As filed with the Securities and Exchange Commission on July 14, 1999
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. 62 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 55 [ X ]
(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.
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.
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485(b)
[ ] On pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(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: Class A, B, C and Y Shares of
Beneficial Interest of PaineWebber Research Fund.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PAINEWEBBER
RESEARCH FUND
-------------------------------
PROSPECTUS
, 1999
-------------------------------
This prospectus offers four classes of shares in a PaineWebber stock fund:
Classes A, B, C and Y. Each class has different sales charges and ongoing
expenses. You can choose the class that is best for you based on how much you
plan to invest and how long you plan to hold your fund shares. Class Y shares
are available only to certain types of investors.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
<PAGE>
PaineWebber Research Fund
- -----------------------------------------------------------
CONTENTS
THE FUND
------------------------------------------------------------------
What every investor 3 PaineWebber Research Fund
should know about 5 More About Risks and Investment
the fund Strategies
YOUR INVESTMENT
------------------------------------------------------------------
Information for 7 Managing Your Fund Account
managing your fund -- Initial Subscription Period
account -- Flexible Pricing
-- Buying Shares
-- Selling Shares
-- Exchanging Shares
-- Pricing and Valuation
ADDITIONAL INFORMATION
------------------------------------------------------------------
Additional important 13 Management
information about 15 Dividends and Taxes
the fund
------------------------------------------------------------------
Where to learn more Back Cover
about PaineWebber
mutual funds
------------------------------------------------------------------
The fund is not a complete or balanced investment program.
------------------------------------------------------------------
<PAGE>
PaineWebber Research Fund
- ----------------------------------------------------------
PAINEWEBBER RESEARCH FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
FUND OBJECTIVE:
Capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund will invest substantially all of its assets in stocks of issuers that
are on the PaineWebber Research Department's Highlighted List. Historically, the
Highlighted List has consisted of common stocks of relatively large, well known
U.S. companies.
Under normal circumstances, the fund will purchase only stocks that are included
on the Highlighted List and will sell stocks that have been removed from the
Highlighted List. As soon as practicable after public announcement of changes to
the Highlighted List, the fund will purchase a stock that has been added or sell
a stock that has been removed.
Generally, the fund's assets will be equally weighted among the stocks on the
Highlighted List. Any remaining assets may be invested by the fund's investment
adviser, Mitchell Hutchins Asset Management Inc., in short-term debt
obligations, money market instruments and options and futures contracts.
The fund is designed for investors seeking capital appreciation from a fully
invested, all-equity portfolio. The fund is not a market-timing vehicle and not
a complete investment program.
For more than a century, PaineWebber has been committed to providing superior
equity research, resulting in one of the strongest franchises on Wall Street.
PaineWebber's approach to research seeks to place its recommendations in the
context of broad social, economic and political themes. PaineWebber believes
that the ability to spot emerging themes--and the companies that are well
positioned to benefit from them--can be critical to successful investing. The
Investment Strategy Group in the PaineWebber Research Department aims to
identify these themes before they emerge and become well recognized. While the
Research Department identifies several different industries and companies that
are expected to benefit from each theme, the Highlighted List is a list of
"choice" companies from each theme. Historically, the Highlighted List has
usually included approximately 25 stocks, which are typically covered by
PaineWebber Research and carry a "1" (Buy) or "2" (Attractive) rating. As of
July 1, 1999, the Highlighted List consisted of 31 stocks. Stocks are usually
added to or deleted from the Highlighted List at the beginning of a month, but
revisions can also be made on other days.
PRINCIPAL RISKS:
An investment in the fund is not guaranteed; you may lose money by investing in
the fund.
Stocks generally fluctuate in value more than other investments. Because the
fund invests in stocks only if they are on the Highlighted List, the fund will
hold a relatively small number of stocks. The fund also may hold industry
weightings as large as 25% or more of its total assets if necessary to track the
Highlighted List. As a result, changes in the market value of a single issuer or
unfavorable developments in a particular industry would affect the fund's
performance and net asset value more severely than if its holdings were more
diversified.
The fund's investment results will not be identical to those of the Highlighted
List. Deviations from the performance of the Highlighted List will result from
the timing of the fund's purchases and sales of stocks, shareholder purchases
and sales of fund shares, which can occur daily, and from the fees and expenses
that the fund bears. In addition, to the extent the fund invests part of its
assets in short-term debt obligations, money market instruments and options and
futures contracts, its investment results will differ from those of the
Highlighted List.
Past performance of the Highlighted List does not predict the future results of
the Highlighted List or the fund. Materials showing any performance of the
Highlighted List do not reflect the fund's performance.
More information about these and other risks of an investment in the fund is
provided below in "More on Risks and Investment Strategies." In particular, see
the following headings:
o Equity Risk
o Highlighted List Risk
o Derivatives Risk
The fund is newly organized. As a result, the fund has no operating history or
performance information to include in a bar chart or table reflecting average
annual returns.
3
<PAGE>
PaineWebber Research Fund
- ----------------------------------------------------------
EXPENSES AND FEE TABLES
FEES AND EXPENSES: These tables describe the fees and expenses that you may pay
if you buy and hold shares of the fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of offering price)......................................... 4.5% None None None
Maximum Contingent Deferred Sales Charge (Load) (CDSC) (as a % of
offering price).................................................... None 5% 1% None
Exchange Fee....................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Y
Management Fees.................................................... 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees .......................... 0.25 1.00 1.00 0.00
Other Expenses*.................................................... 0.25 0.25 0.25 0.25
---- ---- ---- ----
Total Annual Fund Operating Expenses .............................. 1.50% 2.25% 2.25% 1.25%
==== ==== ==== ====
</TABLE>
* Other expenses are based on estimated amounts for the current fiscal year.
EXAMPLE:
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Class A.................................................... $596 $ 903
Class B (assuming sales of all shares at end of period).... 728 1,003
Class B (assuming no sales of shares)...................... 228 703
Class C (assuming sales of all shares at end of period).. 328 703
Class C (assuming no sales of shares)...................... 228 703
Class Y.................................................... 127 397
</TABLE>
4
<PAGE>
PaineWebber Research Fund
- -----------------------------------------------------------
MORE ABOUT RISKS AND INVESTMENT STRATEGIES
PRINCIPAL RISKS
The main risks of investing in the fund are described below. Other risks of
investing in the fund, along with further detail about some of the risks
described below, are discussed in the fund's Statement of Additional Information
("SAI"). Information on how you can obtain the SAI is on the back cover of this
prospectus.
EQUITY RISK. The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. They reflect changes in the
issuing company's financial condition and changes in the overall market. The
fund may lose a substantial part, or even all, of its investment in a company's
stock.
HIGHLIGHTED LIST RISK. The fund's use of the Highlighted List involves the
following risks:
o The Highlighted List includes a relatively small number of issuers. Because
the fund invests in stocks only if they are on the Highlighted List, the fund
will hold a relatively small number of stocks. As a result, changes in the
market value of a single issuer would affect the fund's performance and net
asset value more severely than if its holdings were more diversified.
o Because the Investment Strategy Group in the PaineWebber Research Department
does not take industry sector diversification into account in compiling the
Highlighted List, if necessary to replicate the Highlighted List the fund may
hold industry weightings as large as 25% or more of its total assets in the
securities of issuers in the same industry. As a result, unfavorable
developments in a particular industry would affect the fund's performance and
net asset value more severely than if its holdings were more diversified.
o The fund's investment results will not be identical to those of the
Highlighted List for a number of reasons, including:
- The timing of the fund's purchase and sale of stocks to reflect changes
in the Highlighted List. The fund will buy and sell stocks to reflect
changes on the Highlighted List only after the public announcement of
these changes has been made.
- Cash flow from purchases and sales of fund shares, which can occur
daily and will result in portfolio purchases and sales.
- The fees and expenses, including the costs of buying and selling
stocks, that the fund bears.
- The fund's investment of part of its assets in short-term debt
obligations, money market instruments and options and futures
contracts. The fund may invest in these instruments either for
liquidity, in anticipation of shareholder sales of fund shares, or
because the diversification requirements that apply to mutual funds
prevent it from investing substantially all its assets in the stocks
that are on the Highlighted List. This can occur if the Highlighted
List includes fewer than 21 issuers because the fund's investments in
stocks generally will be equally weighted.
o PaineWebber could at any time suspend or terminate publication of the
Highlighted List. In such an event, the fund's board will determine how to
proceed consistent with the fund's investment objective and the interests of
its shareholders.
DERIVATIVES RISK. The value of "derivatives" - so-called because their value
"derives" from the value of an underlying asset, reference rate or index - may
rise or fall more rapidly than other investments. For some derivatives, it is
possible for a fund to lose more than the amount it invested in the derivative.
Options and futures contracts are examples of derivatives.
ADDITIONAL RISKS
YEAR 2000 RISK. The fund could be adversely affected by problems relating to the
inability of computer systems used by Mitchell Hutchins and the fund's other
service providers to recognize the year 2000. While year 2000-related computer
problems could have a negative effect on the fund, Mitchell Hutchins is working
to avoid these problems with respect to its own computer systems and to obtain
assurances from service providers that they are taking similar steps.
Similarly, the companies in which the fund invests and trading systems used by
the fund could be adversely affected by this issue. The ability of a company or
trading system to respond successfully to the issue requires both technological
5
<PAGE>
sophistication and diligence, and there can be no assurance that any steps taken
will be sufficient to avoid an adverse impact on the fund.
ADDITIONAL INVESTMENT STRATEGIES
STRATEGIES USING DERIVATIVES. The fund may use derivatives in strategies
intended to simulate investment in the stocks in the S&P 500 Index or other
stock indices when it is unable to invest substantially all of its assets in
stocks that are on the Highlighted List because of diversification requirements
that apply to mutual funds. In addition, the fund may use these derivatives
while keeping a cash balance for fund management purposes, such as to provide
liquidity to meet anticipated sales of its shares by shareholders and for fund
operating expenses or to facilitate trading and reduce transaction costs.
CASH RESERVES. The fund may invest up to 20% of its total assets in short-term
debt obligations, money market instruments and options and futures contracts or
as a cash reserve for liquidity.
PORTFOLIO TURNOVER. The fund is expected to have an annual turnover greater than
100% because it will make additions and deletions to its portfolio to reflect
changes in the Highlighted List.
Trading to keep the fund's portfolio consistent with and equally weighted among
the stocks on the Highlighted List may increase the portion of the fund's
capital gains that are realized for tax purposes in any given year. This may
increase the fund's taxable dividends in that year. Frequent trading also may
increase the portion of the fund's realized capital gains that are considered
"short-term" for tax purposes. Shareholders will pay higher taxes on dividends
that represent short-term gains than they would pay on dividends that represent
long-term gains. Trading also will result in higher fund expenses due to
transaction costs.
The fund does not restrict the frequency of trading in order to limit expenses
or the tax effect that the fund's dividends may have on shareholders.
USE OF PROCEEDS OF INITIAL OFFERING. The fund will not be fully invested in the
stocks on the Highlighted List until approximately 30 days after it begins
investment operations. During that period, the fund will purchase stocks on the
Highlighted List, as well as invest in short-term debt obligations, money market
instruments and options and futures contracts.
6
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
YOUR INVESTMENT
MANAGING YOUR FUND ACCOUNT
INITIAL SUBSCRIPTION PERIOD
During an initial subscription period currently scheduled to end on
____________, 1999, the fund will offer its Class B, C and Y shares at a
subscription price equal to its initial net asset value per share of $_____ and
will offer its Class A shares at that price plus any applicable sales charge.
You must pay the purchase price as indicated below. The fund expects to begin
investment operations shortly after the subscription period ends. After _______,
1999, the net asset value of the fund shares will vary, and the price of fund
shares will be determined as described below.
During the offering period, PaineWebber and selected dealers may obtain
non-binding indications of interest before they actually confirm any orders.
They will accept subscriptions through the last day of the offering period and
may benefit from the temporary use of payments made before the closing date.
During the offering period, the fund may withdraw, cancel or modify the offering
of shares without notice. The fund may also refuse any order in whole or in
part.
After the initial sales period ends, the fund may stop offering its shares for
purchase (including exchange purchases) for a period of up to 60 days. You will
not be able to buy shares of the fund during this period, but you will be able
to sell your shares.
FLEXIBLE PRICING
The fund offers four classes of shares - Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest in the fund and
how long you plan to hold your fund investment. Class Y shares are only
available to certain types of investors.
The fund has adopted a plan under rule 12b-1 for its Class A, B and C shares
that allows it to pay service and (for Class B and C shares) distribution fees
for the sale of its shares and services provided to shareholders. Because the
12b-1 distribution fees for Class B and C shares are paid out of the fund's
assets on an ongoing basis, over time they will increase the cost of your
investment and may cost you more than if you paid a front-end sales charge.
CLASS A SHARES
Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is not invested in the fund.
Class A shares pay an annual 12b-1 service fee of 0.25% of average net assets,
but they pay no 12b-1 distribution fees. The ongoing expenses for Class A shares
are lower than for Class B and Class C shares.
7
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
The Class A sales charges for the fund are described in the following table.
<TABLE>
<CAPTION>
CLASS A SALES CHARGES
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
- -------------------- -------------- ------------------- ----------------------------
<S> <C> <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 this 1% charge. Withdrawals in the first
year after purchase of up to 12% of the value of the fund account under the
fund's Systematic Withdrawal Plan are not subject to this charge.
(2) Mitchell Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS. You may qualify for a lower sales charge if
you already own Class A shares of a PaineWebber mutual fund. You can combine the
value of Class A shares that you own in other PaineWebber funds and the purchase
amount of the Class A shares of the PaineWebber fund that you are buying.
You may also qualify for a lower sales charge if you combine your purchases with
those of:
o your spouse, parents or children under age 21;
o your Individual Retirement Accounts (IRAs);
o certain employee benefit plans, including 401(k) plans;
o a company that you control;
o a trust that you created;
o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts
created by you or by a group of investors for your children; or
o accounts with the same adviser.
You may qualify for a complete waiver of the sales charge if you:
o Are an employee of PaineWebber or its affiliates or the spouse, parent or
child under age 21 of a PaineWebber employee;
o Buy these shares through a PaineWebber Financial Advisor who was formerly
employed as an investment executive with a competing brokerage firm that
was registered as a broker-dealer with the SEC, and
- you were the Financial Advisor's client at the competing brokerage
firm;
- within 90 days of buying shares in the fund, you sell shares of one
or more mutual funds that were principally underwritten by the
competing brokerage firm or its affiliates, and you either paid a
sales charge to buy those shares, pay a contingent deferred sales
charge when selling them or held those shares until the contingent
deferred sales charge was waived; and
- you purchase an amount that does not exceed the total amount of
money you received from the sale of the other mutual fund;
o Acquire these shares through the reinvestment of dividends of a
PaineWebber unit investment trust;
o Are a 401(k) or 403(b) qualified employee benefit plan with 50 or more
eligible employees in the plan or at least $1 million in assets; or
o Are a participant in the PaineWebber Members Onlysm Program. For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
8
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
membership organizations in a total amount not to exceed 1% of the amount
invested.
NOTE: See the fund's SAI for some other sales charge waivers. If you think you
qualify for any sales charge reductions or waivers, you will need to provide
documentation to PaineWebber or the fund. For more information, you should
contact your PaineWebber Financial Advisor or correspondent firm or call
1-800-647-1568. If you want information on the fund's Systematic Withdrawal
Plan, see the SAI or contact your PaineWebber Financial Advisor or correspondent
firm.
CLASS B SHARES
Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase in fund shares. However, you may have
to pay the deferred sales charge when you sell your fund shares, depending on
how long you own the shares.
Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
If you hold your Class B shares for six years, they will automatically convert
to Class A shares, which have lower ongoing expenses.
If you sell Class B shares before the end of six years, you will pay a deferred
sales charge. We calculate the deferred sales charge by multiplying the lesser
of the net asset value of the Class B shares at the time of purchase or the net
asset value at the time of sale by the percentage shown below:
PERCENTAGE BY WHICH THE
IF YOU SELL SHARES' NET ASSET
SHARES WITHIN: VALUE IS MULTIPLIED:
-------------- --------------------
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
We will not impose the deferred sales charge on Class B shares representing
reinvestment of dividends or on withdrawals in any year of up to 12% of the
value of your Class B shares under the Systematic Withdrawal Plan.
To minimize your deferred sales charge, we will assume that you are selling:
o First, Class B shares representing reinvested dividends, and
o Second, Class B shares that you have owned the longest.
SALES CHARGE WAIVERS. You may qualify for a waiver of the deferred sales charge
on a sale of shares if:
o You participate in the Systematic Withdrawal Plan;
o You are older than 59-1/2 and are selling shares to take a distribution
from certain types of retirement plans;
o You receive a tax-free return of an excess IRA contribution;
o You receive a tax-qualified retirement plan distribution following
retirement; or
o The shares are sold within one year of your death and you owned the shares
either (1) as the sole shareholder or (2) with your spouse as a joint
tenant with the right of survivorship.
NOTE: If you think you qualify for any of these sales charge waivers, you will
need to provide documentation to PaineWebber or the fund. For more information,
you should contact your PaineWebber Financial Advisor or correspondent firm or
call 1-800-647-1568. If you want information on the Systematic Withdrawal Plan,
see the SAI or contact your PaineWebber Financial Advisor or correspondent firm.
CLASS C SHARES
Class C shares have a level load sales charge in the form of ongoing 12b-1
distribution fees. When you purchase Class C shares, we will invest 100% of your
purchase in fund shares.
Class C shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
Class C shares do not convert to another class of shares. This means that you
will pay the 12b-1 fees for as long as you own your shares.
Class C shares also have a contingent deferred sales charge. You may have to pay
the deferred sales charge if you sell your shares within one year of the date
you purchased them. We calculate the deferred sales charge on sales of Class C
shares by multiplying 1.00% by the lesser of the net asset value of the Class C
shares at the time of purchase or the net asset value at the time of sale. We
will not impose the deferred sales charge on Class C shares representing
9
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
reinvestment of dividends or on withdrawals in the first year after purchase, of
up to 12% of the value of your Class C shares under the Systematic Withdrawal
Plan.
NOTE: If you want information on the fund's Systematic Withdrawal Plan, see the
SAI or contact your PaineWebber Financial Advisor or correspondent firm.
CLASS Y SHARES
Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares. You may be eligible to purchase Class Y shares if you:
o Buy shares through PaineWebber's PACE Multi-Advisor Program;
o Buy $10 million or more of PaineWebber fund shares at any one time;
o Are a qualified retirement plan with 5,000 or more eligible employees or
$50 million in assets; or
o Are an investment company advised by PaineWebber or an affiliate of
PaineWebber.
The trustee of PaineWebber's 401(k) Plus Plan for its employees is also eligible
to purchase Class Y shares.
Class Y shares do not pay ongoing sales or distribution fees or sales charges.
The ongoing expenses for Class Y shares are the lowest for all the classes.
BUYING SHARES
If you are a PaineWebber client, or a client of a PaineWebber correspondent
firm, you can purchase fund shares through your Financial Advisor. Otherwise,
you can invest in the fund through the fund's transfer agent, PFPC Inc. You can
obtain an application by calling 1-800-647-1568. You must complete and sign the
application and mail it, along with a check, to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you wish to invest in other PaineWebber Funds, you can do so by:
o Contacting your Financial Advisor (if you have an account at PaineWebber
or at a PaineWebber correspondent firm);
o Mailing an application with a check; or
o Opening an account by exchanging shares from another PaineWebber fund.
You do not have to complete an application when you make additional investments
in the same fund.
The fund and Mitchell Hutchins reserve the right to reject a purchase order or
suspend the offering of shares.
MINIMUM INVESTMENTS:
To open an account ....................................$1,000
To add to an account ..................................$ 100
The fund may waive or reduce these amounts for:
o Employees of PaineWebber or its affiliates; or
o Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the fund's automatic investment plans.
FREQUENT TRADING. The interests of the fund's long-term shareholders and its
ability to manage its investments may be adversely affected when its shares are
repeatedly bought and sold in response to short-term market fluctuations -- also
known as "market timing." When large dollar amounts are involved, the fund may
have difficulty implementing long-term investment strategies, because it cannot
predict how much cash it will have to invest. Market timing also may force the
fund to sell portfolio securities at disadvantageous times to raise the cash
needed to buy a market timer's fund shares. These factors may hurt the fund's
performance and its shareholders. When Mitchell Hutchins believes frequent
trading would have a disruptive effect on the fund's ability to manage its
investments, Mitchell Hutchins and the fund may reject purchase orders and
exchanges into the fund by any person, group or account that Mitchell Hutchins
believes to be a market timer. The fund may notify the market timer that a
purchase order or an exchange has been rejected after the day the order is
placed.
10
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
SELLING SHARES
You can sell your fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, the fund
will assume that you want to sell shares in the following order: Class A, then
Class C, then Class B and last, Class Y.
If you want to sell shares that you purchased recently, the fund may delay
payment until it verifies that it has received good payment. If you purchased
shares by check, this can take up to 15 days.
If you have an account with PaineWebber or a PaineWebber correspondent firm, you
can sell shares by contacting your Financial Advisor.
If you do not have an account at PaineWebber or a correspondent firm, and you
bought your shares through the transfer agent, you can sell your shares by
writing to the fund's transfer agent. Your letter must include:
o Your name and address;
o The fund's name;
o The fund account number;
o The dollar amount or number of shares you want to sell; and
o 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 that is a participant in one of the
medallion programs recognized by the Securities Transfer Agents
Association. These are: Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange Medallion Signature Program (MSP). The fund will not accept
signature guarantees that are not a part of these programs.
Mail the letter to:
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
If you sell Class A shares and then repurchase Class A shares of the same fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.
It costs the fund money to maintain shareholder accounts. Therefore, the fund
reserves the right to repurchase all shares in any account that has a net asset
value of less than $500. If the fund elects to do this with your account, it
will notify you that you can increase the amount invested to $500 or more within
60 days. The fund will not repurchase shares in accounts that fall below $500
solely because of a decrease in the fund's net asset value.
EXCHANGING SHARES
You may exchange Class A, Class B or Class C shares of the fund for shares of
the same class of most other PaineWebber funds. You may not exchange Class Y
shares. For a period of up to 60 days after , 1999, you may not be able to
exchange shares of other PaineWebber mutual funds for shares of this fund.
You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. The fund will use the date
that you purchased the shares in the first fund to determine whether you must
pay a deferred sales charge when you sell the shares in the acquired fund.
Other PaineWebber funds may have different minimum investment amounts. You may
not be able to exchange your shares if your exchange is not as large as the
minimum investment amount in that other fund.
You may exchange shares of one fund for shares of another fund only after the
first purchase has settled and the first fund has received your payment.
PAINEWEBBER CLIENTS If you bought your shares through PaineWebber or a
correspondent firm, you may exchange your shares by placing an order with your
PaineWebber Financial Advisor.
OTHER INVESTORS If you are not a PaineWebber client, you may exchange your
shares by writing to the fund's transfer agent. You must include:
o Your name and address;
o The name of the fund whose shares you are selling and the name of the fund
whose shares you want to buy;
o Your account number;
o How much you are exchanging (by dollar amount or by number of shares to be
sold); and
o A guarantee of your signature. (See "Buying Shares" for information on
obtaining a signature guarantee.)
Mail the letter to:
11
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
PFPC Inc.
Attn.: PaineWebber Mutual Funds
P.O. Box 8950
Wilmington, DE 19899.
The fund may modify or terminate the exchange privilege at any time.
PRICING AND VALUATION
The price at which you may buy, sell or exchange fund shares is based on net
asset value per share. The fund calculates net asset value on days that the New
York Stock Exchange is open. The fund calculates net asset value separately for
each class as of the close of regular trading on the NYSE (generally, 4:00 p.m.,
Eastern time). The NYSE normally is not open, and the fund does not price its
shares, on national holidays and on Good Friday. If trading on the NYSE is
halted for the day before 4:00 p.m., Eastern time, the fund's net asset value
per share will be calculated as of the time trading was halted.
Your price for buying, selling or exchanging shares will be based on the net
asset value that is next calculated after the fund accepts your order. If you
place your order through PaineWebber, your PaineWebber Financial Advisor is
responsible for making sure that your order is promptly sent to the fund.
You should keep in mind that a front-end sales charge may be applied to your
purchase if you buy Class A shares. A deferred sales charge may be applied when
you sell Class B or Class C shares.
The fund calculates its net asset value based on the current market value for
its portfolio securities. The fund normally obtains market values for its
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
fund's board. The fund normally uses the amortized cost method to value bonds
that will mature in 60 days or less.
12
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
MANAGEMENT
INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. is the investment adviser and
administrator of the fund. Mitchell Hutchins is located at 1285 Avenue of the
Americas, New York, New York, 10019, and is a wholly owned asset management
subsidiary of PaineWebber Incorporated, which is wholly owned by Paine Webber
Group Inc., a publicly owned financial services holding company. On June 30,
1999, Mitchell Hutchins was adviser or sub-adviser of __ investment companies
with __ separate portfolios and aggregate assets of approximately $__._ billion.
PORTFOLIO MANAGER
T. Kirkham Barneby is responsible for the day-to-day management of the fund's
portfolio. Mr. Barneby is a managing director and chief investment officer of
quantitative investments of Mitchell Hutchins. Mr. Barneby rejoined Mitchell
Hutchins in 1994, after being with Vantage Global Management for one year.
During the eight years that Mr. Barneby was previously with Mitchell Hutchins,
he was a senior vice president responsible for quantitative management and asset
allocations.
ADVISORY FEES
The fund pays advisory fees to Mitchell Hutchins at the annual contract rate of
1.00% of its average daily net assets up to and including $750 million, 0.95% of
average daily net assets up to and including $1.5 billion and 0.90% of average
daily net assets in excess of $1.5 billion.
OTHER INFORMATION
The fund has received an exemptive order from the SEC that permits its board to
appoint and replace sub-advisers and to amend sub-advisory contracts without
obtaining shareholder approval.
ADDITIONAL INFORMATION ABOUT THE HIGHLIGHTED LIST
The Highlighted List was started in 1988 and is compiled by the Investment
Strategy Group in the PaineWebber Research Department. Since that date, the
Highlighted List has included between 11 to 31 stocks, although on average it
has consisted of approximately 25 stocks. The Investment Strategy Group
periodically makes subjective decisions to add or delete companies from the
Highlighted List, but it is not compiled with any client or product in mind,
including the fund. A list of the companies on the Highlighted List as of July
1, 1999 is included in the SAI.
It is possible that the Highlighted List will include stocks of issuers for
which PaineWebber or one of its affiliates performs banking services for which
it receives fees, as well as stocks of issuers in which PaineWebber or one of
its affiliates makes a market and may have a long or short position in the
stock. When PaineWebber or one of its affiliates is engaged in certain
activities for an issuer that is on the Highlighted List, Mitchell Hutchins may
be prohibited from additional purchases or sales of the stock of that issuer for
the re-balancing of the fund.
Mitchell Hutchins does not have access to information regarding additions or
deletions for the Highlighted List prior to their public announcement.
PaineWebber publishes other lists of recommended securities that could be
appropriate for fund investors but that are not used by Mitchell Hutchins for
choosing securities for the fund.
The chart below reflects historical information regarding the Highlighted List.
The average number of stocks on the Highlighted List and the frequency of
additions and deletions to the Highlighted List change from year to year, and
there are no targets for such numbers in future years. The stocks selected for
the Highlighted List constitute only a "paper portfolio" that does not reflect
actual trading and does not have an actual performance record. The price return
shown is simply an arithmetic average of the price returns for the stocks
selected for the Highlighted List. It does not represent the return on any fund
or any other account that involves actual trading. The price returns would not
be indicative of the returns on any fund or account because, among other things,
they do not reflect actual prices when stocks are purchased or sold, transaction
costs and account fees. In addition, because the Highlighted List does not
include a cash component, price returns are based on a constant 100% investment
in the stocks on the Highlighted List.
Past price returns are not representative of future price returns. It should not
be assumed that recommendations made in the future will be profitable or will
equal the price returns shown below.
13
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999* From*+
Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Number of Stocks on the
Highlighted List** 21 19 17 27 24 23 24 25 28 26 26 28 25
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Additions + 33 + 16 + 28 + 19 + 21 + 25 + 27 + 32 + 25 + 19 + 18 + 9 + 272
and Deletions - 33 - 24 - 16 - 19 - 23 - 23 - 27 - 27 - 25 - 25 - 16 - 4 - 262
- ------------------------------------------------------------------------------------------------------------------------------------
Highlighted List Stock Price
Return (as a %)*** 23.8 31.3 5.1 41.6 6.1 26.4 5.2 35.1 25.6 37.8 54.3 17.0 26.1
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Price Return
(as a %)**** 12.4 27.3 -6.6 26.3 4.5 7.1 -1.5 34.1 20.3 31.0 26.7 11.7 16.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Compound Annual Rate.
* Through June 30, 1999.
** The number of stocks shown is an annual average. At any time during the year,
the number of stocks on the Highlighted List may have been higher or lower.
*** The price returns are based only on capital appreciation or depreciation of
the stocks included in the Highlighted List. The results for the Highlighted
List portfolio represent an equal-weighted arithmetic average of the stocks held
at any point during the month. The results are calculated monthly using each
stock's capital appreciation or depreciation during the period that it is on the
Highlighted List and dividing that by the highest number of stocks that were on
the Highlighted List at any point during the month. The results are calculated
using the prices of the stocks at the opening of the stock market on the day
changes to the Highlighted List are announced. They do not reflect the execution
of actual purchases or sales, and there is no guarantee that an account
following the Highlighted List would be able to execute purchases and sales at
the prices used to calculate the price returns. Because the Highlighted List is
a paper portfolio that is not managed to a target number of stocks, no
"re-balancing" of actual investments is done when stocks are added to or deleted
from the Highlighted List. Price returns are based on 100% investment in the
stocks on the Highlighted List.
The price returns shown do not reflect the reinvestment of dividends, which
would result in higher returns. They do not reflect the market impact on the
prices of the Highlighted List stocks that may be incurred between the time the
announcement is made of additions and deletions to the Highlighted List and the
time an account following the Highlighted List would be able to execute
purchases and sales. They also do not reflect transaction fees, such as
commissions, fees and interest charges, or the costs of running a mutual fund,
such as management fees, distribution fees and other expenses. Actual
transactions adjusted for those fees and costs will result in reduced returns.
**** The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The S&P 500 Index performance
numbers shown are price returns only. The price returns shown do not reflect the
reinvestment of dividends, which would result in higher returns. They also do
not reflect fees, brokerage commissions or other costs of investing, which would
result in reduced returns.
14
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
DIVIDENDS AND TAXES
DIVIDENDS
The fund normally declares and pays dividends and distributes any gains
annually.
Classes with higher expenses are expected to have lower dividends. For example,
Class B and Class C shares are expected to have the lowest dividends of any
class of the fund's shares, while Class Y shares are expected to have the
highest.
You will receive dividends in additional shares of the same class unless you
elect to receive them in cash. Contact your Financial Advisor at PaineWebber or
one of its correspondent firms if you prefer to receive dividends in cash.
TAXES
The dividends that you receive from the fund generally are subject to federal
income tax regardless of whether you receive them in additional fund shares or
in cash. If you hold fund shares through a tax-exempt account or plan, such as
an IRA or 401(k) Plan, dividends on your shares generally will not be subject to
tax.
When you sell fund shares, you generally will be subject to federal income tax
on any gain you realize. If you exchange the fund's shares for shares of another
PaineWebber mutual fund, the transaction will be treated as a sale of the first
fund's shares, and any gain will be subject to federal income tax.
The fund expects that its dividends will include both capital gain distributions
and ordinary income. The distribution of capital gains may be taxed at a lower
rate than ordinary income, depending on whether the fund held the assets that
generated the gains for more than 12 months. The fund will tell you how you
should treat its dividends for tax purposes.
15
<PAGE>
PaineWebber Research Fund
- -------------------------------------------
Back Cover
TICKER SYMBOL: A: _____.Q
B: _____.Q
C: _____.Q
Y: _____.Q
If you want more information about the fund, the following document is available
free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund and is incorporated by
reference into this prospectus.
You may discuss your questions about the fund by contacting your PaineWebber
Financial Advisor. You may obtain free copies of the SAI by contacting the fund
directly at 1-800-647-1568.
You may review and copy information about the fund, including the SAI, at the
Public Reference Room of the Securities and Exchange Commission. You can get
text-only copies of information about the fund:
o For a fee, by writing to or calling the SEC's Public Reference Room,
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
o Free, from the SEC's Internet website at: http://www.sec.gov
PaineWebber Managed Investments Trust
- -- PaineWebber Research Fund
Investment Company Act File No. - 811-4040
<PAGE>
(C) 1999 PaineWebber Incorporated
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
PAINEWEBBER RESEARCH FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
PaineWebber Research Fund is a diversified series of PaineWebber Managed
Investments Trust ("Trust"), a professionally managed, open-end management
investment company.
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.
This Statement of Additional Information ("SAI") is not a prospectus and
should be read only in conjunction with the fund's current Prospectus, dated
___________, 1999. A copy of the Prospectus may be obtained by calling any
PaineWebber Financial Advisor or correspondent firm or by calling toll-free
1-800-647-1568. This SAI is dated ___________, 1999.
TABLE OF CONTENTS
Page
----
The Fund and Its Investment Policies................................ 2
The Fund's Investments, Related Risks and Limitations............... 3
Strategies Using Derivative Instruments............................. 7
Organization; Board Members, Officers and Principal
Holders of Securities............................................... 13
Investment Advisory and Distribution Arrangements................... 19
Portfolio Transactions.............................................. 22
Reduced Sales Charges, Additional Exchange and Redemption
Information
and Other Services.................................................. 24
Conversion of Class B Shares........................................ 29
Valuation of Shares................................................. 29
Performance Information............................................. 30
Taxes............................................................... 31
Other Information................................................... 33
<PAGE>
THE FUND AND ITS INVESTMENT POLICIES
The fund's investment objective may not be changed without shareholder
approval. Except where noted, the other investment policies of the fund may be
changed by its board without shareholder approval. As with other mutual funds,
there is no assurance that the fund will achieve its investment objective.
The fund's investment objective is capital appreciation. The fund seeks to
achieve this objective by investing at least 80% of its assets in the securities
of issuers that are on the PaineWebber Research Department's Highlighted List.
The fund may invest up to 20% of its assets in short-term debt obligations,
money market instruments and options and futures contracts.
As soon as practicable after public announcement of changes to the
Highlighted List, the fund will purchase a security that has been added or sell
a security that has been removed. The fund may trade in securities added to or
deleted from the Highlighted List as early as 9:30 a.m. on the day relevant
changes to the Highlighted List are announced. Under normal circumstances, the
fund will not purchase stocks that are not included on the Highlighted List or
keep stocks that have been removed from the Highlighted List.
In some circumstances, such as when the Highlighted List contains fewer
than 16 stocks, the fund may choose not to rebalance its portfolio following an
announced change to the Highlighted List. The fund may also purchase options and
futures contracts on security indices and Standard & Poor's Depositary Receipts
("SPDRs").
For more than a century, PaineWebber has been committed to providing
superior equity research, resulting in one of the strongest franchises on Wall
Street. PaineWebber's approach to research places its recommendations in the
context of broad social, economic and political themes. Being able to spot
emerging themes--and the companies that are well positioned to benefit from
them--can be critical to successful investing. The Investment Strategy Group in
the PaineWebber Research Department aims to identify these themes before they
emerge and become well recognized. While the PaineWebber Research Department
identifies several industries and companies that are expected to benefit from
the themes, the Highlighted List is a list of "choice" companies from each
theme. Historically, the Highlighted List has usually included approximately 25
stocks, which are typically covered by PaineWebber Research and carry a "1"
(Buy) or "2" (Attractive) rating. Stocks are usually added or deleted from the
Highlighted List at the beginning of a month, but revisions can also be made on
other days.
The fund is designed for investors seeking capital appreciation from a
fully invested, all-equity portfolio. The fund is not a market-timing vehicle
and not a complete investment program.
THE HIGHLIGHTED LIST as of July 1, 1999, consisted of the following 31
securities.
Air Products Chase Manhattan IBM Smurfit-Stone Container
America Online Delta Airlines Lucent Technologies Staples
American Express Disney MCI WorldCom Sun Microsystems
American Intl Group Ecolab Medtronic Time Warner
Avon Products Freddie Mac Microsoft Wal-Mart
Bank of New York Gap Nextel Warner-Lambert
Bed Bath & Beyond Home Depot Pfizer Xerox
Carnival Corp Illinois Tool Schering-Plough
Works
2
<PAGE>
THE FUND'S INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following supplements the information contained in the Prospectus and
above concerning the fund's investments, related risks and limitations. Except
as otherwise indicated in the Prospectus or the Statement of Additional
Information, the fund has established no policy limitations on its ability to
use the investments or techniques discussed in these documents.
EQUITY SECURITIES. Equity securities (referred to as "stocks" in the
Prospectus) 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.
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.
HIGHLIGHTED LIST RISK. There can be no assurance that the equity
securities of issuers on the Highlighted List will perform as anticipated. The
past performance of these securities and issuers cannot be used to predict the
future results of either the Highlighted List or the fund. The fund's investment
results will not be identical to those of the Highlighted List for a number of
reasons, including: (1) the timing of the fund's purchase and sale of stocks to
reflect changes in the Highlighted List--the fund will buy and sell stocks to
reflect changes on the Highlighted List only after the public announcement of
these changes has been made; (2) the fund's cashflow from purchases and sales of
fund shares, which can occur daily and will result in portfolio purchases and
sales; (3) the fees and expenses, including the costs of buying and selling
stocks, that the fund bears; (4) the fund's possible inability to add to or
subtract from its holdings of a stock on the Highlighted List at a given time,
particularly in connection with the re-balancing of the fund's portfolio to
maintain equal weightings among the stocks on the Highlighted List; and (5) the
fund's investment of part of its assets in short-term debt obligations, money
market instruments and options and futures contracts. The fund may invest in
these instruments either for liquidity in anticipation of shareholder sales of
fund shares or because the diversification requirements that apply to mutual
funds prevent it from investing substantially all its assets in the stocks that
are on the Highlighted List.
The Highlighted List includes a relatively small number of issuers.
Because the fund invests in stocks only if they are on the Highlighted List, the
fund will hold a relatively small number of stocks. As a result, changes in the
market value of a single issuer would affect the fund's performance and net
asset value more severely than if its holdings were more diversified. The
Investment Strategy Group makes subjective decisions to add or delete companies
from the Highlighted List, but it is not compiled with any particular client or
product in mind, including the fund. When selecting the companies for its
Highlighted List, the PaineWebber Research Department's Investment Strategy
Group does not take industry sector diversification concerns into account. The
fund may invest as much as 25% or more of its total assets in securities of
issuers in the same industry, if necessary to replicate the composition of the
Highlighted List. As a result, unfavorable developments in a particular industry
would affect the fund's performance and net asset value more severely than if
its holdings were more diversified.
PaineWebber could at any time suspend or terminate publication of the
Highlighted List. In such an event, the fund's board will determine how to
proceed consistent with the fund's investment objective and the interests of its
shareholders. It is also possible that the Highlighted List would include fewer
securities than are necessary for the fund to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). The
3
<PAGE>
requirements for qualifying as a regulated investment company ("RIC") are
discussed in the "Taxes" section on page ___. In such an event, the fund will
invest in short-term debt obligations, money market instruments, and options and
futures contracts. Since its inception in 1988, the Highlighted list has
included between 11 to 31 stocks, although on average it has consisted of
approximately 25 stocks.
It is possible that the Highlighted List will include stocks of issuers
for which PaineWebber or one of its affiliates performs banking services for
which it receives fees, as well as stocks of issuers in which PaineWebber or one
of its affiliates makes a market and may have a long or short position in the
stock. When PaineWebber or one of its affiliates is engaged in certain
activities for an issuer that is on the Highlighted List, Mitchell Hutchins may
be prohibited from adding to or subtracting from its holdings of the stock of
that issuer for the fund. As a result, the fund's portfolio would not fully
reflect the Highlighted List.
Mitchell Hutchins does not have access to information regarding additions
or deletions for the Highlighted List prior to their public announcement.
PaineWebber publishes other lists of recommended securities that could be
appropriate for fund investors but which are not used by Mitchell Hutchins for
choosing securities for the fund. In addition to being available to the fund,
the Highlighted List is also available to other clients of PaineWebber and its
affiliates, including Mitchell Hutchins, which may trade on the basis of the
Highlighted List.
INVESTING IN FOREIGN SECURITIES. Historically, the Highlighted List has
never included a foreign security. However, there is no prohibition against its
doing so. If the Highlighted List includes a foreign security, the fund will
invest in it. Investing in foreign securities involves more risks than investing
in the United States. The value of foreign securities is subject to economic and
political developments in the countries where the companies operate and to
changes in foreign currency values. 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. In those European
countries that have begun using the Euro as a common currency unit, individual
national economies may be adversely affected by the inability of national
governments to use monetary policy to address their own economic or political
concerns.
Securities of many foreign companies may be less liquid and their prices
more volatile than securities of comparable 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. Additionally, 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.
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.
If the Highlighted List includes 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, the fund will invest in these receipts.
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
4
<PAGE>
similar to EDRs and are designed for use in several international financial
markets. For purposes of the fund's investment policies, depository receipts
generally are deemed to have the same classification as the underlying
securities they represent. Thus, a depository receipt representing ownership of
common stock will be treated as common stock.
ADRs are publicly traded on exchanges or over the counter 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.
However, from time to time foreign securities may be difficult to liquidate
rapidly without significantly depressing the price of such securities. 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.
MONEY MARKET INVESTMENTS. The fund may invest in money market investments
as part of its normal investment program. Such investments include, among other
things, (1) securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities, (2) debt obligations of banks, savings and loan
institutions, insurance companies and mortgage bankers, (3) commercial paper and
notes, including those with variable and floating rates of interest, (4) debt
obligations of foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks, (5) debt obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities, including obligations of supranational entities,
(6) bonds issued by foreign issuers, (7) repurchase agreements and (8) other
investment companies that invest exclusively in money market instruments.
SEGREGATED ACCOUNTS. When the fund enters into certain transactions that
involve obligations to make future payments to third parties, it will maintain
with an approved custodian in a segregated account cash or liquid securities,
marked to market daily, in an amount at least equal to the fund's obligation or
commitment under such transactions. As described below under "Strategies Using
Derivative Instruments," segregated accounts may also be required in connection
with certain transactions involving futures.
SPDRS ("STANDARD & POOR'S DEPOSITARY RECEIPTS"). The fund may invest in
SPDRs if the diversification requirements that apply to mutual funds prevent it
from investing substantially all of its assets in the stocks that are on the
Highlighted List. SPDRs are exchange-traded securities that represent ownership
in long-term unit investment trusts established to accumulate and hold a
portfolio of common stocks that is intended to track the price performance and
dividend yield of the Dow Jones Industrial Average and the Standard & Poor's
Composite Stock Price Index, respectively.
To the extent the fund invests in SPDRs, fund shareholders would
indirectly pay a portion of the operating costs of such companies in addition to
the expenses of its own operation. Indirectly then, fund shareholders may pay
higher operational costs than if they owned the underlying investments directly.
Additionally, the fund's investment in SPDRs is subject to limitations under the
Investment Company Act of 1940 ("Investment Company Act") and market
availability.
5
<PAGE>
The price of a SPDR is derived and based upon the securities it holds.
Accordingly, the level of risk involved in the purchase or sale of a SPDR is
similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for such instruments is
based on a basket of stocks. The market prices of SPDRs are expected to
fluctuate in accordance with both changes in the net asset values of their
underlying indices and the supply and demand for the instruments on the
exchanges on which they are traded. Substantial market or other disruptions
affecting a SPDR could adversely affect the liquidity and value of the shares of
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.
The fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5%
of the fund's total assets would be invested in securities of that issuer or the
fund would own or hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the fund's total assets may be invested
without regard to this limitation, and except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental 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.
(2) purchase any security if, as a result of that purchase, 25% or more
of the fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities, and
provided that the fund will invest 25% or more of its total assets in securities
of issuers in the same industry if necessary to replicate the composition of the
Highlighted List.
The following interpretations apply to, but are not a part of, this
fundamental restriction: (a) domestic and foreign banking will be considered to
be different industries and (b) asset-backed securities will be grouped in
industries based upon their underlying assets and not treated as constituting a
single, separate industry.
(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act and then not in excess of 33 1/3% of the fund's total
assets (including the amount of the senior securities issued but reduced by any
liabilities not constituting senior securities) at the time of the issuance or
borrowing, except that the fund may borrow up to an additional 5% of its total
assets (not including the amount borrowed) for temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
6
<PAGE>
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the fund might be considered an underwriter under the
federal securities laws in connection with its disposition of portfolio
securities.
(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by interests
in real estate are not subject to this limitation, and except that the fund may
exercise rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an orderly
manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the fund may purchase, sell or enter
into financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are
non-fundamental and may be changed by the vote of the appropriate board without
shareholder approval.
The fund will not:
(1) invest more than 15% of its net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the fund has
valued the securities and includes, among other things, repurchase agreements
maturing in more than seven days.
(2) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(3) engage in short sales of securities or maintain a short position,
except that the fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(4) purchase securities of other investment companies, except to the
extent permitted by the Investment Company 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 the fund will not purchase securities of registered open-end
investment companies or registered unit investment trusts in reliance on
Sections 12(d)(1)(F) or 12(d)(1)(G) of the Investment Company Act).
(5) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
STRATEGIES USING DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a
variety of financial instruments ("Derivative Instruments"), including certain
options, futures contracts (sometimes referred to as "futures") and options on
futures contracts to attempt to hedge the fund's portfolio and also to attempt
to enhance income or return. The fund may enter into transactions involving one
or more type 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. The
particular Derivative Instruments that may be used by the fund are described
below.
The fund might not use any Derivative Instruments or derivative
strategies, and there can be no assurance that using any strategy will succeed.
If Mitchell Hutchins is incorrect in its judgment on market values 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.
7
<PAGE>
OPTIONS ON SECURITIES. A call option is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to buy
the security underlying the option at a specified price at any time during the
term of the option or at specified times or at the expiration of the option,
depending on the type of option involved. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract that gives its purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the option term or at specified times or at the expiration of the option,
depending on the type of option involved. The writer of the put option, who
receives the premium, has the obligation, upon exercise of the option during the
option term, to buy the underlying security at the exercise price.
OPTIONS ON SECURITIES INDICES. A securities index assigns relative values
to the securities included in the index and fluctuates with changes in the
market values of those securities. A securities index option operates in the
same way as a more traditional securities option, except that exercise of a
securities index option is effected with cash payment and does not involve
delivery of securities. Thus, upon exercise of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the securities
index.
SECURITIES INDEX FUTURES CONTRACTS. A securities index futures contract is
a bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a specified
dollar amount times the difference between the securities index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, contracts are closed out prior to the expiration date of the
contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated balance that represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future. The writer of an option, upon exercise, will assume a short position in
the case of a call and a long position in the case of a put.
GENERAL DESCRIPTION OF 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 in the same direction as the price of the prospective
investment being hedged. For example, the fund might purchase a call option on a
security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, the fund could exercise the call and thus limit its
acquisition cost to the exercise price plus the premium paid and transaction
costs. Alternatively, the fund might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.
The fund may purchase and write (sell) straddles on securities or indices
of securities. A long straddle is a combination of a call and a put option
purchased on the same security or on the same futures contract, where the
8
<PAGE>
exercise price of the put is equal to the exercise price of the call. The fund
might enter into a long straddle when Mitchell Hutchins believes it likely that
the prices of the securities will be more volatile during the term of the option
than the option pricing implies. A short straddle is a combination of a call and
a put written on the same security where the exercise price of the put is equal
to the exercise price of the call. The fund might enter into a short straddle
when Mitchell Hutchins believes it unlikely that the prices of the securities
will be as volatile during the term of the option as the option pricing implies.
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the fund
owns or intends to acquire. Derivative Instruments on stock indices, in
contrast, generally are used to hedge against price movements in broad stock
market sectors in which the fund has invested or expects to invest.
Income strategies using Derivative Instruments may include the writing of
covered options to obtain the related option premiums. Return strategies may
include using Derivative Instruments to increase or decrease the fund's exposure
to different asset classes without buying or selling the underlying instruments.
The fund also may use derivatives to simulate full investment by the fund while
maintaining a cash balance for fund management purposes (such as to provide
liquidity to meet anticipated shareholder sales of fund shares and for fund
operating expenses).
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 may be limited by tax considerations. See
"Taxes."
In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins may discover additional opportunities in
connection with Derivative Instruments and with hedging, income and return
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. Mitchell Hutchins 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 SAI 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 Mitchell Hutchins to predict movements of the overall securities markets,
which requires different skills than predicting changes in the prices of
individual securities. While Mitchell Hutchins is experienced in the use of
Derivative Instruments, there can be no assurance that any particular strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments 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 Mitchell Hutchins projected a decline in the price of a
security in the fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
9
<PAGE>
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 counterparty 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 on securities in which it invests and related
indices. The purchase of call options may serve as a long hedge, and the
purchase of put options may serve as a short hedge. The fund may also use
options to attempt to enhance return or realize gains by increasing or reducing
its exposure to an asset class without purchasing or selling the underlying
securities. 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 declines in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security appreciates to a price
higher than the exercise price of the call option, it can be expected that the
option will be exercised and the fund will be obligated to sell the security at
less than its market value. Writing covered put options serves as a limited long
hedge, because increases in the value of the hedged investment would be offset
to the extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and the fund will be
obligated to purchase the security at more than its market value. The securities
or other assets used as cover for over-the-counter options written by the fund
would be considered illiquid to the extent described under "The Fund's
Investments, Related Risks and Limitations--Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Generally, European-style options can only be exercised
immediately prior to their expiration. This is in contrast to American-style
options that may be exercised at any time. There are also other types of options
that may be exercised on certain specified dates before expiration. Options that
expire unexercised have no value.
10
<PAGE>
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 over-the-counter
options. Currently, many options on equity securities (stocks) are
exchange-traded. 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, over-the-counter options are contracts between the
fund and its counterparty (usually a securities dealer or a bank) with no
clearing organization guarantee. Thus, when the fund purchases or writes an
over-the-counter option, it relies on the counterparty to make or take delivery
of the underlying investment upon exercise of the option. Failure by the
counterparty 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'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
over-the-counter options only by negotiating directly with the counterparty, or
by a transaction in the secondary market if any such market exists. Although the
fund will enter into over-the-counter options only with counterparties 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
over-the-counter option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, the fund might be unable to close
out an over-the-counter 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
FUTURES. The fund may purchase and sell securities index futures
contracts. The fund may 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. In addition, the fund may purchase or sell
futures contracts or purchase options thereon to increase or reduce its exposure
to an asset class without purchasing or selling the underlying securities,
either as a hedge or to enhance return or realize gains.
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 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
11
<PAGE>
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the fund's obligations to or from a futures
broker. When the fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the fund purchases
or sells a futures contract or writes a call option thereon, it is subject to
daily variation margin calls that could be substantial in the event of adverse
price movements. If the fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous.
Holders and writers of futures positions and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
The fund intends to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, the fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
LIMITATIONS ON THE USE OF FUTURES AND RELATED OPTIONS. The fund's use of
futures and related options is governed by the following guideline, which can be
changed by its board without shareholder vote:
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.
12
<PAGE>
ORGANIZATION; BOARD MEMBERS, OFFICERS AND PRINCIPAL HOLDERS OF SECURITIES
The Trust is governed by a board of trustees which oversees its operations
and which is authorized to establish additional series and to issue an unlimited
number of shares of beneficial interest of the Trust as applicable, for each
existing or future series, par value $0.001 per share.
The trustees ("board members") and executive officers of the Trust, their
ages, business addresses and principal occupations during the past five years
are:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Margo N. Alexander**; Trustee and Mrs. Alexander is chairman (since March
52 President 1999), chief executive officer and a
director of Mitchell Hutchins (since January
1995), and an executive vice president and a
director of PaineWebber (since March 1984).
Mrs. Alexander is president and a director
or trustee of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Richard Q. Armstrong; Trustee Mr. Armstrong is chairman and principal
64 of R.Q.A. Enterprises (management consulting
R.Q.A. Enterprises firm) (since April 1991 and principal
One Old Church Road occupation since March 1995). Mr. Armstrong
Unit #6 was chairman of the board, chief
Greenwich, CT 06830 executive officer and co-owner of
Adirondack Beverages (producer and
distributor of soft drinks and
sparkling/still waters) (October 1993-March
1995). He was a partner of The New England
Consulting Group (management consulting
firm) (December 1992-September 1993). He was
managing director of LVMH U.S. Corporation
(U.S. subsidiary of the French luxury goods
conglomerate, Louis Vuitton Moet Hennessey
Corporation) (1987-1991) and chairman of its
wine and spirits subsidiary, Schieffelin &
Somerset Company (1987-1991). Mr. Armstrong
is a director or trustee of 31 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
E. Garrett Bewkes, Trustee and Mr. Bewkes is a director of Paine Webber
Jr.**; 72 Chairman of the Group Inc. ("PW Group") (holding company
Board of of PaineWebber and Mitchell Hutchins).
Trustees Prior to December 1995, he was a consultant
to PW Group. Prior to 1988, he was chairman
of the board, president and chief executive
officer of American Bakeries Company. Mr.
Bewkes is a director of Interstate Bakeries
Corporation. Mr. Bewkes is a director or
trustee of 35 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
13
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Richard R. Burt; 52 Trustee Mr. Burt is chairman of IEP Advisors, Inc.
1275 Pennsylvania (international investments and consulting
Ave., N.W. firm) (since March 1994) and a partner of
Washington, DC 20004 McKinsey & Company (management consulting
firm) (since 1991). He is also a director of
Archer-Daniels-Midland Co. (agricultural
commodities), Hollinger International Co.
(publishing), Homestake Mining Corp.,
Powerhouse Technologies Inc. and Wierton
Steel Corp. He was the chief negotiator in
the Strategic Arms Reduction Talks with the
former Soviet Union (1989-1991) and the U.S.
Ambassador to the Federal Republic of
Germany (1985-1989). Mr. Burt is a director
or trustee of 31 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Mary C. Farrell**; 49 Trustee Ms. Farrell is a managing director, senior
investment strategist and member of the
Investment Policy Committee of PaineWebber.
Ms. Farrell joined PaineWebber in 1982. She
is a member of the Financial Women's
Association and Women's Economic Roundtable
and 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 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Meyer Feldberg; 57 Trustee Mr. Feldberg is Dean and Professor of
Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, NY 10027 1989, he was president of the Illinois
Institute of Technology. Dean Feldberg is
also a director of Primedia, Inc., Federated
Department Stores, Inc. and Revlon, Inc.
Dean Feldberg is a director or trustee of 34
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
George W. Gowen; 69 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, NY 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is a
director or trustee of 34 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
14
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Frederic V. Malek; 62 Trustee Mr. Malek is chairman of Thayer
1455 Pennsylvania Capital Partners (merchant bank).
Ave., N.W. From January 1992 to November 1992,
Suite 350 he was campaign manager of Bush-Quayle
Washington, DC 20004 `92. From 1990 to 1992, he was
vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc., NWA
Inc. (holding company of Northwest Airlines
Inc.) and Wings Holdings Inc. (holding
company of NWA Inc.). Prior to 1989, he was
employed by the Marriott Corporation
(hotels, restaurants, airline catering and
contract feeding), where he most recently
was an executive vice president and
president of Marriott Hotels and Resorts.
Mr. Malek is also a director of American
Management Systems, Inc. (management
consulting and computer related services),
Automatic Data Processing, Inc., CB
Commercial Group, Inc. (real estate
services), Choice Hotels International
(hotel and hotel franchising), FPL Group,
Inc. (electric services), Manor Care, Inc.
(health care) and Northwest Airlines Inc.
Mr. Malek is a director or trustee of 31
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Carl W. Schafer; 63 Trustee Mr. Schafer is president of the Atlantic
66 Witherspoon Foundation (charitable foundation
Street, #1100 supporting mainly oceanographic exploration
Princeton, NJ 08542 and research). He is a director of Base Ten
Systems, Inc. (software), Roadway Express,
Inc. (trucking), The Guardian Group of
Mutual Funds, the Harding, Loevner Funds,
Evans Systems, Inc. (motor fuels,
convenience store and diversified company),
Electronic Clearing House, Inc. (financial
transactions processing), Frontier Oil
Corporation and Nutraceutix, Inc.
(biotechnology company). Prior to January
1993, he was chairman of the Investment
Advisory Committee of the Howard Hughes
Medical Institute. Mr. Schafer is a director
or trustee of 31 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Brian M. Storms;** 44 Trustee Mr. Storms is president and chief operating
officer of Mitchell Hutchins (since
March 1999). Prior to March 1999, he was
president of Prudential Investments
(1996-1999). Prior to joining Prudential, he
was a managing director at Fidelity
Investments. Mr. Storms is a director or
trustee of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
15
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
T. Kirkham Barneby; Vice President Mr. Barneby is a managing director
53 and chief investment officer -
quantitative investments of Mitchell
Hutchins. Prior to September 1994, he was a
senior vice president at Vantage Global
Management. Mr. Barneby is a vice president
of seven investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
Julieanna Berry; 36 Vice President Ms. Berry is a vice president and
a portfolio manager of Mitchell Hutchins.
Ms. Berry is a vice president of two
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
James F. Keegan; 38 Vice President Mr. Keegan is a senior vice president and
a portfolio manager of Mitchell Hutchins.
Prior to March 1996, he was director of
fixed income strategy and research of
Merrion Group, L.P. From 1987 to 1994, he
was a vice president of global investment
management of Bankers Trust. Mr. Keegan is a
vice president of three investment companies
for which Mitchell Hutchins, PaineWebber or
one of their affiliates serves as investment
adviser.
John J. Lee; 30 Vice President Mr. Lee is a vice president and a manager
and of the mutual fund finance department of
Assistant Mitchell Hutchins. Prior to September 1997,
Treasurer he was an audit manager in the
financial services practice of Ernst & Young
LLP. Mr. Lee is a vice president and
assistant treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as an investment adviser.
Thomas J. Libassi; 40 Vice President Mr. Libassi is a senior vice president and
a portfolio manager of Mitchell
Hutchins, where he has been employed since
1994. Mr. Libassi is a vice president of six
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Kevin J. Mahoney; 33 Vice President Mr. Mahoney is a first vice president
and Assistant and senior manager of the mutual fund
Treasurer finance department of Mitchell Hutchins.
From August 1996 through March 1999, he was
the manager of the mutual fund internal
control group of Salomon Smith Barney. Prior
to August 1996, he was an associate and
assistant treasurer for BlackRock Financial
Management L.P. Mr. Mahoney is a vice
president and assistant treasurer of 32
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
16
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Dennis McCauley; 52 Vice President Mr. McCauley is a managing director and
chief investment officer--fixed income of
Mitchell Hutchins. Prior to December 1994,
he was director of fixed income investments
of IBM Corporation. Mr. McCauley is a vice
president of 22 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Ann E. Moran; 42 Vice President Ms. Moran is a vice president and
and a manager of the mutual fund finance
Assistant department of Mitchell Hutchins. Ms. Moran
Treasurer is a vice president and assistant
treasurer of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Dianne E. O'Donnell; Vice President Ms. O'Donnell is a senior vice president
47 and Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice president
and secretary of 31 investment companies and
a vice president and assistant secretary of
one investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Emil Polito; 38 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. Mr. Polito is a vice
president of 32 investment companies for
which Mitchell Hutchins, PaineWebber or one
of their affiliates serves as investment
adviser.
Victoria E. Vice President Ms. Schonfeld is a managing director and
Schonfeld; 48 general counsel of Mitchell Hutchins (since
May 1994) and a senior vice president of
PaineWebber (since July 1995). Ms. Schonfeld
is a vice president of 31 investment
companies and a vice president and secretary
of one investment company for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
Paul H. Schubert; 36 Vice President Mr. Schubert is a senior vice president
and Treasurer and director of the mutual fund finance
department of Mitchell Hutchins. Mr.
Schubert is a vice president and treasurer
of 32 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
Nirmal Singh; 43 Vice President Mr. Singh is a senior vice president and
a portfolio manager of Mitchell Hutchins.
Mr. Singh is a vice president of four
investment companies for which Mitchell
Hutchins, PaineWebber or one of their
affiliates serves as investment adviser.
17
<PAGE>
NAME AND ADDRESS*; AGE POSITION WITH TRUST BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
- ---------------------- ------------------- ----------------------------------------
Barney A. Vice President Mr. Taglialatela is a vice president and
Taglialatela; 38 and a manager of the mutual fund finance
Assistant department of Mitchell Hutchins. Prior
Treasurer to February 1995, he was a manager of the
mutual fund finance division of Kidder
Peabody Asset Management, Inc. Mr.
Taglialatela is a vice president and
assistant treasurer of 32 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Mark A. Tincher; 43 Vice President Mr. Tincher is a managing director and
chief investment officer--equities of
Mitchell Hutchins. Prior to March 1995, he
was a vice president and directed the U.S.
funds management and equity research areas
of Chase Manhattan Private Bank. Mr. Tincher
is a vice president of 13 investment
companies for which Mitchell Hutchins,
PaineWebber or one of their affiliates
serves as investment adviser.
Keith A. Weller; 37 Vice President Mr. Weller is a first vice president and
and associate general counsel of Mitchell
Assistant Hutchins. Prior to May 1995, he was an
Secretary attorney in private practice. Mr. Weller
is a vice president and assistant secretary
of 31 investment companies for which
Mitchell Hutchins, PaineWebber or one of
their affiliates serves as investment
adviser.
</TABLE>
- -------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes, Ms. Farrell and Mr. Storms are "interested
persons" of the fund as defined in the Investment Company Act by virtue of
their positions with Mitchell Hutchins, PaineWebber, and/or PW Group.
The Trust pays trustees who are not "interested persons" of the Trust
("disinterested trustees") $1,000 annually for each series. The Trust pays
such board members up to $150 per series for each board meeting and each
separate meeting of a board committee. The Trust presently has eight series
and thus pays each such trustee $8,000 annually, plus any additional annual
amounts due for board or committee meetings. Each chairman of the audit and
contract review committees of individual funds within the PaineWebber fund
complex receives additional compensation aggregating $15,000 annually 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 shares of the fund. Because Mitchell Hutchins
and PaineWebber perform substantially all of the services necessary for the
operation of the Trust and the fund, the Trust requires no employees. No
officer, director or employee of Mitchell Hutchins or PaineWebber presently
receives any compensation from the Trust for acting as a trustee or officer.
18
<PAGE>
The table below includes certain information relating to the compensation
of the current board members who held office with the Trust or with other
PaineWebber funds during the fund's fiscal year ended March 31, 1999.
COMPENSATION TABLE+
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE TRUST AND
NAME OF PERSON, POSITION FROM THE TRUST* THE FUND COMPLEX**
----------------------- --------------- ------------------
Richard Q. Armstrong,
Trustee $11,580 $101,372
Richard R. Burt,
Trustee 11,580 101,372
Meyer Feldberg,
Trustee 11,580 116,222
George W. Gowen,
Trustee 13,470 108,272
Frederic V. Malek,
Trustee 11,580 101,372
Carl W. Schafer,
Trustee 11,580 101,372
- --------------------
+ Only independent board members are compensated by the Trust and identified
above; board members who are "interested persons," as defined by the
Investment Company Act, do not receive compensation.
* Represents fees paid to each board member indicated for the fiscal year
ended March 31, 1999.
** Represents total compensation paid during the calendar year ended December
31, 1998, to each board member by 31 investment companies (33 in the case of
Messrs. Feldberg and Gowen) for which Mitchell Hutchins, PaineWebber or one
of their affiliates served as investment adviser. No fund within the
PaineWebber fund complex has a bonus, pension, profit sharing or retirement
plan.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of this Statement of Information, the fund has not
commenced selling its shares and has no shareholders owning 5% or more of any
class of the fund's shares.
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of the fund pursuant to an advisory contract
("Advisory Contract") with the fund. Under the Advisory Contract, the fund pays
Mitchell Hutchins a fee, computed daily and paid monthly, at the annual rate of
1.00% of its average daily net assets up to and including $750 million, 0.95% of
average daily net assets up to and including $1.5 billion and 0.90% of average
daily net assets in excess of $1.5 billion.
Under the terms of the Advisory Contract, the fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by the fund include the following: (1) the cost
(including brokerage commissions, if any) of securities purchased or sold by the
fund and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the fund by Mitchell Hutchins; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of the fund's shares under federal and state securities laws and
maintenance of such registrations and qualifications; (5) fees and salaries
payable to trustees who are not interested persons of the fund or Mitchell
Hutchins; (6) all expenses incurred in connection with the trustees' services,
19
<PAGE>
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 fund for violation of any law; (10) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent trustees;
(11) charges of custodians, transfer agents and other agents; (12) costs of
preparing share certificates; (13) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders and
costs of mailing such materials to existing shareholders; (14) any extraordinary
expenses (including fees and disbursements of counsel) incurred by the fund;
(15) fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (16) costs of mailing and
tabulating proxies and costs of meetings of shareholders, the board and any
committees thereof; (17) the cost of investment company literature and other
publications provided to trustees and officers; and (18) costs of mailing,
stationery and communications equipment.
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 its assignment and is terminable at any time without penalty
by the board or by vote of the holders of a majority of the fund's outstanding
voting securities, on 60 days' written notice to Mitchell Hutchins or by
Mitchell Hutchins on 60 days' written notice to the fund.
PERSONAL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participation in initial public
offerings generally are prohibited. In addition, the code of ethics puts
restrictions on the timing of personal investing in relation to trades by
PaineWebber funds and other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of the fund under a distribution contract with the fund
("Distribution Contracts"). The Distribution Contract requires Mitchell Hutchins
to use its best efforts, consistent with its other businesses, to sell shares of
the fund. Shares of the fund are offered continuously. Under an exclusive dealer
agreement between Mitchell Hutchins and PaineWebber relating to each class of
shares of the fund ( "Exclusive Dealer Agreement"), 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 Investment Company 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 and the Class C Plan, the fund pays Mitchell Hutchins a
distribution fee, accrued daily and payable monthly, at the annual rate of 0.75%
of the average daily net assets of the Class B shares. There is no distribution
plan with respect to the fund's Class Y 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 Financial Advisors
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:
o Offset the commissions it pays to PaineWebber for selling the fund's
Class B and Class C shares, respectively.
20
<PAGE>
o 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 Financial Advisors when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from the fund or investors at the time Class B
or C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid
when Class A shares are bought and of the contingent deferred sales charge paid
upon sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related Distribution Contract for Class A, Class B and
Class C shares 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.
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 board, including those board members who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan, acting in person
at a meeting called for that purpose, (3) payments by 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 fund shall be committed to the discretion of the
board members who are not "interested persons" of their fund.
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.
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 Financial Advisors and correspondent firms, resulting
in greater growth of the fund than might otherwise be the case, (3) the
21
<PAGE>
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 Financial Advisors 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
Financial Advisors 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 Financial Advisors, 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 Financial Advisors 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 Financial Advisors 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 Financial
Advisors, without the concomitant receipt by Mitchell Hutchins of initial sales
charges or contingent deferred sales charges upon redemption after one year
following purchase was conditioned upon its expectation of being compensated
under the Class C Plan.
With respect to each Plan, the board considered all compensation that
Mitchell Hutchins would receive under the Plan and the Distribution Contract,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The board also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and advisory fees 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, Mitchell Hutchins is
responsible for the execution of the fund's portfolio transactions and the
allocation of brokerage transactions. In executing portfolio transactions,
Mitchell Hutchins seeks to obtain the best net results for the fund, taking into
account such factors as the price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved. While Mitchell Hutchins generally seeks
reasonably competitive commission rates, payment of the lowest commission is not
necessarily consistent with obtaining the best net results. Prices paid to
dealers in principal transactions generally include a "spread," which is the
difference between the prices at which the dealer is willing to purchase and
22
<PAGE>
sell a specific security at the time. The fund may invest in securities traded
in the over-the-counter market and will engage primarily in transactions
directly with the dealers who make markets in such securities, unless a better
price or execution could be obtained by using a broker.
The fund has no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The fund contemplates that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through Mitchell Hutchins or its affiliates, including PaineWebber.
The board has adopted procedures in conformity with Rule 17e-1 under the
Investment Company Act to ensure that all brokerage commissions paid to
PaineWebber are reasonable and fair. Specific provisions in the Advisory
Contract authorize Mitchell Hutchins and any of its affiliates that is a member
of a national securities exchange to effect portfolio transactions for the fund
on such exchange and to retain compensation in connection with such
transactions. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
fund's procedures in selecting FCMs to execute its transactions in futures
contracts, including procedures permitting the use of Mitchell Hutchins and its
affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
In selecting brokers, Mitchell Hutchins will consider the full range and
quality of a broker's services. Consistent with the interests of the fund and
subject to the review of the board, Mitchell Hutchins may cause the fund to
purchase and sell portfolio securities through brokers who provide Mitchell
Hutchins with brokerage or research services. The fund may pay those brokers a
higher commission than may be charged by other brokers, provided that Mitchell
Hutchins determines in good faith that the commission is reasonable in terms
either of that particular transaction or of the overall responsibility of
Mitchell Hutchins to the fund and its other clients.
Research services obtained from brokers may include written reports,
pricing and appraisal services, analysis of issues raised in proxy statements,
educational seminars, subscriptions, portfolio attribution and monitoring
services, and computer hardware, software and access charges which are directly
related to investment research. Research services may be received in the form of
written reports, online services, telephone contacts and personal meetings with
security analysts, economists, corporate and industry spokespersons, and
government representatives.
For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight was
attributed to the services provided by the executing dealer. Mitchell Hutchins
may engage in agency transactions in over-the-counter securities in return for
research and execution services. These transactions are entered into only
pursuant to procedures that are designed to ensure 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.
Research services and information received from brokers or dealers are
supplemental to Mitchell Hutchins' own research efforts and, when utilized, are
subject to internal analysis before being incorporated into its investment
processes. Information and research services furnished by brokers or dealers
through which or with which the fund effects securities transactions may be used
by Mitchell Hutchins in advising other funds or accounts and, conversely,
research services furnished to Mitchell Hutchins by brokers or dealers in
connection with other funds or accounts that it advises may be used in advising
the fund.
Investment decisions for the fund and for other investment accounts
managed by Mitchell Hutchins are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may occasionally be made for the fund and one or more accounts. In
those cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between that fund and the other
account(s) as to amount according to a formula deemed equitable to the fund and
the other 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,
23
<PAGE>
or upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will
benefit.
The fund will not purchase securities that are offered in underwritings in
which PaineWebber is a member of the underwriting or selling group, except
pursuant to procedures adopted by the board pursuant to Rule 10f-3 under the
Investment Company Act. Among other things, these procedures require that the
spread or commission paid in connection with such a purchase be reasonable and
fair, the purchase be at not more than the public offering price prior to the
end of the first business day after the date of the public offering and that
PaineWebber or any affiliate thereof not participate in or benefit from the sale
to the fund.
PORTFOLIO TURNOVER. The fund's annual portfolio turnover rates may vary
greatly from year to year, but they will not be a limiting factor when
management deems portfolio changes appropriate. The portfolio turnover rate is
calculated by dividing the lesser of the fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of securities in the portfolio during the year. The fund is
expected to have an annual turnover rate greater than 100%.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
WAIVERS OF SALES CHARGES/CONTINGENT DEFERRED SALES CHARGES -- CLASS A
SHARES. The following additional sales charge waivers are available for Class A
shares if you:
o Purchase shares through 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 l% of the amount invested;
o Acquire 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 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;
o Acquire shares in connection with a reorganization pursuant to which
the fund acquires substantially all of the assets and liabilities of
another fund in exchange solely for shares of the acquiring fund; or
o Acquire 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.
In addition, reduced sales charges on Class A shares are available through
the combined purchase plan or through rights of accumulation described below.
Class A share 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.
COMBINED PURCHASE PRIVILEGE -- CLASS A SHARES. Investors and eligible
groups of related fund investors may combine purchases of Class A shares of the
fund with concurrent purchases of Class A shares of any other PaineWebber mutual
fund and thus take advantage of the reduced sales charges indicated in the table
of sales charges for Class A shares in the Prospectus. The sales charge payable
on the purchase of Class A shares of the fund and Class A shares of such other
24
<PAGE>
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 ACCUMULATION -- CLASS A SHARES. Reduced sales charges are
available through a right of accumulation, under which investors and eligible
groups of related fund investors (as defined above) are permitted to purchase
Class A shares of the fund among related accounts at the offering price
applicable to the total of (1) the dollar amount then being purchased plus (2)
an amount equal to the then-current net asset value of the purchaser's combined
holdings of Class A fund shares and Class A shares of any other PaineWebber
mutual fund. The purchaser must provide sufficient information to permit
confirmation of his or her holdings, and the acceptance of the purchase order is
subject to such confirmation. The right of accumulation may be amended or
terminated at any time.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES. Shareholders who have redeemed
Class A shares of the fund may reinstate their account without a sales charge 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, although a loss arising out of a
redemption might not be deductible under certain circumstances. See "Taxes"
below.
WAIVERS OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. 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. 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.
25
<PAGE>
PURCHASES OF CLASS Y SHARES THROUGH THE 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 Financial Advisor or PaineWebber's correspondent firms
for more information concerning mutual funds that are available through the PACE
Multi Advisor Program.
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. Class Y shares are
not eligible for exchange. 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 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 Investment Company 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 is closed or trading on
the New York Stock Exchange 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.
SERVICE ORGANIZATIONS. The fund may authorize service organizations, and
their agents, to accept on its behalf purchase and redemption orders that are in
"good form." The fund will be deemed to have received these purchase and
redemption orders when a service organization or its agent accepts them. Like
all customer orders, these orders will be priced based on the fund's net asset
value next computed after receipt of the order by the service organizations or
their agents. Service organizations may include retirement plan service
providers who aggregate purchase and redemption instructions received from
numerous retirement plans or plan participants.
AUTOMATIC INVESTMENT PLAN. PaineWebber offers an automatic investment plan
with a minimum initial investment of $1,000 through which the fund will deduct
$50 or more on a monthly, quarterly, semi-annual or annual basis from the
investor's bank account to invest directly in the fund. 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. The systematic withdrawal plan allows
investors to set up monthly, quarterly (March, June, September and December),
semi-annual (June and December) or annual (December) withdrawals from their
26
<PAGE>
PaineWebber Mutual Fund accounts. Minimum balances and withdrawals vary
according to the class of shares:
o Class A and Class C shares. Minimum value of fund shares is $5,000;
minimum withdrawals of $100.
o Class B shares. Minimum value of fund shares is $20,000; minimum
monthly, quarterly, and semi-annual and annual withdrawals of $200,
$400, $600 and $800, respectively.
Withdrawals under the systematic withdrawal plan will not be subject to a
contingent deferred sales charge if the investor withdraws 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.
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 the minimum values specified
above. 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, semi-annual 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. 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. 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 PFPC. Shareholders may request the
forms needed to establish a systematic withdrawal plan from their PaineWebber
Financial Advisors, correspondent firms or PFPC at 1-800-647-1568.
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 PFPC. 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.
PAINEWEBBER EMPLOYEE INVESTMENT LIMITATION. Investments in the fund by
PaineWebber employees and proprietary accounts will be limited to 10% or less of
the assets of the fund.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SERVICEMARK);
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(REGISTERED) (RMA)(REGISTERED)
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
27
<PAGE>
three Business Days (defined under "Valuation of Shares") after the trade date,
and the purchase price of the shares is withdrawn from the investor's RMA
account on the settlement date from the following sources and in the following
order: uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan, or an RMA accountholder's participation in the
Plan, may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW funds and/or mutual funds other than the PW funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
funds or other mutual funds, whether through the Plan or otherwise, helps
investors establish and maintain a disciplined approach to accumulating assets
over time, de-emphasizing the importance of timing the market's highs and lows.
Periodic investing also permits an investor to take advantage of "dollar cost
averaging." By investing a fixed amount in mutual fund shares at established
intervals, an investor purchases more shares when the price is lower and fewer
shares when the price is higher, thereby increasing his or her earning
potential. Of course, dollar cost averaging does not guarantee a profit or
protect against a loss in a declining market, and an investor should consider
his or her financial ability to continue investing through periods of 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:
o monthly Premier account statements that itemize all account
activity, including investment transactions, checking activity
and Gold MasterCard(Registered) transactions during the period,
and provide unrealized and realized gain and loss estimates for
most securities held in the account;
o comprehensive year-end summary statements that provide
information on account activity for use in tax planning and tax
return preparation;
o 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. AN INVESTMENT IN A
MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH A MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN A MONEY MARKET FUND.
o 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;
o 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;
28
<PAGE>
o 24-hour access to account information through toll-free numbers,
and more detailed personal assistance during business hours from
the RMA Service Center;
o 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 PFPC and not through PaineWebber; and
o automatic direct deposit of checks into your RMA account and
automatic withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
CONVERSION OF CLASS B SHARES
Class B shares of the fund will automatically convert to Class A shares of
the fund, based on the relative net asset values per share of the two classes,
as of the close of business on the first Business Day (as defined under
"Valuation of Shares") of the month in which the sixth anniversary of the
initial issuance of such Class B shares occurs. For the purpose of calculating
the holding period required for conversion of Class B shares, the date of
initial issuance shall mean (i) the date on which such Class B shares were
issued or (ii) for Class B shares obtained through an exchange, or a series of
exchanges, the date on which the original Class B shares were issued. For
purposes of conversion 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 conversion feature is subject to the continuing availability of an
opinion of counsel to the effect that the dividends and other distributions paid
on Class A and Class B shares will not result in "preferential dividends" under
the Internal Revenue Code and 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 will
not continue to be met.
VALUATION OF SHARES
The fund determines its net asset value per share separately for each
class of shares, normally as of the close of regular trading (usually 4:00 p.m.,
Eastern time) on the New York Stock Exchange on each Business Day, which is
defined as each Monday through Friday when the New York Stock Exchange is open.
Prices will be calculated earlier when the New York Stock Exchange closes early
because trading has been halted for the day. Currently the New York Stock
Exchange 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 exchanges normally are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in the
over-the-counter market and listed on the Nasdaq Stock Market ("Nasdaq")
normally are valued at the last available sale price on Nasdaq prior to
valuation; other over-the-counter securities are valued at the last bid price
available prior to valuation. Where market quotations are readily available,
portfolio securities are valued based upon market quotations, provided those
quotations adequately reflect, in the judgment of Mitchell Hutchins, the fair
value of the security. Where those market quotations are not readily available,
securities are valued based upon appraisals received from a pricing service
using a computerized matrix system or based upon appraisals derived from
29
<PAGE>
information concerning the security or similar securities received from
recognized dealers in those securities. All other securities and other assets
are valued at fair value as determined in good faith by or under the direction
of the board. It 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.
PERFORMANCE INFORMATION
Past performance of the Highlighted List does not predict future results
of the Highlighted List or the fund. Materials showing any performance of the
Highlighted List do not reflect performance for the fund, which is managed by
Mitchell Hutchins and the results of which will vary from the performance of the
Highlighted List.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
("Standardized Return") used in the fund's Performance Advertisements are
calculated according to the following formula:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares
of a specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at
the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B and Class C shares, the applicable contingent deferred sales charge
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 Inc. ("Lipper") for capital appreciation funds, CDA Investment
Technologies, Inc. ("CDA"), Wiesenberger Investment Companies Service
("Wiesenberger"), Investment Company Data, Inc. ("ICD") or Morningstar Mutual
Funds ("Morningstar"), or with the performance of recognized stock, bond and
other indices, including the Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), the Dow Jones Industrial Average, the
Morgan Stanley Capital International World Index, the Lehman Brothers Treasury
Bond Index, and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The fund also may refer in these materials to mutual
fund performance rankings and other data, such as comparative asset, expense and
fee levels, published by Lipper, CDA, Wiesenberger, ICD or Morningstar.
Performance Advertisements also may refer to discussions of the fund and
comparative mutual fund data and ratings reported in independent periodicals,
including THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE
WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in Performance
Advertisements may be in graphic form.
30
<PAGE>
The fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on the fund investment are reinvested
in additional fund shares, any future income or capital appreciation of the fund
would increase the value, not only of the original fund investment, but also of
the additional fund shares received through reinvestment. As a result, the value
of the fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(R) Money Markets. In comparing the fund's
performance to CD performance, investors should keep in mind that bank CDs are
insured in whole or in part by an agency of the U.S. government and offer fixed
principal and fixed or variable rates of interest, and that bank CD yields may
vary depending on the financial institution offering the CD and prevailing
interest rates. Shares of the fund are not insured or guaranteed by the U.S.
government and returns and net asset values will fluctuate. An investment in any
fund involves greater risks than an investment in either a money market fund or
a CD.
The fund may also compare its performance to general trends in the stock
and bond markets as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
[CHART TO BE INSERTED]
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 stocks and varying in composition.
Unlike investors in bonds and U.S. Treasury bills, common stock investors do not
receive fixed income payments and are not entitled to repayment of principal.
These differences contribute to investment risk. Returns shown for long-term
government bonds are based on U.S. Treasury bonds with 20-year maturities.
Inflation is measured by the Consumer Price Index. The indexes are unmanaged and
are not available for investment. ----------------------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM) Ibbotson
Assoc., Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
Over time, although subject to greater risks and higher volatility, stocks
have outperformed all other investments by a wide margin, offering a solid hedge
against inflation. From 1926 to 1998, stocks beat all other traditional asset
classes. A $10,000 investment in the stocks comprising the S&P 500 grew to
$__,___,___, significantly more than any other investment.]
TAXES
BACKUP WITHHOLDING. The fund is required to withhold 31% of all taxable
dividends, capital gain distributions and redemption proceeds payable to
individuals and certain other non-corporate shareholders who do not provide the
fund or PaineWebber with a correct taxpayer identification number. Withholding
at that rate also is required from dividends and capital gain distributions
payable to those shareholders who otherwise are subject to backup withholding.
SALE OR EXCHANGE OF FUND SHARES. A shareholder's sale (redemption) of
shares may result in a taxable gain or loss, depending on 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.
31
<PAGE>
SPECIAL RULE FOR CLASS A SHAREHOLDERS. A special tax rule applies when a
shareholder sells or exchanges Class A shares within 90 days of purchase and
subsequently acquires Class A shares of the same or another PaineWebber mutual
fund without paying a sales charge due to the 365-day reinstatement privilege or
the exchange privilege. In these cases, any gain on the sale or exchange of the
original Class A shares would be increased, or any loss would be decreased, by
the amount of the sales charge paid when those shares were bought, and that
amount would increase the basis of the PaineWebber mutual fund shares
subsequently acquired.
CONVERSION OF CLASS B SHARES. A shareholder will recognize no gain or loss
as a result of a conversion from Class B shares to Class A shares.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. 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 and net short-term capital gain) and must
meet several additional requirements. These requirements include the following:
(1) the fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income (including gains
from options or futures) derived with respect to its business of investing in
securities ("Income Requirement"); (2) at the close of each quarter of the
fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities that are 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 (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).
OTHER INFORMATION. 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.
A portion of the dividends from the fund's investment company taxable
income (whether paid in cash or in additional shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by the fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
federal alternative minimum tax.
If fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received thereon.
Investors also should be aware that if shares are purchased shortly before
the record date for a 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 return on its securities. Tax conventions between certain
countries and the United States, however, 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 (1) would be required to
include in gross income, and treat as paid by him or her, his or her
proportionate share of those taxes, (2) would be required to treat his or her
share of those taxes and of any dividend paid by the fund that represents income
32
<PAGE>
from foreign or U.S. possessions sources as his or her own income from those
sources, and (3) could 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
income tax. The fund will report to its shareholders shortly after each taxable
year their respective shares of foreign taxes paid and the income from sources
within, and taxes paid to, foreign countries and U.S. possessions if it makes
this election. Individuals who have no more than $300 ($600 for married persons
filing jointly) of creditable foreign taxes included on Forms 1099 and all of
whose foreign source income is "qualified passive income" may elect each year to
be exempt from the extremely complicated foreign tax credit limitation, in which
event they would be able to claim a foreign tax credit without having to file
the detailed Form 1116 that otherwise is required.
The fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary (taxable) income for the calendar year and capital gain net income for
the one-year period ending on October 31 of that year, plus certain other
amounts.
The use of hedging strategies, such as writing (selling) and purchasing
futures contracts, involves complex rules that determine for income tax purposes
the amount, character and timing of recognition of the gains and losses the fund
realizes in connection therewith. Gains from options and futures contracts
derived by the fund with respect to its business of investing in securities,
qualify as permissible income under the Income Requirement.
If the fund has an "appreciated financial position"-- generally, an
interest (including an interest through a futures contract) with respect to any
stock, debt instrument (other than "straight debt") or partnership interest the
fair market value of which exceeds its adjusted basis--and enters into a
"constructive sale" of the position, the fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or a futures or forward currency contract entered into by the
fund or a related person with respect to the same or substantially identical
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
identical property will be deemed a constructive sale. The foregoing will not
apply, however, to the fund's transaction during any taxable year that otherwise
would be treated as a constructive sale if the transaction is closed within 30
days after the end of that year and the fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that
60-day period is the fund's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially identical
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale or granting an option to buy
substantially identical stock or securities).
The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the fund and its shareholders. No
attempt is made to present a complete explanation of the federal tax treatment
of the fund's activities, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisers for more detailed information and for information
regarding any state, local or foreign taxes applicable to the fund and to
dividends and distributions therefrom.
OTHER INFORMATION
MASSACHUSETTS BUSINESS TRUSTS. The Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law, shareholders
of PaineWebber Research Fund could, under certain circumstances, be held
personally liable for the obligations of the fund or its Trust. However, the
Trust's Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust or the fund and requires that notice of such disclaimer
be given in each note, bond, contract, instrument, certificate or undertaking
made or issued by the 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
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
33
<PAGE>
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 fund. The board members
intend to conduct the fund's operations in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the fund.
CLASSES OF SHARES. A share of each class of the fund represents an
identical interest in the fund's investment portfolio and has the same rights,
privileges and preferences. However, each class may differ with respect to sales
charges, if any, distribution and/or service fees, if any, other expenses
allocable exclusively to each class, 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 that fund. However, due to the differing expenses
of the classes, dividends and liquidation proceeds 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 fund (or the Trust, which has more than one series) may elect all
of the board members of that fund or 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 Rule 12b-1
Plan as it relates to the class. The shares of each series of the Trust will be
voted separately, except when an aggregate vote of all the series of the Trust
is required by law.
The fund does not hold annual meetings. Shareholders of record of no less
than two-thirds of the outstanding shares of the Trust or fund (as applicable)
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 or fund, as applicable.
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.
CUSTODIAN AND RECORDKEEPING AGENT; TRANSFER AND DIVIDEND AGENT. State
Street Bank and Trust Company, located at One Heritage Drive, North Quincy,
Massachusetts 02171, serves as custodian and recordkeeping agent for the fund.
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.
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.
34
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED PaineWebber
OR REFERRED TO IN THE PROSPECTUS AND THIS Research Fund
STATEMENT OF ADDITIONAL INFORMATION. THE FUND AND
ITS DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL
INFORMATION ARE NOT AN OFFER TO SELL SHARES OF THE
FUND IN ANY JURISDICTION WHERE THE FUND OR ITS
DISTRIBUTOR MAY NOT LAWFULLY SELL THOSE SHARES.
------------
------------------------------------------
Statement of Additional Information
__________, 1999
------------------------------------------
PAINEWEBBER
(C)1999 PaineWebber Incorporated
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. EXHIBITS
--------
(1) (a) Amended and Restated Declaration of Trust 1/
(b) Amendment to Declaration of Trust effective April 8, 1998 2/
(c) Amendment to Declaration of Trust effective July 9, 1998 2/
(d) Amendment to Declaration of Trust effective August 19, 1998 3/
(e) Amendment to Declaration of Trust effective June 24, 1999 (to
be filed)
(2) Restated By-Laws 1/
(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest 4/
(4) (a) Investment Advisory and Administration Contract 1/
(b) Investment Advisory and Administration Contract with respect
to PaineWebber Tax-Managed Equity Fund and PaineWebber
Research Fund 3/
(c) Investment Advisory Fee Agreement with respect to
PaineWebber Utility Income Fund 1/
(d) Investment Advisory Fee Agreement with respect to
PaineWebber Low Duration U.S. Government Income Fund 1/
(e) Investment Advisory Fee Agreement with respect to PaineWebber
Asia Pacific Growth Fund 5/
(f) Investment Advisory Fee Agreement with respect to PaineWebber
Research Fund (to be filed)
(g) Sub-Investment Advisory Contract with respect to PaineWebber
Low Duration U.S. Government Income Fund 6/
(h) Sub-Advisory Contract with respect to PaineWebber Asia Pacific
Growth Fund 5/
(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 7/
(d) Distribution Contract with respect to Class Y Shares 7/
(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 7/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 7/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement 1/
(8) Transfer Agency Agreement 8/
(9) Opinion and consent of counsel (to be filed)
(10) Other opinions, appraisals, rulings and consents: Auditors' consent
(not applicable)
(11) Financial statements omitted from prospectus - none
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 3/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect
to Class B Shares 3/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C Shares 3/
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 9/
- -----------------
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 Post-Effective Amendment No. 54 to the
registration statement, SEC File No. 2-91362, filed July 21, 1998.
3/ Incorporated by reference from Post-Effective Amendment No. 59 to the
registration statement, SEC File No. 2-91362, filed February 26, 1999.
4/ 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.
5/ Incorporated by reference from Post Effective Amendment No. 50 to the
registration statement, SEC File No. 2-91362, filed July 7, 1997.
6/ Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, SEC File No. 2-91362, filed March 31, 1995.
7/ Incorporated by reference from Post-Effective Amendment No. 39 to the
registration statement, SEC File No. 2-91362, filed February 14, 1996.
8/ Incorporated by reference from Post-Effective Amendment No. 53 to the
registration statement, SEC File No. 2-91362, filed March 31, 1998.
9/ Incorporated by reference from Post-Effective Amendment No. 43 to the
registration statement, SEC File No. 2-91362, filed July 31, 1996.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
Until PaineWebber Research Fund has public shareholders, Mitchell
Hutchins Asset Managemnt is a controlling person of the Fund.
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 and PaineWebber Asia Pacific Growth Fund contain
similar provisions with respect to those sub-advisers. Section 10 of each
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
C-3
<PAGE>
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and trustees free and harmless of any claims arising out of any alleged
untrue statement or any alleged omission of material fact contained in
information furnished by Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with each Distribution Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions similar
to Section 9 of each Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Section 10 of each Distribution Contract contains provisions similar to
that of the section of the Investment Advisory and Administration Contracts
limiting the liability of the Trust's trustees.
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
is primarily engaged in the investment advisory business. Schroder Capital is a
wholly owned indirect subsidiary of Schroders plc, the London Stock Exchange
listed holding company parent of a large worldwide group of banks and financial
services companies (referred to as the "Schroder Group") with associated
companies and branch and representative offices located worldwide. Information
regarding the officers and directors of Schroder Capital is included in its Form
ADV, as filed with the Securities and Exchange Commission (registration number
801-15834) 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.
Position and Offices with
Position With Underwriter or Exclusive
Name Registrant Dealer
- ---- ---------- -------------------------
Margo N. Alexander Trustee and President Chairman, Chief Executive
Officer and a Director of
Mitchell Hutchins and
Executive Vice President
and a Director of
PaineWebber
C-5
<PAGE>
Position and Offices with
Position With Underwriter or Exclusive
Name Registrant Dealer
- ---- ---------- -------------------------
Mary C. Farrell Trustee Managing Director, Senior
Investment Strategist and
member of Investment Policy
Committee of PaineWebber
Brian M. Storms Trustee President and Chief
Operating Officer of
Mitchell Hutchins
T. Kirkham Barneby Vice President Managing Director and Chief
Investment Officer -
Quantitative Investments of
Mitchell Hutchins
Julianna Berry Vice President First Vice President and a
Portfolio Manager of
Mitchell Hutchins
James F. Keegan Vice President Senior Vice President and a
Portfolio Manager of
Mitchell Hutchins
John J. Lee Vice President and Vice President and a
Assistant Treasurer Manager of the Mutual Fund
Finance Department of
Mitchell Hutchins
Thomas J. Libassi Vice President Senior Vice President and a
Portfolio Manager of
Mitchell Hutchins
Kevin J. Mahoney Vice President and First Vice President and a
Assistant Treasurer Senior Manager of the
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 Vice President and a
Assistant Treasurer Manager of the Mutual Fund
Finance Department of
Mitchell Hutchins
Dianne E. O'Donnell Vice President and Senior Vice President and
Secretary Deputy General Counsel of
Mitchell Hutchins
Emil Polito Vice President Senior Vice President and
Director of Operations and
Control for Mitchell
Hutchins
Victoria E. Schonfeld Vice President Managing Director and
General Counsel of Mitchell
Hutchins and a Senior Vice
President of PaineWebber
C-6
<PAGE>
Position and Offices with
Position With Underwriter or Exclusive
Name Registrant Dealer
- ---- ---------- -------------------------
Paul H. Schubert Vice President and Senior Vice President and
Treasurer 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 Vice President and a
Assistant Treasurer Manager of the Mutual Fund
Finance Department of
Mitchell Hutchins
Mark A. Tincher Vice President Managing Director and Chief
Investment Officer -
Equities of Mitchell
Hutchins
Keith A. Weller Vice President and First Vice President and
Assistant Secretary Associate General Counsel
of Mitchell Hutchins
(c) None.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Mitchell Hutchins, 1285 Avenue of the Americas, New York,
New York 10019. All other accounts, books and documents required by Rule 31a-1
are maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 29. MANAGEMENT SERVICES
-------------------
Not applicable.
Item 30. UNDERTAKINGS
------------
None.
C-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 30th day of June, 1999.
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:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Margo N. Alexander President and Trustee June 30, 1999
- ------------------------- (Chief Executive Officer)
Margo N. Alexander*
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman June 30, 1999
- ------------------------- of the Board of Trustees
E. Garrett Bewkes, Jr.*
/s/ Richard Q. Armstrong Trustee June 30, 1999
- -------------------------
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee June 30, 1999
- -------------------------
Richard R. Burt *
/s/ Mary C. Farrell Trustee June 30, 1999
- -------------------------
Mary C. Farrell *
/s/ Meyer Feldberg Trustee June 30, 1999
- -------------------------
Meyer Feldberg *
/s/ George W. Gowen Trustee June 30, 1999
- -------------------------
George W. Gowen *
/s/ Frederic V. Malek Trustee June 30, 1999
- -------------------------
Frederic V. Malek *
/s/ Carl W. Schafer Trustee June 30, 1999
- -------------------------
Carl W. Schafer *
/s/ Brian M. Storms Trustee June 30, 1999
- -------------------------
Brian M. Storms **
/s/ Paul H. Schubert Vice President and June 30, 1999
- ------------------------- Treasurer (Chief Financial
Paul H. Schubert and Accounting Officer)
<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.
** Signature affixed by Elinor W. Gammon pursuant to power of attorney dated
May 14, 1999 and incorporated by reference from Post-Effective Amendment
No. 61 to the registration statement of PaineWebber Managed Investments
Trust, SEC File 2-91362, filed June 1, 1999.
<PAGE>
PAINEWEBBER MANAGED INVESTMENTS TRUST
EXHIBIT INDEX
Exhibit
Number
- -------
(1) (a) Amended and Restated Declaration of Trust 1/
(b) Amendment to Declaration of Trust effective April 8, 1998 2/
(c) Amendment to Declaration of Trust effective July 9, 1998 2/
(d) Amendment to Declaration of Trust effective August 19, 1998 3/
(e) Amendment to Declaration of Trust effective June 24, 1999 (to
be filed)
(2) Restated By-Laws 1/
(3) Instruments defining the rights of holders of the Registrant's
shares of beneficial interest 4/
(4) (a) Investment Advisory and Administration Contract 1/
(b) Investment Advisory and Administration Contract with respect
to PaineWebber Tax-Managed Equity Fund and PaineWebber
Research Fund 3/
(c) Investment Advisory Fee Agreement with respect to
PaineWebber Utility Income Fund 1/
(d) Investment Advisory Fee Agreement with respect to
PaineWebber Low Duration U.S. Government Income Fund 1/
(e) Investment Advisory Fee Agreement with respect to PaineWebber
Asia Pacific Growth Fund 5/
(f) Investment Advisory Fee Agreement with respect to PaineWebber
Research Fund (to be filed)
(g) Sub-Investment Advisory Contract with respect to PaineWebber
Low Duration U.S. Government Income Fund 6/
(h) Sub-Advisory Contract with respect to PaineWebber Asia Pacific
Growth Fund 5/
(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 7/
(d) Distribution Contract with respect to Class Y Shares 7/
(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 7/
(h) Exclusive Dealer Agreement with respect to Class Y Shares 7/
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement 1/
(8) Transfer Agency Agreement 8/
<PAGE>
(9) Opinion and consent of counsel (to be filed)
(10) Other opinions, appraisals, rulings and consents: Auditors' 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 3/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B Shares 3/
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class C Shares 3/
(14) and
(27) Financial Data Schedule (not applicable)
(15) Plan pursuant to Rule 18f-3 9/
- -----------------
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 Post-Effective Amendment No. 54 to the
registration statement, SEC File No. 2-91362, filed July 21, 1998.
3/ Incorporated by reference from Post-Effective Amendment No. 59 to the
registration statement, SEC File No. 2-91362, filed February 26, 1999.
4/ 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.
5/ Incorporated by reference from Post Effective Amendment No. 50 to the
registration statement, SEC File No. 2-91362, filed July 7, 1997.
6/ Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, SEC File No. 2-91362, filed March 31, 1995.
7/ Incorporated by reference from Post-Effective Amendment No. 39 to the
registration statement, SEC File No. 2-91362, filed February 14, 1996.
8/ Incorporated by reference from Post-Effective Amendment No. 53 to the
registration statement, SEC File No. 2-91362, filed March 31, 1998.
9/ Incorporated by reference from Post-Effective Amendment No. 43 to the
registration statement, SEC File No. 2-91362, filed July 31, 1996.
