of Mitchell Hutchins even though paid by it.
10. Limitation of Liability of the Trustees and Shareholders of the
---------------------------------------------------------------
Trust. No Trustee, shareholder, officer, employee or agent of any Series shall
be liable for any obligations of any Series or the Trust under this Contract,
and Mitchell Hutchins agrees that, in asserting any rights or claims under this
Contract, it shall look only to the assets and property of the Trust in
settlement of such right or claim, and not to any Trustee, shareholder, officer,
employee or agent.
11. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove written
provided that, with respect to any Series, this Contract shall not take effect
unless it has first been approved (i) by a vote of a majority of those Trustees
of the Trust who are not parties to this Contract or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of that Series' outstanding voting
securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those Trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Mitchell Hutchins or
by Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Trust. Termination of this Contract with respect to
any given Series shall in no way affect the continued validity of this Contract
or the performance thereunder with respect to any other Series. This Contract
will automatically terminate in the event of its assignment.
12. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this contract as to any
given Series shall be effective until approved by vote of a majority of such
Series' outstanding voting securities.
13. Governing Law. This Contract shall be construed in accordance with
-------------
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act, provided, however,
that Section 10 above will be construed in accordance with the laws of the
Commonwealth of Massachusetts. To the extent that the
6
<PAGE>
applicable laws of the State of Delaware or the Commonwealth of Massachusetts
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
14. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "national
securities exchange," "net assets," "prospectus," "sale," "sell" and "security"
shall have the same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the Securities and Exchange Commission by any
rule, regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this contract is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: By
------------------------ ------------------------------------
PAINEWEBBER MANAGED INVESTMENTS
TRUST
Attest: By
------------------------ ------------------------------------
7
<PAGE>
Exhibit 4(i)
FORM OF SUB-ADVISORY CONTRACT
Agreement made as of _____________, 1998 ("Contract") between MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"),
and INVISTA CAPITAL MANAGEMENT, INC., an Iowa corporation ("Sub-Adviser").
RECITALS
--------
(1) Mitchell Hutchins has entered into an Investment Advisory and
Administration Agreement, dated ____________, 1998 ("Management Agreement"),
with PaineWebber Managed Investments Trust ("Trust"), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act");
(2) The Trust offers for public sale distinct series of shares of
beneficial interest, including a series of shares of the Trust known as
PaineWebber International Equity Fund ("Fund");
(3) Under the Management Agreement, Mitchell Hutchins has agreed to
provide certain investment advisory and administrative services to the Fund;
(4) The Management Agreement permits Mitchell Hutchins to delegate certain
of its duties as investment adviser thereunder to a sub-adviser;
(5) Mitchell Hutchins desires to allocate the portfolio investments of the
Fund between an international segment and a domestic segment, and to retain the
Sub-Adviser to furnish certain investment advisory services with respect to the
international segment of the investments of the Fund, and
(6) The Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as an
------------
investment sub-adviser with respect to the international segment of the Fund's
investments for the period and on the terms set forth in this Contract. The
Sub-Adviser accepts that appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. Duties as Sub-Adviser.
----------------------
(a) Subject to the supervision and direction of the Trust's Board of
Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines
adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a
continuous investment program with respect to the international segment of the
Fund's investments, including investment research and management to all
securities and investments and cash equivalents in the Fund allocated by
Mitchell Hutchins to the international segment of the Fund's investments. The
Sub-Adviser will determine from time to
<PAGE>
time what investments will be purchased, retained or sold by the Fund in the
international segment of the Fund's investments. The Sub-Adviser will be
responsible for placing purchase and sell orders for investments and for other
related transactions with respect to the international segment of the Fund's
investments. The Sub-Adviser will provide services under this Contract in
accordance with the Fund's investment objective, policies and restrictions as
stated in the Trust's currently effective registration statement under the 1940
Act, and any amendments or supplements thereto ("Registration Statement").
(b) The Sub-Adviser agrees that, in placing orders with brokers, it will
obtain the best net result in terms of price and execution; provided that, on
behalf of the Fund, the Sub-Adviser may, in its discretion, use brokers who
provide the Sub-Adviser with research, analysis, advice and similar services to
execute portfolio transactions, and the Sub-Adviser may pay to those brokers in
return for brokerage and research services a higher commission than may be
charged by other brokers, subject to the Sub-Adviser's determining in good faith
that such commission is reasonable in terms either of the particular transaction
or of the overall responsibility of the Sub-Adviser to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. In no instance will
portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. Whenever the Sub-Adviser
simultaneously places orders to purchase or sell the same security on behalf of
the Fund and one or more other accounts advised by the Sub-Adviser, the orders
will be allocated as to price and amount among all such accounts in a manner
believed to be equitable over time to each account. Mitchell Hutchins recognizes
that in some cases this procedure may adversely affect the results obtained for
the Fund.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to actions by the Sub-Adviser on behalf of the Fund, and
will furnish the Board and Mitchell Hutchins with such periodic and special
reports as the Board or Mitchell Hutchins reasonably may request. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby
agrees that all records that it maintains for the Fund are the property of the
Trust, agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any records that it maintains for the Trust and that are required to be
maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender
promptly to the Trust any records that it maintains for the Fund upon request by
the Trust.
(d) At such times as shall be reasonably requested by the Board or
Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins
with economic and investment analyses and reports as well as quarterly reports
setting forth the performance of the international segment of the Fund's
investments and make available to the Board and Mitchell Hutchins any economic,
statistical and investment services that the Sub-Adviser normally makes
available to its institutional or other customers.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities and will
2
<PAGE>
use its reasonable efforts to arrange for the provision of a price(s) from a
party(ies) independent of the Sub-Adviser for each portfolio security for which
the custodian does not obtain prices in the ordinary course of business from an
automated pricing service.
3. Further Duties. In all matters relating to the performance of this
---------------
Contract, the Sub-Adviser will act in conformity with the Trust's Declaration of
Trust, By-Laws and Registration Statement and with the written instructions and
written directions of the Board and Mitchell Hutchins; and will comply with the
requirements of the 1940 Act and the Investment Advisers Act of 1940, as amended
("Advisers Act") and the rules under each, and all other federal and state laws
and regulations applicable to the Trust and the Fund. Mitchell Hutchins agrees
to provide to the Sub-Adviser copies of the Trust's Declaration of Trust, By-
Laws, Registration Statement, written instructions and directions of the Board
and Mitchell Hutchins, and any amendments or supplements to any of these
materials as soon as practicable after such materials become available; and
further agrees to identify to the Sub-Adviser in writing any broker-dealers that
are affiliated with Mitchell Hutchins (other than PaineWebber Incorporated and
Mitchell Hutchins itself).
4. Expenses. During the term of this Contract, the Sub-Adviser will bear
---------
all expenses incurred by it in connection with its services under this Contract.
5. Compensation.
-------------
(a) For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Contract, Mitchell Hutchins, not the Fund, will pay Invista a
sub-advisory fee, computed daily and paid monthly, at an annual rate of 0.42% of
the Fund's average daily net assets up to and including $100 million, 0.29% of
the Fund's average daily net assets in excess of $100 million up to and
including $300 million, and 0.26% of the Fund's average daily net assets in
excess of $300 million.
(b) The fee shall be accrued daily and payable monthly to the Sub-Adviser
on or before the last business day of the next succeeding calendar month.
(c) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be pro-rated according to the proportion that such period bears to the
full month in which such effectiveness or termination occurs.
6. Limitation of Liability. The Sub-Adviser shall not be liable for any
------------------------
error of judgment or mistake of law or for any loss suffered by the Fund, the
Trust, its shareholders or by Mitchell Hutchins in connection with the matters
to which this Contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Contract. Nothing in this paragraph shall be deemed a limitation or waiver of
any obligation or duty that may not by law be limited or waived.
7. Representations of Sub-Adviser. The Sub-Adviser represents, warrants
-------------------------------
and agrees as follows:
3
<PAGE>
(a) The Sub-Adviser (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this Contract
remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act
from performing the services contemplated by this Contract; (iii) has met and
will seek to continue to meet for so long as this Contract remains in effect,
any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency necessary to
be met in order to perform the services contemplated by this Contract; (iv) has
the authority to enter into and perform the services contemplated by this
Contract; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of such code of ethics, together with
evidence of its adoption. Within forty-five days of the end of the last calendar
quarter of each year that this Contract is in effect, the president or a vice-
president of the Sub-Adviser shall certify to Mitchell Hutchins that the Sub-
Adviser has complied with the requirements of Rule 17j-1 during the previous
year and that there has been no violation of the Sub-Adviser's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of Mitchell Hutchins, the
Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to
examine the reports required to be made to the Sub-Adviser by Rule 17j-1(c)(1)
and all other records relevant to the Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form
ADV, which as of the date of this Agreement is its Form ADV as most recently
filed with the Securities and Exchange Commission ("SEC") and promptly will
furnish a copy of all amendments to Mitchell Hutchins at least annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of control
of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Fund or senior management of the Sub-Adviser, in
each case prior to, or promptly after, such change.
(e) The Sub-Adviser agrees that neither it, nor any of its affiliates,
will in any way refer directly or indirectly to its relationship with the Trust,
the Fund, Mitchell Hutchins or any of their respective affiliates in offering,
marketing or other promotional materials without the express written consent of
Mitchell Hutchins.
8. Services Not Exclusive. The Sub-Adviser may act as an investment
-----------------------
adviser to any other person, firm or corporation, and may perform management and
any other services for any other person, association, corporation, firm or other
entity pursuant to any contract or otherwise, and take any action or do anything
in connection therewith or related thereto, except as prohibited by applicable
law or agreed upon in writing between the Sub-Adviser and Mitchell Hutchins; and
no such performance of management or other services or taking of any such action
or doing of any such thing shall be in any manner restricted or otherwise
affected by any aspect of any relationship
4
<PAGE>
of the Sub-Adviser to or with the Trust, the Fund or Mitchell Hutchins or deemed
to violate or give rise to any duty or obligation of the Sub-Adviser to the
Trust, the Fund or Mitchell Hutchins, except as otherwise imposed by law or
agreed upon in writing between the Sub-Adviser and Mitchell Hutchins, the Trust
or the Fund.
9. Duration and Termination.
-------------------------
(a) This Contract shall become effective upon the date first above
written, provided that this Contract shall not take effect unless it has first
been approved: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by vote of a majority of the Fund's outstanding securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Fund.
(c) Notwithstanding the foregoing, this Contract may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Sub-Adviser. This Contract may also be terminated, without the
payment of any penalty, by Mitchell Hutchins: (i) upon 120 days' written notice
to the Sub-Adviser; (ii) upon material breach by the Sub-Adviser of any
representations and warranties set forth in Paragraph 7 of this Contract, if
such breach has not been cured within a 20 day period after notice of such
breach; or (iii) immediately if, in the reasonable judgment of Mitchell
Hutchins, the Sub-Adviser becomes unable to discharge its duties and obligations
under this Contract, including circumstances such as financial insolvency of the
Sub-Adviser or other circumstances that could adversely affect the Fund. The
Sub-Adviser may terminate this Contract at any time, without the payment of any
penalty, on 120 days written notice to Mitchell Hutchins. This Contract will
terminate automatically in the event of its assignment or upon termination of
the Advisory Contract as it relates to the Fund.
10. Amendment of this Contract. No provision of this Contract may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Contract shall be
effective until approved (i) by a vote of a majority of those trustees of the
Trust who are not parties to this Contract or interested persons of any such
party, and (ii) by a vote of a majority of the Fund's outstanding voting
securities (unless in the case of (ii), the Trust receives an SEC order or no-
action letter permitting it to modify the Contract without such vote).
11. Governing Law. This Contract shall be construed in accordance with
--------------
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles
5
<PAGE>
thereof. To the extent that the applicable laws of the State of Delaware
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
12. Miscellaneous. The captions in this Contract are included for
--------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net assets,"
"sale," "sell" and "security" shall have the same meaning as such terms have in
the 1940 Act, subject to such exemption as may be granted by the SEC by any
rule, regulation or order. Where the effect of a requirement of the federal
securities laws reflected in any provision of this Contract is made less
restrictive by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. This Contract may be signed in counterpart.
13. Notices. Any notice herein required is to be in writing and is deemed
--------
to have been given to the Sub-Adviser or Mitchell Hutchins upon receipt of the
same at their respective addresses set forth below. All written notices required
or permitted to be given under this Contract will be delivered by personal
service, by postage mail return receipt requested or by facsimile machine or a
similar means of same day delivery which provides evidence of receipt (with a
confirming copy by mail as set forth herein). All notices provided to Mitchell
Hutchins will be sent to the attention of Victoria E. Schonfeld, General
Counsel. All notices provided to the Sub-Adviser will be sent to the attention
of Lisa M. Smith.
[rest of page left intentionally blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
1285 Avenue of the Americas
New York, New York 10019
Attest:
By: By:
--------------------- ----------------------
Name: Name:
Title: Title:
INVISTA CAPITAL MANAGEMENT,
INC.
1900 Hub Tower
699 Walnut Street
Des Moines, Iowa 50309
Attest:
By: By:
----------------------- -----------------------------
Name: Name:
Title: Title:
7
<PAGE>
Exhibit No. 9
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone 202-778-9000
www.kl.com
August 21, 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. 56 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 International 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
<PAGE>
PaineWebber Managed Investments Trust
August 21, 1998
Page 2
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 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(g)
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 International 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:
