<PAGE>
As filed with the Securities and Exchange Commission on November 25, 1997
1933 Act Registration No. 2-94983
1940 Act Registration No. 811-4180
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [X]
Post-Effective Amendment No. 38 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36 [X]
(Check appropriate box or boxes.)
PAINEWEBBER OLYMPUS FUND
(Exact Name of Registrant as Specified in Charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, ESQ.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, ESQ.
BENJAMIN J. HASKIN, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.; Second 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)
X On December 1, 1997 to Rule 485(b)
___ 60 days after filing pursuant to Rule 485(a)(i)
___ On pursuant to Rule 485(a)(i)
___ 75 days after filing pursuant to Rule 485(a)(ii)
___ On pursuant to Rule 485(a)(ii)
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE>
PaineWebber Olympus Fund
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
PaineWebber Growth Fund
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER OLYMPUS FUND
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.and Caption Prospectus Caption
<S> <C> <C>
1. Cover page Cover page
2. Synopsis Expense Table
3. Condensed Financial Information Financial Highlights; Performance
4. General Description of Registrant The Funds at a Glance; Investment Objectives &
Policies; Investment Philosophy & Process; The
Funds' Investments; General Information
5. Management of the Fund Management; General Information
5A. Management's Discussion of Fund Performance Financial Highlights
6. Capital Stock and Other Securities Cover Page; How to Buy Shares; Dividends &Taxes;
General Information
7. Purchase of Securities Being Offered How to Buy Shares; Other Services; Determining the
Shares' Net Asset Value
8. Redemption or Repurchase How to Sell Shares; Other Services
9. Pending Legal Proceedings Not Applicable
Part B Item No.and Caption Statement of AdditionalInformation Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
13. Investment Objectives and Policies Investment Policies and Restrictions; Hedging
Strategies Using Derivative Instruments; Portfolio
Transactions
14. Management of the Fund Trustees and Officers; Principal Holders of
Securities
15. Control Persons and Principal Holders of Securities Trustees and Officers; Principal Holders of
Securities
16. Investment Advisory and Other Services Investment Advisory and Distribution Arrangements;
Other Information
17. Brokerage Allocation Portfolio Transactions
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
18. Capital Stock and Other Securities Conversion of Class B Shares; Other Information
19. Purchase, Redemption and Pricing of Securities Being Reduced Sales Charges; Additional Exchange and
Offered Redemption Information and Other Services;
Valuation of Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Distribution Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE>
PaineWebber Growth and Income Fund
PaineWebber Growth Fund
PaineWebber Small Cap Fund
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
PROSPECTUS -- DECEMBER 1, 1997
PaineWebber Stock Funds are designed for investors
generally seeking capital appreciation by investing mainly
in equity securities. PaineWebber Growth and Income Fund
seeks to provide both current income and capital growth by
investing primarily in dividend-paying equity securities
believed to have potential for rapid earnings growth.
PaineWebber Growth Fund seeks long-term capital
appreciation by investing primarily in equity securities
of companies believed to have substantial potential for
capital growth. PaineWebber Small Cap Fund seeks long-term
capital appreciation by investing primarily in equity
securities of small capitalization companies.
This Prospectus concisely sets forth information that an
investor should know about the Funds before investing.
Please read it carefully and retain a copy of this
Prospectus for future reference.
A Statement of Additional Information dated December 1,
1997 has been filed with the Securities and Exchange
Commission and is legally part of this Prospectus. The
Statement of Additional Information can be obtained
without charge, and further inquiries can be made, by
contacting an individual Fund, your PaineWebber investment
executive, PaineWebber's correspondent firms or by calling
toll-free 1-800-647-1568.
THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of six
broad categories, which are presented here. Generally,
investors seeking to maximize return must assume greater
risk.The Funds in this Prospectus are all in the STOCK
FUNDS category.
</TABLE>
<TABLE>
<S> <C>
/ / MONEY MARKET FUND for income and / / ASSET ALLOCATION FUNDS for high
stability by investing in high-quality, total return by investing in stocks
short-term investments. and bonds.
/ / BOND FUNDS for income by investing / / STOCK FUNDS for long-term growth by
mainly in bonds. investing mainly in equity securities.
/ / TAX-FREE BOND FUNDS for income exempt / / GLOBAL FUNDS for long-term growth by
from federal income tax and, in some investing mainly in foreign stocks or
cases, state and local income taxes, high current income by investing
by investing in municipal bonds. mainly in global debt instruments.
</TABLE>
A complete listing of the PaineWebber Family of Mutual
Funds is found on the back cover of this Prospectus.
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
REFERRED TO IN THIS PROSPECTUS. THE FUNDS AND THEIR
DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PROVIDE
INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE
PROSPECTUS IS NOT AN OFFER TO SELL SHARES OF THE FUNDS IN
ANY JURISDICTION WHERE THE FUNDS OR THEIR DISTRIBUTOR MAY
NOT LAWFULLY SELL THOSE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
Prospectus Page 1
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Funds at a Glance................... 3
Expense Table........................... 5
Financial Highlights.................... 8
Investment Objectives & Policies........ 18
Investment Philosophy & Process......... 18
Performance............................. 20
The Funds' Investments.................. 23
Flexible Pricing SM..................... 25
How to Buy Shares....................... 29
How to Sell Shares...................... 30
Other Services.......................... 31
Management.............................. 31
Determining the Shares' Net Asset
Value................................. 34
Dividends & Taxes....................... 34
General Information..................... 35
</TABLE>
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Prospectus Page 2
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
THE FUNDS AT A GLANCE
- --------------------------------------------------------------------------------
The Funds (each a 'Fund') offered by this Prospectus are not intended to provide
a complete investment program, but one or more of them may be appropriate as a
component of an investor's overall portfolio. Some common reasons to invest in
these Funds are to finance college educations, plan for retirement or diversify
a portfolio. When selling shares, investors should be aware that they may get
more or less for their shares than they originally paid for them. As with any
mutual fund, there is no assurance that the Funds will achieve their goals.
GROWTH AND INCOME FUND
GOAL: To increase the value of your investment by investing primarily in
dividend-paying equity securities believed to have potential for rapid earnings
growth.
INVESTMENT OBJECTIVE: Current income and capital growth.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
The Fund may invest in U.S. dollar-denominated securities of foreign companies,
which involves more risk than investing in the securities of U.S. companies. The
Fund may also invest up to 10% of its total assets in high yield, high risk
convertible bonds, which are considered predominantly speculative and may
involve major risk exposure to adverse conditions. The Fund may use derivatives,
such as options and futures, in its hedging activities, which may involve
special risks. Investors may lose money by investing in the Fund; the investment
is not guaranteed.
SIZE: On October 31, 1997, the Fund had over $1.0 billion in net assets.
GROWTH FUND
GOAL: To increase the value of your investment by investing primarily in equity
securities of companies believed to have substantial potential for capital
growth.
INVESTMENT OBJECTIVE: Long-term capital appreciation.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
The Fund may invest in U.S. dollar-denominated securities of foreign companies,
which involves more risk than investing in the securities of U.S. companies. The
Fund may also invest up to 10% of its total assets in high yield, high risk
bonds and convertible securities, which are considered predominantly speculative
and involve major risk exposure to adverse conditions. The Fund may use
derivatives, such as options and futures, in its hedging activities, which may
involve special risks. Investors may lose money by investing in the Fund; the
investment is not guaranteed.
SIZE: On October 31, 1997, the Fund had over $370.6 million in net assets.
SMALL CAP FUND
GOAL: To increase the value of your investment by investing primarily in equity
securities of small capitalization ('small cap') companies.
INVESTMENT OBJECTIVE: Long-term capital appreciation.
RISKS: Equity securities historically have shown greater growth potential than
other types of securities, but they have also shown greater volatility. Because
the Fund invests primarily in equity securities, its price will rise and fall.
The Fund may invest in U.S. dollar-denominated securities of foreign companies,
which involves more risk than investing in the securities of U.S. companies.
Small cap companies typically are subject to a greater degree of change in
earnings and business prospects than are larger, more established companies. In
addition, equity securities of small cap companies may be less liquid and more
volatile than those of larger companies. The Fund may also invest up to 10% of
its total assets in high yield, high risk convertible bonds, which are
considered predominantly speculative and may involve major risk exposure to
adverse conditions. The Fund may use derivatives, such as options and futures,
in its hedging activities, which may involve special risks. Investors may lose
money by investing in the Fund; the investment is not guaranteed.
SIZE: On October 31, 1997, the Fund had over $128.2 million in net assets.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), an asset
management subsidiary of PaineWebber Incorporated ('PaineWebber'), is the
investment adviser and administrator of each Fund.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors need
only $100.
--------------------
Prospectus Page 3
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
THE FUNDS AT A GLANCE
(Continued)
- --------------------------------------------------------------------------------
WHO SHOULD INVEST
GROWTH AND INCOME FUND is designed for investors seeking current income and
capital growth through investment in growth-oriented, dividend-paying equity
securities of U.S. companies and foreign companies that are traded in the United
States. Growth and Income Fund invests primarily in equity securities of larger
growth companies and smaller issuers believed to have potential for rapid
earnings growth that pay dividends. In addition, Growth and Income Fund can
invest in high yield, high risk convertible bonds. These investments offer the
potential for greater returns, but also entail a substantial degree of
volatility and risk. Accordingly, Growth and Income Fund is designed for
investors who are able to bear the risks that come with investments in the
stocks and bonds of such companies.
GROWTH FUND is designed for investors who want long-term capital appreciation
through investment primarily in growth-oriented equity securities of U.S.
companies and foreign companies that are traded in the United States. Growth
Fund invests primarily in equity securities of both larger growth companies and
smaller issuers believed to have greater appreciation potential. In addition,
Growth Fund can invest in high yield, high risk bonds and convertible
securities. These investments offer the potential for greater returns, but also
entail a substantial degree of volatility and risk. Accordingly, Growth Fund is
designed for investors who are able to bear the risks that come with investments
in the stocks and bonds of such companies.
SMALL CAP FUND is designed for investors who are seeking long-term capital
appreciation through investments primarily in equity securities of small cap
U.S. companies and foreign companies that are traded in the United States.
Several statistical studies have been published indicating that the historical
long-term returns of small cap equity securities have been higher than those of
large cap equity securities. Equity securities of small cap companies generally
exhibit greater market volatility than is the case with equity securities of
larger companies, or equity securities in general. In addition, Small Cap Fund
can invest in high yield, high risk convertible bonds. These investments offer
the potential for greater returns, but also entail a substantial degree of
volatility and risk. Accordingly, Small Cap Fund is designed for investors who
are able to bear the risks and fluctuations associated with investment in
smaller companies.
HOW TO PURCHASE SHARES OF THE FUNDS
Investors may select among these classes of shares:
CLASS A SHARES
The price is the net asset value plus the initial sales charge; the maximum
sales charge is 4.5% of the public offering price. Although investors pay an
initial sales charge when they buy Class A shares, the ongoing expenses for this
class are lower than the ongoing expenses of Class B and Class C shares.
CLASS B SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class B shares. As a result, 100% of their purchase is immediately
invested. However, Class B shares have higher ongoing expenses than Class A
shares. Depending upon how long they own the shares, investors may have to pay a
sales charge when they sell Class B shares. This is called a 'contingent
deferred sales charge' and applies when investors sell their Class B shares
within six years after purchase. After six years, Class B shares convert to
Class A shares, which have lower ongoing expenses and no contingent deferred
sales charge.
CLASS C SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a result, 100% of their purchase is immediately
invested. However, Class C shares have higher ongoing expenses than Class A
shares. A contingent deferred sales charge of 1% is charged on shares sold
within one year of purchase. Class C shares never convert to any other class of
shares.
CLASS Y SHARES
Class Y shares are offered only to limited groups of investors. The price is the
net asset value. Investors do not pay an initial sales charge when they buy
Class Y shares. As a result, 100% of their purchase is immediately invested.
Investors also do not pay a contingent deferred sales charge when they sell
Class Y shares. Class Y shares have lower ongoing expenses than any other class
of shares.
--------------------
Prospectus Page 4
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
EXPENSE TABLE
- --------------------------------------------------------------------------------
The following tables are intended to assist investors in understanding the
expenses associated with investing in each class of shares of the Funds.
Expenses shown below represent those incurred for the most recent fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares (as a
% of offering price)............................ 4.50% None None None
Sales Charge on Reinvested Dividends (as a % of
offering price)................................... None None None None
Maximum Contingent Deferred Sales Charge (as a %
of offering price or net asset value at the time
of sale, whichever is less)..................... None 5% 1% None
Exchange Fee...................................... None None None None
ANNUAL FUND OPERATING EXPENSES (as a % of average
net assets)
GROWTH AND INCOME FUND
Management Fees................................... 0.70% 0.70% 0.70% 0.70%
12b-1 Fees........................................ 0.23 1.00 1.00 None
Other Expenses.................................... 0.22 0.23 0.22 0.18
-------- -------- -------- --------
Total Operating Expenses.......................... 1.15% 1.93% 1.92% 0.88%
-------- -------- -------- --------
-------- -------- -------- --------
GROWTH FUND
Management Fees................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees........................................ 0.23 1.00 1.00 None
Other Expenses.................................... 0.29 0.31 0.32 0.25
-------- -------- -------- --------
Total Operating Expenses.......................... 1.27% 2.06% 2.07% 1.00%
-------- -------- -------- --------
-------- -------- -------- --------
SMALL CAP FUND
Management Fees................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees........................................ 0.25 1.00 1.00 None
Other Expenses.................................... 0.75 0.75 0.77 0.72
-------- -------- -------- --------
Total Operating Expenses.......................... 2.00% 2.75% 2.77% 1.72%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
CLASS A SHARES: Sales charge waivers and a reduced sales charge purchase plan
are available. Purchases of $1 million or more are not subject to an initial
sales charge. However, if an investor sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale, whichever is less, is
imposed.
CLASS B SHARES: Sales charge waivers are available. The maximum 5% contingent
deferred sales charge applies to sales of shares during the first year after
purchase. The charge generally declines by 1% annually, reaching zero after six
years.
CLASS C SHARES: If an investor sells these shares within one year after
purchase, a contingent deferred sales charge of 1% of the offering price or the
net asset value of the shares at the time of sale, whichever is less, is
imposed.
CLASS Y SHARES: No initial or contingent deferred sales charge is imposed, nor
are Class Y shares subject to 12b-1 distribution or service fees. Class Y shares
may be purchased by participants in the INSIGHT Investment Advisory Program
('INSIGHT') sponsored by PaineWebber, when purchased through that program.
Participation in INSIGHT is subject to payment of an advisory fee at the maximum
annual rate of 1.50% of assets held through INSIGHT (generally charged quarterly
in advance), which may be charged to the INSIGHT participant's PaineWebber
account. This account charge is not included in the table because non-INSIGHT
participants are permitted to purchase Class Y shares of the Funds.
--------------------
Prospectus Page 5
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
EXPENSE TABLE
(Continued)
- --------------------------------------------------------------------------------
12b-1 distribution fees are asset-based sales charges. Long-term Class B and
Class C shareholders may pay more in direct and indirect sales charges
(including 12b-1 distribution fees) than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. 12b-1 fees have two components, as follows:
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
12b-1 service fees...................... 0.23% 0.25% 0.25% None
12b-1 distribution fees................. None 0.75 0.75 None
GROWTH FUND
12b-1 service fees...................... 0.23% 0.25% 0.25% None
12b-1 distribution fees................. None 0.75 0.75 None
SMALL CAP FUND
12b-1 service fees...................... 0.25% 0.25% 0.25% None
12b-1 distribution fees................. None 0.75 0.75 None
</TABLE>
The 12b-1 fees for Class A shares of Growth and Income Fund and Growth Fund
reflect a blended annual rate of the Fund's average daily net assets of 0.25%
and 0.15%, representing shares sold on or after December 2, 1988 and shares sold
prior to that date, respectively.
For more information, see 'Management' and 'Flexible Pricing SM.'
EXAMPLES OF EFFECT OF FUND EXPENSES
The following examples should assist investors in understanding various costs
and expenses incurred as shareholders of a Fund. The assumed 5% annual return
shown in the examples is required by regulations of the Securities and Exchange
Commission ('SEC') applicable to all mutual funds. THESE EXAMPLES SHOULD NOT BE
CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF
A FUND MAY BE MORE OR LESS THAN THOSE SHOWN.
An investor would, directly or indirectly, pay the following expenses on a
$1,000 investment in a Fund, assuming a 5% annual return:
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................. $56 $80 $105 $178
Class B (Assuming sale of all shares at
end of period)........................ $70 $91 $124 $187
Class B (Assuming no sale of shares).... $20 $61 $104 $187
Class C (Assuming sale of all shares at
end of period)........................ $30 $60 $104 $224
Class C (Assuming no sale of shares).... $20 $60 $104 $224
Class Y................................. $ 9 $28 $ 49 $108
</TABLE>
GROWTH FUND
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................. $ 57 $83 $ 112 $191
Class B (Assuming sale of all shares at
end of period)........................ $ 71 $95 $ 131 $200
Class B (Assuming no sale of shares).... $ 21 $65 $ 111 $200
Class C (Assuming sale of all shares at
end of period)........................ $ 31 $65 $ 111 $240
Class C (Assuming no sale of shares).... $ 21 $65 $ 111 $240
Class Y................................. $ 10 $32 $ 55 $122
</TABLE>
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Prospectus Page 6
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
EXPENSE TABLE
(Continued)
- --------------------------------------------------------------------------------
SMALL CAP FUND
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A................................. $ 64 $ 105 $ 148 $267
Class B (Assuming sale of all shares at
end of period)........................ $ 78 $ 115 $ 165 $274
Class B (Assuming no sale of shares).... $ 28 $ 85 $ 145 $274
Class C (Assuming sale of all shares at
end of period)........................ $ 38 $ 86 $ 146 $310
Class C (Assuming no sale of shares).... $ 28 $ 86 $ 146 $310
Class Y................................. $ 17 $ 54 $ 93 $203
</TABLE>
ASSUMPTIONS MADE IN THE EXAMPLES
o ALL CLASSES: Reinvestment of all dividends and other distributions;
percentage amounts listed under 'Annual Fund Operating Expenses' remain the
same for years shown.
o CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at the
time of purchase.
o CLASS B SHARES: Deduction of the maximum applicable contingent deferred sales
charge at the time of redemption, which declines over a period of six years.
Ten-year figures assume that Class B shares convert to Class A shares at the
end of the sixth year.
o CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for sales
of shares within one year of purchase.
--------------------
Prospectus Page 7
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
The following tables provide investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Ernst & Young LLP, independent auditors, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997,
and are incorporated by reference into the Statement of Additional Information.
The financial statements and notes, as well as the information for each of the
five years in the period ended August 31, 1997 appearing in the following
tables, have been audited by Ernst & Young LLP, independent auditors. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge by calling 1-800-647-1568.
Information shown below for periods prior to the year ended August 31, 1993 has
also been audited by Ernst & Young LLP, independent auditors, whose reports
thereon were unqualified.
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
-------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 24.35 $ 22.52 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32 $ 18.06
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net investment
income........... 0.23 0.22 0.24 0.28 0.28 0.24 0.19 0.51 0.49 0.60
Net realized and
unrealized gains
(losses) from
investments...... 9.29 3.46 3.18 (0.41) 0.37 1.25 3.50 (0.61) 3.17 (2.36)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total increase
(decrease) from
investment
operations....... 9.52 3.68 3.42 (0.13) 0.65 1.49 3.69 (0.10) 3.66 (1.76)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Dividends from
investment
income........... (0.25) (0.34) (0.12) (0.27) (0.27) (0.27) (0.30) (0.53) (0.48) (0.88)
Distributions from
net realized
gains on
investment
transactions..... (3.02) (1.51) (1.21) (0.03) -- -- -- -- -- (2.10)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total dividends
and distributions
to shareholders.. (3.27) (1.85) (1.33) (0.30) (0.27) (0.27) (0.30) (0.53) (0.48) (2.98)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net asset value,
end of period.... $ 30.60 $ 24.35 $ 22.52 $ 20.43 $ 20.86 $ 20.48 $ 19.26 $ 15.87 $ 16.50 $ 13.32
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total investment
return (1)....... 42.42% 17.40% 18.30% (0.58)% 3.15% 7.78% 23.62% (0.72)% 28.03% (10.73)%
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Ratios/Supplemental
data:
Net assets, end of
period (000's)... $441,699 $276,016 $187,057 $222,432 $359,073 $358,643 $232,555 $58,649 $61,617 $62,917
Expenses to
average net
assets**......... 1.15% 1.20%(2) 1.19% 1.20% 1.13% 1.22% 1.42% 1.41% 1.41% 1.26%
Net investment
income to average
net assets**..... 0.88% 0.98%(2) 1.07% 1.29% 1.33% 1.26% 1.79% 3.11% 3.26% 4.24%
Portfolio turnover
rate............. 70% 112% 111% 94% 37% 16% 52% 32% 79% 89%
Average commission
rate paid (3).... $ 0.0598 $ 0.0598 -- -- -- -- -- -- -- --
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized.
** During certain periods presented, PaineWebber/Mitchell Hutchins waived
fees or reimbursed the Fund for portions of its operating expenses. If
such waivers or reimbursements had not been made for the Class A
shares, the annualized ratio of expenses to average net assets and the
annualized ratio of net investment income to average net assets would
have been 1.65% and 3.02%, respectively, for the year ended August 31,
1989 and 1.36% and 4.14%, respectively, for the year ended August 31,
1988.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, reinvestment of all dividends
and other distributions at net asset value on the payable dates and a
sale at net asset value on the last day of each period reported. The
figures do not include sales charges; results for each class of shares
would be lower if sales charges were included. Total investment return
information for periods of less than one year has not been annualized.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
(3) Effective for fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.
</TABLE>
--------------------
Prospectus Page 8
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------------------------------------------
CLASS B
---------------------------------------------------------------------------------
FOR THE
PERIOD
JULY 1,
FOR THE YEARS ENDED AUGUST 31, 1991+ TO
-------------------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 24.26 $ 22.37 $ 20.37 $ 20.78 $ 20.41 $ 19.23 $ 18.04
-------- -------- -------- -------- -------- -------- ----------
Net investment
income........... 0.04 0.04 0.06 0.10 0.12 0.13 0.02
Net realized and
unrealized gains
(losses) from
investments...... 9.23 3.45 3.18 (0.37) 0.36 1.20 1.17
-------- -------- -------- -------- -------- -------- ----------
Total increase
(decrease) from
investment
operations....... 9.27 3.49 3.24 (0.27) 0.48 1.33 1.19
-------- -------- -------- -------- -------- -------- ----------
Dividends from
investment
income........... (0.05) (0.09) (0.03) (0.11) (0.11) (0.15) --
Distributions from
net realized
gains on
investment
transactions..... (3.02) (1.51) (1.21) (0.03) -- -- --
-------- -------- -------- -------- -------- -------- ----------
Total dividends
and distributions
to shareholders.. (3.07) (1.60) (1.24) (0.14) (0.11) (0.15) --
-------- -------- -------- -------- -------- -------- ----------
Net asset value,
end of period.... $ 30.46 $ 24.26 $ 22.37 $ 20.37 $ 20.78 $ 20.41 $ 19.23
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Total investment
return (1)....... 41.33% 16.49% 17.38% (1.31)% 2.34% 6.99% 6.60%
-------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- ----------
Ratios/Supplemental
data:
Net assets, end of
period (000's)... $376,840 $277,753 $247,543 $289,290 $461,389 $386,275 $ 57,539
Expenses to
average net
assets**......... 1.93% 1.99%(2) 1.97% 1.97% 1.90% 1.97% 2.10%*
Net investment
income to average
net assets**..... 0.11% 0.17%(2) 0.29% 0.51% 0.57% 4.90% 1.18%*
Portfolio turnover
rate............. 70% 112% 111% 94% 37% 16% 52%
Average commission
rate paid (3).... $ 0.0598 $ 0.0598 -- -- -- -- --
<CAPTION>
--------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------
FOR THE
PERIOD
JULY 2,
FOR THE YEARS ENDED AUGUST 31, 1992+ TO
------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992
---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 24.33 $ 22.43 $ 20.42 $ 20.83 $ 20.47 $ 20.95
---------- ------- ------- ------- ------- ----------
Net investment
income........... 0.05 0.05 0.06 0.11 0.11 0.02
Net realized and
unrealized gains
(losses) from
investments...... 9.24 3.46 3.19 (0.38) 0.37 (0.44)
---------- ------- ------- ------- ------- ----------
Total increase
(decrease) from
investment
operations....... 9.29 3.51 3.25 (0.27) 0.48 (0.42)
---------- ------- ------- ------- ------- ----------
Dividends from
investment
income........... (0.07) (0.10) (0.03) (0.11) (0.12) (0.06)
Distributions from
net realized
gains on
investment
transactions..... (3.02) (1.51) (1.21) (0.03) -- --
---------- ------- ------- ------- ------- ----------
Total dividends
and distributions
to shareholders... (3.09) (1.61) (1.24) (0.14) (0.12) (0.06)
---------- ------- ------- ------- ------- ----------
Net asset value,
end of period.... $ 30.53 $ 24.33 $ 22.43 $ 20.42 $ 20.83 $ 20.47
---------- ------- ------- ------- ------- ----------
---------- ------- ------- ------- ------- ----------
Total investment
return (1)....... 41.30% 16.52% 17.37% (1.29)% 2.35% 2.85%
---------- ------- ------- ------- ------- ----------
---------- ------- ------- ------- ------- ----------
Ratios/Supplemental
data:
Net assets, end of
period (000's)... $ 84,922 $43,148 $30,468 $37,287 $61,869 $ 13,019
Expenses to
average net
assets**......... 1.92% 1.99%(2) 1.98% 1.94% 1.87% 1.73%*
Net investment
income to average
net assets**..... 0.10% 0.18%(2) 0.28% 0.54% 0.61% 0.94%*
Portfolio turnover
rate............. 70% 112% 111% 94% 37% 16%
Average commission
rate paid (3).... $ 0.0598 $0.0598 -- -- -- --
</TABLE>
--------------------
Prospectus Page 9
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------------------------------
CLASS Y
---------------------------------------------------------------------
FOR THE
PERIOD
FEBRUARY 12,
FOR THE YEARS ENDED AUGUST 31, 1992+ TO
----------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 23.45 $ 22.54 $ 20.42 $ 20.86 $ 20.48 $ 20.95
------- ------- ------- ------- ------- ------------
Net investment income.... 0.32 0.30 0.30 0.33 0.33 0.16
Net realized and
unrealized gains
(losses) from
investments............. 9.26 3.45 3.18 (0.40) 0.37 (0.49)
------- ------- ------- ------- ------- ------------
Total increase (decrease)
from investment
operations.............. 9.58 3.75 3.48 (0.07) 0.70 (0.33)
------- ------- ------- ------- ------- ------------
Dividends from investment
income.................. (0.32) (0.43) (0.15) (0.34) (0.32) (0.14)
Distributions from net
realized gains one
investment
transactions............ (3.02) (1.51) (1.21) (0.03) -- --
------- ------- ------- ------- ------- ------------
Total dividends and
distributions to
shareholders............ (3.34) (1.94) (1.36) (0.37) (0.32) (0.14)
------- ------- ------- ------- ------- ------------
Net asset value, end of
period.................. $ 30.59 $ 24.35 $ 22.54 $ 20.42 $ 20.86 $ 20.48
------- ------- ------- ------- ------- ------------
------- ------- ------- ------- ------- ------------
Total investment
return(1)............... 42.74% 17.77% 18.66% (0.31)% 3.44% (1.15)%
------- ------- ------- ------- ------- ------------
------- ------- ------- ------- ------- ------------
Ratios/supplemental data:
Net assets, end of period
(000's)................. $46,745 $22,942 $14,680 $14,690 $17,005 $ 10,560
Expenses to average net
assets.................. 0.88% 0.92%(2) 0.89% 0.90% 0.86% 0.93%*
Net investment income to
average net assets...... 1.14% 1.26%(2) 1.39% 1.60% 1.62% 1.56%*
Portfolio turnover....... 70% 112% 111% 94% 37% 16%
Average commission rate
paid(3)................. $0.0598 $0.0598 -- -- -- --
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on the first day of each period reported, reinvestment
of all dividends and other distributions at net asset value on the payable dates and a sale at net asset value on the
last day of each period reported. Total investment return information for periods of less than one year has not been
annualized.
(2) These ratios include non-recurring acquisition expenses of 0.04%.
(3) Effective for fiscal years beginning on or after September 1, 1995, the Fund is required to disclose the average
commission rate paid per share of common stock investments purchased or sold.
</TABLE>
--------------------
Prospectus Page 10
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
[This page intentionally left blank]
--------------------
Prospectus Page 11
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
GROWTH FUND
The following tables provide investors with data and ratios for one Class A,
Class B and Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Ernst & Young LLP, independent auditors, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997,
and are incorporated by reference into the Statement of Additional Information.
The financial statements and notes, as well as the information for each of the
five years in the period ended August 31, 1997 appearing in the following
tables, have been audited by Ernst & Young LLP, independent auditors. Further
information about the Fund's performance is also included in the Annual Report
to Shareholders, which may be obtained without charge by calling 1-800-647-1568.
Information shown below for periods prior to the year ended August 31, 1993 has
also been audited by Ernst & Young LLP, independent auditors, whose reports
thereon were unqualified.
<TABLE>
<CAPTION>
GROWTH FUND
-----------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $ 24.37 $ 22.27 $ 20.04 $ 20.60 $ 16.78 $ 17.50 $ 13.43 $ 15.57 $ 11.21 $ 15.30
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net investment
income
(loss)........ (0.08)(4) (0.12) 0.01 -- 0.07 -- 0.02 0.17 0.06 0.13
Net realized
and unrealized
gains (losses)
from
investment
transactions.. 3.76(4) 4.06 2.25 0.51 4.37 (0.11) 4.68 (1.16) 4.40 (2.73)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total increase
(decrease)
from
investment
operations.... 3.68 3.94 2.26 0.51 4.44 (0.11) 4.70 (0.99) 4.46 (2.60)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Dividends from
net investment
income........ -- -- -- -- -- (0.01) (0.17) -- (0.10) (0.08)
Distributions
from net
realized gains
from
investment
transactions
to
shareholders.. (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) (0.46) (1.15) -- (1.41)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total dividends
and
distributions
to
shareholders.. (2.11) (1.84) (0.03) (1.07) (0.62) (0.61) (0.63) (1.15) (0.10) (1.49)
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net asset
value, end of
period........ $ 25.94 $ 24.37 $ 22.27 $ 20.04 $ 20.60 $ 16.78 $ 17.50 $ 13.43 $ 15.57 $ 11.21
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total
investment
return(1)..... 15.85% 18.43% 11.28% 2.33% 26.97% (0.85)% 37.02% (7.05)% 40.10% (15.37)%
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Ratios/Supplemental
data:
Net assets, end
of period
(000's)....... $201,725 $203,882 $183,958 $141,342 $130,353 $102,640 $ 96,796 $72,805 $71,681 $70,551
Expenses to
average net
assets**...... 1.27% 1.28% 1.28%(2) 1.21% 1.22% 1.43% 1.56% 1.59% 1.37% 1.22%
Net investment
income (loss)
to average net
assets**...... (0.32)% (0.49)% 0.19%(2) 0.06% 0.38% 0.00% 0.10% 2.96% 0.14% 0.82%
Portfolio
turnover
rate.......... 86% 60% 36% 24% 36% 32% 29% 39% 44% 59%
Average
commission
rate
paid(3)....... $ 0.0598 $ 0.0598 -- -- -- -- -- -- --
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized.
** During certain periods presented, PaineWebber/Mitchell Hutchins waived
fees or reimbursed the Fund for portions of its operating expenses. If
such waivers or reimbursements had not been made for the Class A
shares, the annualized ratio of expenses to average net assets and the
annualized ratio of net investment income (loss) to average net assets
would have been 1.76% and (0.25)%, respectively, for the year ended
August 31, 1989, and 1.41% and 0.63%, respectively, for the year ended
August 31, 1988.
+ Commencement of offering of shares.
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, reinvestment of all dividends
and distributions at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The
figures do not include sales charges; results would be lower if sales
charges were included. Total investment return information for periods
less than one year has not been annualized.
(2) These ratios include non-recurring reorganization expenses of 0.06%.
(3) Effective for fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.
(4) Calculated using the average shares outstanding for the year.
</TABLE>
--------------------
Prospectus Page 12
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND
- ---------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------
FOR THE
PERIOD
JULY 1,
FOR THE YEARS ENDED AUGUST 31, 1991+ TO
- -------------------------------------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
------- -------- -------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $ 23.30 $ 21.53 $ 19.53 $ 20.25 $ 16.64 $ 17.48 $15.63
------- -------- -------- ------- ------- ------- -----
Net investment
income
(loss)........ (0.26)(4) (0.39) (0.02) (0.06) (0.05) (0.06) (0.02)
Net realized
and unrealized
gains (losses)
from
investment
transactions.. 3.58 (4) 4.00 2.05 0.41 4.28 (0.18) 1.87
------- -------- -------- ------- ------- ------- -----
Total increase
(decrease)
from
investment
operations.... 3.32 3.61 2.03 0.35 4.23 (0.24) 1.85
------- -------- -------- ------- ------- ------- -----
Dividends from
net investment
income........ -- -- -- -- -- -- --
Distributions
from net
realized gains
from
investment
transactions
to
shareholders.. (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) --
------- -------- -------- ------- ------- ------- -----
Total dividends
and
distributions
to
shareholders.. (2.11) (1.84) (0.03) (1.07) (0.62) (0.60) --
------- -------- -------- ------- ------- ------- -----
Net asset
value, end of
period........ $ 24.51 $ 23.30 $ 21.53 $ 19.53 $ 20.25 $ 16.64 $17.48
------- -------- -------- ------- ------- ------- -----
------- -------- -------- ------- ------- ------- -----
Total
investment
return(1)..... 14.98% 17.48% 10.40% 1.55% 25.91% (1.58)% 11.84%
------- -------- -------- ------- ------- ------- -----
------- -------- -------- ------- ------- ------- -----
Ratios/Supplement
data:
Net assets, end
of period
(000's)....... $115,529 $140,551 $152,357 $97,272 $60,280 $35,867 $3,804
Expenses to
average net
assets**...... 2.06% 2.06% 2.06%(2) 2.00% 2.02% 2.20% 2.24%*
Net investment
income (loss)
to average net
assets**...... (1.12)% (1.27)% (0.60)%(2) (0.66)% (0.46)% (0.70)% (0.81)%*
Portfolio
turnover
rate.......... 86% 60% 36% 24% 36% 32% 29%
Average
commission
rate
paid(3)....... $ 0.0598 $ 0.0598 -- -- -- -- --
<CAPTION>
--------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------
FOR THE
PERIOD
JULY 2,
FOR THE YEARS ENDED AUGUST 31, 1992+ TO
------------------------------------------------------- AUGUST 31,
1997 1996 1995 1994 1993 1992
---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period........ $ 23.48 $ 21.68 $ 19.67 $ 20.38 $ 16.75 $17.04
---------- ------- ------- ------- ------- -----
Net investment
income
(loss)........ (0.27)(4) (0.34) (0.10) (0.08) (0.06) (0.01)
Net realized
and unrealized
gains (losses)
from
investment
transactions.. 3.61(4) 3.98 2.14 0.44 4.31 (0.28)
---------- ------- ------- ------- ------- -----
Total increase
(decrease)
from
investment
operations.... 3.34 3.64 2.04 0.36 4.25 (0.29)
---------- ------- ------- ------- ------- -----
Dividends from
net investment
income........ -- -- -- -- -- --
Distributions
from net
realized gains
from
investment
transactions
to (2.11) (1.84) (0.03) (1.07) (0.62) --
shareholders.. ---------- ------- ------- ------- ------- -----
Total dividends
and
distributions
to (2.11) (1.84) (0.03) (1.07) (0.62) --
shareholders.. ---------- ------- ------- ------- ------- -----
Net asset
value, end of $ 24.71 $ 23.48 $ 21.68 $ 19.67 $ 20.38 $16.75
period........ ---------- ------- ------- ------- ------- -----
---------- ------- ------- ------- ------- -----
Total
investment 14.95% 17.50% 10.37% 1.59% 25.86% (2.95)%
return(1)..... ---------- ------- ------- ------- ------- -----
---------- ------- ------- ------- ------- -----
Ratios/Supplement
data:
Net assets, end
of period
(000's)....... $ 24,760 $29,923 $30,608 $28,561 $16,474 $2,275
Expenses to
average net
assets**...... 2.07% 2.07% 2.05%(2) 1.98% 2.06% 1.98%*
Net investment
income (loss)
to average net
assets**...... (1.13)% (1.28)% (0.57)%(2) (0.65)% (0.69)% (0.65)%*
Portfolio
turnover
rate.......... 86% 60% 36% 24% 36% 32%
Average
commission
rate
paid(3)....... $ 0.0598 $0.0598 -- -- -- --
</TABLE>
--------------------
Prospectus Page 13
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------------------------------------------
CLASS Y
------------------------------------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year....... $ 24.74 $ 22.53 $ 20.22 $ 20.71 $ 16.83 $ 17.50
------- ------- ------- ------- ------- -------
Net investment income
(loss).................. (0.01)(4) (0.02) 0.24 0.03 0.08 0.05
Net realized and
unrealized gains
(losses)
from investments........ 3.84(4) 4.07 2.10 0.55 4.42 (0.11)
------- ------- ------- ------- ------- -------
Total increase (decrease)
from investment
operations.............. 3.83 4.05 2.34 0.58 4.50 (0.06)
------- ------- ------- ------- ------- -------
Dividends from net
investment income....... -- -- -- -- -- (0.01)
Distributions from net
realized gains from
investment transactions
to shareholders......... (2.11) (1.84) (0.03) (1.07) (0.62) (0.62)
------- ------- ------- ------- ------- -------
Total dividends and
distributions........... (2.11) (1.84) (0.03) (1.07) (0.62) (0.61)
------- ------- ------- ------- ------- -------
Net asset value, end of
year.................... $ 26.46 $ 24.74 $ 22.53 $ 20.22 $ 20.71 $ 16.83
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment
return(1)............... 16.24% 18.72% 11.58% 2.67% 27.26% (0.52)%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of year
(000's)................. $20,281 $21,409 $20,948 $30,521 $20,706 $11,581
Expenses to average net
assets.................. 1.00% 1.02% 0.97%(2) 0.94% 0.95% 1.12%
Net investment income
(loss) to average net
assets.................. (0.05)% (0.23)% 0.53%(2) 0.40% 0.60% 0.38%
Portfolio turnover
rate.................... 86% 60% 36% 24% 36% 32%
Average commission rate
paid(3)................. $0.0598 $0.0598 -- -- -- --
</TABLE>
- ------------------
<TABLE>
<S> <C>
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates and a sale at
net asset value on the last day of each year reported.
(2) These ratios include non-recurring acquisition expenses of 0.05%.
(3) Effective for fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.
(4) Calculated using the average shares outstanding for the year.
</TABLE>
--------------------
Prospectus Page 14
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
[This page intentionally left blank]
--------------------
Prospectus Page 15
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
SMALL CAP FUND
The following table provides investors with data and ratios for one Class A,
Class B, Class C and Class Y share for each of the periods shown. This
information is supplemented by the financial statements, accompanying notes and
the report of Price Waterhouse LLP, independent accountants, which appear in the
Fund's Annual Report to Shareholders for the fiscal year ended July 31, 1997,
and are incorporated by reference into the Statement of Additional Information.
The financial statements and notes, as well as the information appearing below,
have been audited by Price Waterhouse LLP. Further information about the Fund's
performance is also included in the Annual Report to Shareholders, which may be
obtained without charge by calling 1-800-647-1568.
<TABLE>
<CAPTION>
SMALL CAP FUND
-------------------------------------------------------------
CLASS A
-------------------------------------------------------------
FOR THE FOR THE
FOR THE YEARS PERIOD YEAR
ENDED JULY 31, ENDED ENDED
-------------------------------- JULY 31, JANUARY 31,
1997 1996# 1995 1994+ 1994
------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 10.22 $ 11.30 $ 10.27 $ 10.61 $ 10.00
------- ------- -------- -------- -----------
Net investment income
(loss)...................... (0.14) 0.00@ 0.05 0.02 0.13
Net realized and unrealized
gains (losses) from
investments................. 3.75 0.50@ 1.50 (0.36) 0.62
------- ------- -------- -------- -----------
Net increase (decrease) from
investment operations....... 3.61 0.50 1.55 (0.34) 0.75
------- ------- -------- -------- -----------
Dividends from net investment
income...................... -- -- -- -- (0.12)
Distributions from net
realized gains from
investments................. (0.41) (1.58) (0.52) -- (0.02)
------- ------- -------- -------- -----------
Total dividends and
distributions............... (0.41) (1.58) (0.52) 0.00 (0.14)
------- ------- -------- -------- -----------
Net asset value, end of
period...................... $ 13.42 $ 10.22 $ 11.30 $ 10.27 $ 10.61
------- ------- -------- -------- -----------
------- ------- -------- -------- -----------
Total investment return (1)... 36.11% 4.69% 15.80% (3.20)% 7.58%
------- ------- -------- -------- -----------
------- ------- -------- -------- -----------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $32,968 $30,675 $ 20,494 $ 22,848 $25,226
Expenses to average net
assets...................... 2.00% 2.11% 1.98% 1.91%* 1.75%
Net investment income (loss)
to average net assets....... (1.16)% 0.02% 0.41% 0.41%* 1.41%
Portfolio turnover............ 54% 84% 19% 20% 98%
Average commission rate paid
(2)......................... $0.0597 -- -- -- --
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
+ For the period February 1, 1994 to July 31, 1994.
++ For the period July 26, 1996 (commencement of offering shares) to July
31, 1996.
# Effective April 1, 1996, Mitchell Hutchins took over day-to-day
management of the Fund's assets.
@ Calculated using the average shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on
the first day of each period reported, reinvestment of all dividends
and distributions, if any, at net asset value on the payable dates,
and a sale at net asset value on the last day of each period reported.
The figures do not include sales charges; results for each class would
be lower if sales charges were included. Total investment return
information for periods of less than one year has not been annualized.
(2) Effective for fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose the average commission rate paid per
share of common stock investments purchased or sold.
</TABLE>
--------------------
Prospectus Page 16
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP FUND
---------------------------------------------------------------
CLASS B
---------------------------------------------------------------
FOR THE
FOR THE YEARS PERIOD FOR THE
ENDED JULY 31, ENDED YEAR ENDED
--------------------------------- JULY 31, JANUARY 31,
1997 1996# 1995 1994+ 1994
------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 9.98 $ 11.15 $ 10.22 $ 10.60 $ 10.00
------- ------- --------- --------- -----------
Net investment income
(loss)...................... (0.23) (0.09)@ (0.04) (0.02) 0.06
Net realized and unrealized
gains (losses) from
investments................. 3.66 0.50@ 1.49 (0.36) 0.62
------- ------- --------- --------- -----------
Net increase (decrease) from
investment operations....... 3.43 0.41 1.45 (0.38) 0.68
------- ------- --------- --------- -----------
Dividends from net investment
income...................... -- -- -- -- (0.06)
Distributions from net
realized gains from
investments................. (0.41) (1.58) (0.52) -- (0.02)
------- ------- --------- --------- -----------
Total dividends and
distributions............... (0.41) (1.58) (0.52) 0.00 (0.08)
------- ------- --------- --------- -----------
Net asset value, end of
period...................... $ 13.00 $ 9.98 $ 11.15 $ 10.22 $ 10.60
------- ------- --------- --------- -----------
------- ------- --------- --------- -----------
Total investment return (1)... 35.16% 3.90% 14.86% (3.58)% 6.81%
------- ------- --------- --------- -----------
------- ------- --------- --------- -----------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $40,749 $36,612 $46,142 $52,624 $59,993
Expenses to average net
assets...................... 2.75% 2.90% 2.74% 2.69%* 2.50%
Net investment income (loss)
to average net assets....... (1.91)% (0.78)% (0.35)% (0.37)%* 0.67%
Portfolio turnover............ 54% 84% 19% 20% 98%
Average commission rate paid
(2)......................... $0.0597 -- -- -- --
<CAPTION>
CLASS C CLASS Y
--------------------------------------------------------------- -----------------------
FOR THE FOR THE FOR THE
FOR THE YEARS PERIOD FOR THE YEAR PERIOD
ENDED JULY 31, ENDED YEAR ENDED ENDED ENDED
--------------------------------- JULY 31, JANUARY 31, JULY 31, JULY 31,
1997 1996# 1995 1994+ 1994 1997 1996++
-------- ------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 9.97 $ 11.14 $ 10.22 $ 10.59 $ 10.00 $ 10.21 $ 10.23
------- ------- --------- --------- ----------- --------- ---------
Net investment income
(loss)...................... (0.24) (0.08)@ (0.05) (0.02) 0.06 (0.11) 00.0@
Net realized and unrealized
gains (losses) from
investments................. 3.66 0.49@ 1.49 (0.35) 0.62 3.77 (0.02)@
------- ------- --------- --------- ----------- --------- ---------
Net increase (decrease) from
investment operations....... 3.42 0.41 1.44 (0.37) 0.68 3.66 (0.02)
------- ------- --------- --------- ----------- --------- ---------
Dividends from net investment
income...................... -- -- -- -- (0.07) -- --
Distributions from net
realized gains from
investments................. (0.41) (1.58) (0.52) -- (0.02) (0.41) --
------- ------- --------- --------- ----------- --------- ---------
Total dividends and
distributions............... (0.41) (1.58) (0.52) 0.00 (0.09) (0.41) 0.00
------- ------- --------- --------- ----------- --------- ---------
Net asset value, end of
period...................... $ 12.98 $ 9.97 $ 11.14 $ 10.22 $ 10.59 $ 13.46 $ 10.21
------- ------- --------- --------- ----------- --------- ---------
------- ------- --------- --------- ----------- --------- ---------
Total investment return (1)... 35.09% 3.90% 14.76% (3.49)% 6.77% 36.65% (0.20)%
------- ------- --------- --------- ----------- --------- ---------
------- ------- --------- --------- ----------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period
(000's)..................... $18,812 $18,606 $13,263 $16,285 $20,941 $ 2,768 $ 2,801
Expenses to average net
assets...................... 2.77% 2.91% 2.73% 2.69%* 2.50% 1.72% 1.72%
Net investment income (loss)
to average net assets....... (1.93)% (0.77)% (0.34)% (0.36)%* 0.64% (0.88)% 0.07%
Portfolio turnover............ 54% 84% 19% 20% 98% 54% 84%
Average commission rate paid
(2)......................... $0.0597 -- -- -- -- $0.0597 --
</TABLE>
--------------------
Prospectus Page 17
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
INVESTMENT OBJECTIVES & POLICIES
- --------------------------------------------------------------------------------
The Funds' investment objectives may not be changed without shareholder
approval. Their other investment policies, except where noted, are not
fundamental and may be changed by the Funds' boards of trustees.
GROWTH AND INCOME FUND
The investment objective of Growth and Income Fund is current income and capital
growth. The Fund seeks to achieve this objective by investing primarily in
dividend-paying equity securities believed by Mitchell Hutchins to have the
potential for rapid earnings growth. Normally, the Fund invests at least 65% of
its total assets in such equity securities. The Fund may invest up to 35% of its
total assets in equity securities not meeting these selection criteria, as well
as in U.S. government bonds, corporate bonds and money market instruments,
including up to 10% in convertible bonds rated below investment grade. Up to 25%
of the Fund's total assets may be invested in U.S. dollar-denominated equity
securities and bonds of foreign issuers that are traded on recognized U.S.
exchanges or in the U.S. over-the-counter ('OTC') market.
GROWTH FUND
The investment objective of Growth Fund is long-term capital appreciation. The
Fund seeks to achieve this objective by investing primarily in equity securities
issued by companies believed by Mitchell Hutchins to have substantial potential
for capital growth. Under normal circumstances, at least 65% of the Fund's total
assets are invested in equity securities. The Fund may invest up to 35% of its
total assets in U.S. government bonds and in corporate bonds (including up to
10% in bonds and convertible securities rated below investment grade). Up to 25%
of the Fund's total assets may be invested in U.S. dollar-denominated equity
securities and bonds of foreign issuers that are traded on recognized U.S.
exchanges or in the U.S. OTC market.
SMALL CAP FUND
The investment objective of Small Cap Fund is long-term capital appreciation.
Under normal circumstances, at least 65% of the Fund's total assets are invested
in equity securities of small cap companies, which are defined as companies
having market capitalizations of up to $1 billion. The Fund may invest up to 35%
of its total assets in equity securities of companies that are larger than small
cap companies, as well as in U.S. government bonds, corporate bonds and money
market instruments, including up to 10% of total assets in convertible bonds
rated below investment grade. Up to 25% of the Fund's total assets may be
invested in U.S. dollar-denominated equity securities of foreign issuers traded
on recognized U.S. exchanges or in the U.S. OTC market.
* * * *
As with any mutual fund, there can be no assurance that any of these Funds will
achieve its investment objective. Each Fund's net asset value fluctuates based
upon changes in the value of its portfolio securities.
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY & PROCESS
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
In seeking to balance capital growth with current income, Mitchell Hutchins
follows a disciplined investment process that relies on the Mitchell Hutchins
Equity Research Team and the Mitchell Hutchins Factor Valuation Model. In order
to fulfill the income component, the Fund invests at least 65% of its total
assets in dividend-paying stocks.
The Model screens a universe of small to large cap companies from ten different
business sectors to identify undervalued companies with strong earnings momentum
that rank well in three measures:
o VALUE: projected dividends, cash flow, earnings and book value;
o MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and
o ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.
--------------------
Prospectus Page 18
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
The equity securities ranking in the top 20% of the Model's universe are
screened twice a month. Then the Team takes a closer look at those equity
securities that rank higher based on value and momentum. The Team applies
traditional analysis and may speak to the management of these companies, as well
as those of their competitors. Based on the Team's findings in the context of
Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to
purchase or sell equity securities for the Fund. In seeking capital
appreciation, the Fund would also invest in bonds when, for instance, Mitchell
Hutchins anticipates that market interest rates may decline or credit factors or
ratings affecting particular issuers may improve.
GROWTH FUND
In selecting equity securities with the potential for above-average growth in
earnings, cash flow and/or book value that are selling at a reasonable value
relative to that growth, Mitchell Hutchins follows a disciplined investment
process that relies on the Mitchell Hutchins Equity Research Team and combines a
'bottom-up,' stock-by-stock approach with a modified, growth-oriented Mitchell
Hutchins Factor Valuation Model. The Fund can invest in companies of large
market capitalizations, medium-sized companies and smaller companies that are
aggressively expanding their businesses. This flexibility allows the Fund to
invest more of its assets in companies that have greater earnings growth
potential regardless of their market capitalizations. When investing in small
cap companies, the Team places more emphasis on the trading volume of the
company's stock.
The modified, growth-oriented Model, which the Team generally utilizes as part
of the stock selection process, screens a universe of small to large
capitalization companies from ten different business sectors to identify
companies that rank especially well on growth variables, including earnings
momentum, stock price movement, economic sensitivity and other growth factors.
The equity securities ranking in the top 20% of the Model's universe are
screened twice a month. Then the Team takes a closer look at those equity
securities that rank higher based on earnings growth and applies traditional
analysis. The Team may speak to the management of these companies, as well as
those of their competitors. Based on the Team's findings in the context of
Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to
purchase or sell equity securities for the Fund. In seeking capital
appreciation, the Fund would also invest in bonds when, for instance, Mitchell
Hutchins anticipates that market interest rates may decline or that credit
factors or ratings affecting particular issuers may improve.
SMALL CAP FUND
In selecting small cap equity securities with the potential for capital
appreciation, Mitchell Hutchins follows a disciplined investment process that
relies on the Mitchell Hutchins Factor Valuation Model and the Mitchell Hutchins
Equity Research Team. The Model screens a universe of small to large
capitalization companies from ten different business sectors to identify
undervalued companies with strong earnings momentum that rank well in three
measures:
o VALUE: projected dividends, cash flow, earnings and book value;
o MOMENTUM: earnings and price to identify companies that could surprise on the
upside; and
o ECONOMIC SENSITIVITY: to forecast how different equity securities and
industries may perform under various economic scenarios.
Through this screening process, the Model identifies the equity securities of
small cap companies ranking in the top 20% of the universe. Then the Team
applies traditional analysis on the equity securities of these small cap
companies. The Team may speak to the management of these companies, as well as
to those of their competitors. Based on the Team's findings in the context of
Mitchell Hutchins' economic forecast, Mitchell Hutchins decides whether to
purchase or sell equity securities for the Fund. In seeking apital appreciation,
the Fund would also invest in bonds when, for instance, Mitchell Hutchins
anticipates that market interest rates may decline or credit factors or ratings
affecting particular issuers may improve.
--------------------
Prospectus Page 19
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
PERFORMANCE
- --------------------------------------------------------------------------------
These charts show the total returns for the Funds. Sales charges have not been
deducted from total returns for Class A, B and C shares. Returns would be lower
if sales charges were deducted. Past results are not a guarantee of future
results. Average annual total returns both before and after deducting the
maximum sales charges are shown below in the tables that follow the performance
charts.
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
12/20/83-
12/31/83 1984 1985 1986 1987 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A -1.03% 14.90% 22.36% 12.68% -3.16% 17.83% 24.59% -1.01% 35.34%
Class B 17.85%
Class C
Class Y
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Class A 3.90% -2.59% -5.87% 33.21% 23.46%
Class B 3.09% -3.31% -6.62% 32.18% 22.55%
Class C 9.58% -3.30% -6.61% 32.21% 22.55%
Class Y 5.15% -2.31% -5.57% 33.63% 23.81%
</TABLE>
The 1983 return for Class A shares represents the period from its inception on
December 20, 1983 through December 31, 1983. The 1991 return for Class B shares
represents the period from inception on July 1, 1991 through December 31, 1991.
The 1992 return for Class C shares represents the period from inception on July
2, 1992 through December 31, 1992. The 1992 return for Class Y shares represents
the period from inception on February 12, 1992 through December 31, 1992.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
As of August 31, 1997
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Inception Date..................... 12/20/83 7/1/91 7/2/92 2/12/92
ONE YEAR
Before deducting maximum sales
charges....................... 42.42% 41.33% 41.30% 42.74%
After deducting maximum sales
charges....................... 36.00% 36.33% 40.30% 42.74%
FIVE YEARS
Before deducting maximum sales
charges....................... 15.19% 14.30% 14.31% 15.51%
After deducting maximum sales
charges....................... 14.12% 14.07% 14.31% 15.51%
TEN YEARS (OR LIFE OF CLASS)
Before deducting maximum sales
charges....................... 11.85% 13.85% 14.44% 13.54%
After deducting maximum sales
charges....................... 11.34% 13.85% 14.44% 13.54%
</TABLE>
--------------------
Prospectus Page 20
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
GROWTH FUND
<TABLE>
<CAPTION>
3/18/85-12/31/85 1986 1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 16.87% 7.64% 4.34% 22.05% 34.27% -7.72% 47.61% 4.15%
Class B 22.18% 3.30%
Class C 12.73%
Class Y 12.21% 4.42%
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Class A 19.17% -10.90% 33.02% 14.11%
Class B 18.26% -11.61% 31.95% 13.24%
Class C 18.19% -11.58% 32.00% 13.18%
Class Y 19.47% -10.64% 33.40% 14.48%
</TABLE>
The 1985 return for Class A shares represents the period from inception on March
18, 1985 through December 31, 1985. The 1991 return for Class B shares
represents the period from inception on July 1, 1991 through December 31, 1991.
The 1992 return for Class C shares represents the period from inception on July
2, 1992 through December 31, 1992. The 1991 return for Class Y represents the
period from inception on August 26, 1991 through December 31, 1991.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
As of August 31, 1997
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Inception Date..................... 3/18/85 7/1/91 7/2/92 8/26/91
ONE YEAR
Before deducting maximum sales
charges....................... 15.85% 14.98% 14.95% 16.24%
After deducting maximum sales
charges....................... 10.63% 9.98% 13.95% 16.24%
FIVE YEARS
Before deducting maximum sales
charges....................... 14.67% 13.77% 13.76% 14.99%
After deducting maximum sales
charges....................... 13.62% 13.53% 13.76% 14.99%
TEN YEARS (OR LIFE OF CLASS)
Before deducting maximum sales
charges....................... 11.49% 12.77% 12.91% 12.65%
After deducting maximum sales
charges....................... 10.98% 12.77% 12.91% 12.65%
</TABLE>
--------------------
Prospectus Page 21
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
SMALL CAP FUND
<TABLE>
<CAPTION>
2/1/93-
12/31/93 1994 1995 1996
<S> <C> <C> <C> <C>
Class A 7.68% -1.20% 16.81% 17.45%
Class B 6.91% -1.96% 15.90% 16.50%
Class C 6.97% -1.96% 15.84% 16.52%
Class Y 15.51%
</TABLE>
The 1993 returns for Class A, Class B and Class C shares represents the period
from inception on February 1, 1993 through December 31, 1993. The 1996 return
for Class Y shares represents the period from inception on July 26, 1996 through
December 31, 1996.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
As of July 31, 1997
CLASS A CLASS B CLASS C CLASS Y
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Inception Date..................... 2/1/93 2/1/93 2/1/93 7/26/96
ONE YEAR
Before deducting maximum sales
charges....................... 36.11% 35.16% 35.09% 36.65%
After deducting maximum sales
charges....................... 30.01% 30.16% 34.09% 36.65%
LIFE
Before deducting maximum sales
charges....................... 12.79% 11.94% 11.92% 35.81%
After deducting maximum sales
charges....................... 11.64% 11.64% 11.92% 35.81%
</TABLE>
PERFORMANCE INFORMATION
The Funds perform a standardized computation of annualized total return and may
show this return in advertisements or promotional materials. Standardized return
shows the change in value of an investment in a Fund as a steady compound annual
rate of return. Actual year-by-year returns fluctuate and may be higher or lower
than standardized return. Standardized returns for Class A shares of the Funds
reflect deduction of the Funds' maximum initial sales charge of 4.5% at the time
of purchase, and standardized returns for the Class B and Class C shares of the
Funds reflect deduction of the applicable contingent deferred sales charge
imposed on the sale of shares held for the period. One-, five- and ten-year
periods will be shown, unless the Fund or class has been in existence for a
shorter period. If so, returns will be shown for the period since inception,
known as 'Life.' Total return calculations assume reinvestment of dividends and
other distributions.
The Funds may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those used
for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof. Non-standardized
return does
--------------------
Prospectus Page 22
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
not reflect initial or contingent deferred sales charges and would be lower if
such charges were deducted.
Total return information reflects past performance and does not indicate future
results. The investment return and principal value of shares of the Funds will
fluctuate. The amount investors receive when selling shares may be more or less
than what they paid. Further information about each Fund's performance is
contained in its Annual Report to Shareholders, which may be obtained without
charge by contacting the Fund, your PaineWebber investment executive or
PaineWebber's correspondent firms or by calling toll-free 1-800-647-1568.
- --------------------------------------------------------------------------------
THE FUNDS' INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES include common stocks, preferred stocks and securities that
are convertible into them, including convertible debentures and notes and common
stock purchase warrants and rights. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation.
Preferred stock has certain fixed-income features, like a bond, but is actually
equity in a company, like common stock. Convertible securities may include
debentures, notes and preferred equity securities, which are convertible into
common stock.
BONDS (including notes and debentures) are used by corporations and governments
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Bonds have
varying degrees of investment risk and varying levels of sensitivity to changes
in interest rates.
RISKS
Under normal circumstances, each Fund invests primarily in equity securities.
Following is a discussion of the risks of these investments and other risks that
are common to each Fund:
EQUITY SECURITIES. While past performance does not guarantee future results,
equity securities historically have provided the greatest long-term growth
potential in a company. However, their prices generally fluctuate more than
other securities and reflect changes in a company's financial condition and
overall market and economic conditions. Common stocks generally represent the
riskiest investment in a company. It is possible that a Fund may experience a
substantial or complete loss on an individual equity investment.
FOREIGN SECURITIES. Each Fund may invest a portion of its assets in U.S.
dollar-denominated securities of foreign companies that are traded on recognized
U.S. exchanges or in the U.S. OTC market. Investing in the securities of foreign
companies involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the countries
where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or
monetary policies, exchange control regulations and regulations involving
prohibitions on the repatriation of foreign currencies.
In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
BOND RATINGS. Investment grade bonds are those rated within the four highest
categories by Standard & Poor's, a division of The McGraw-Hill Companies
('S&P'), or Moody's Investors Service, Inc. ('Moody's'). Moody's fourth highest
category (Baa) includes securities which, in its opinion, have speculative
features. For example, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher-rated debt instruments. The Funds may also
invest in securities that are comparably rated by another ratings agency and in
unrated securities if they are deemed to be of comparable quality. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the volatility of a bond's value or its liquidity. There is a risk
that bonds will be downgraded by rating agencies. The ratings agencies may fail
to make timely changes in credit ratings in response to subsequent events, so
that an issuer's current financial condition may be better or worse than the
rating indicates.
--------------------
Prospectus Page 23
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
INTEREST RATE AND CREDIT RISKS. Interest rate risk is the risk that interest
rates will rise and bond prices will fall, lowering the value of a Fund's bond
investments. Long-term bonds are generally more sensitive to interest rate
changes than short-term bonds. Credit risk is the risk that the issuer or a
guarantor may be unable to pay interest or repay principal on the bond. Credit
risk can be affected by many factors, including adverse changes in the issuer's
own financial condition or in economic conditions.
NON-INVESTMENT GRADE (LOWER-RATED) BOND RATINGS. Bonds rated below investment
grade are deemed by the ratings agencies to be predominantly speculative
regarding the issuer's ability to pay principal and interest and may involve
major risk exposure to adverse economic conditions. They are also known as 'junk
bonds.' During an economic downturn or period of rising interest rates, issuers
of these securities may experience financial stress that adversely affects their
ability to pay interest and principal and may increase the possibility of
default. Lower-rated bonds are frequently unsecured by collateral and will not
receive payment until more senior claims are paid in full. The market for
lower-rated bonds is thinner and less active, which may limit the Funds' ability
to sell such bonds at a fair value in response to changes in the economy or
financial markets.
Growth and Income Fund can invest up to 10% of total assets in convertible
securities rated as low as B by S&P or Moody's or comparably rated by another
ratings agency.
Growth Fund can invest up to 10% of total assets in bonds and convertible
securities rated as low as B+ by S&P, B1 by Moody's or comparably rated by
another ratings agency.
Small Cap Fund can invest up to 10% of total assets in convertible securities
rated as low as B by S&P or Moody's or comparably rated by another ratings
agency.
DERIVATIVES. Some of the instruments in which the Funds may invest may be
referred to as 'derivatives,' because their value depends on (or 'derives' from)
the value of an underlying asset, reference rate or index. These instruments
include options, futures contracts and similar instruments that may be used in
hedging strategies. There is only limited consensus as to what constitutes a
'derivative' security. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative instrument may pose its own special risks. Mitchell Hutchins takes
these risks into account in its management of the Funds.
COUNTERPARTIES. The Funds may be exposed to the risk of financial failure or
insolvency of another party. To help lessen those risks, Mitchell Hutchins,
subject to the supervision of the respective boards of trustees, monitors and
evaluates the creditworthiness of the parties with which each Fund does
business.
In addition to these general risks, Small Cap Fund is also subject to the
following risk consideration:
SMALL CAP COMPANIES. Small cap companies may be more vulnerable than larger
companies to adverse business or economic developments. Small cap companies may
also have limited product lines, markets or financial resources and may be
dependent on a relatively small management group. Securities of such companies
may be less liquid and more volatile than securities of larger companies or the
market averages in general and, therefore, may involve greater risk than
investing in larger companies. In addition, small cap companies may not be
well-known to the investing public, may not have institutional ownership and may
have only cyclical, static or moderate growth prospects.
INVESTMENT TECHNIQUES AND STRATEGIES
HEDGING STRATEGIES USING DERIVATIVES. Each Fund may use derivatives, such as
options (on securities, futures contracts and stock indexes) and futures
contracts (on stock indexes and interest rates) to reduce the overall risk of
its investments ('hedge'). New financial products and risk management techniques
continue to be developed and may be used if consistent with the Funds'
investment objectives and policies. The Statement of Additional Information for
the Funds contains further information on these strategies.
The Funds might not use any of these derivatives, and there can be no assurance
that any strategy used will succeed. If Mitchell Hutchins is incorrect in its
judgment on market values, interest rates or other economic factors in using a
hedging strategy, a Fund may have lower net income and a net loss on the
investment. Each of these strategies involves certain risks, which include:
o the fact that the skills needed to use hedging instruments are different from
those needed to select securities for the Funds,
o the possibility of imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the securities
being hedged,
--------------------
Prospectus Page 24
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
o possible constraints placed on a Fund's ability to purchase or sell portfolio
investments at advantageous times due to the need for the Fund to maintain
'cover' or to segregate securities, and
o the possibility that the Fund is unable to close out or liquidate its hedged
position.
LENDING PORTFOLIO SECURITIES. Each Fund may lend its securities to qualified
broker-dealers or institutional investors in an amount up to 33 1/3% of that
Fund's total assets taken at market value. Lending securities enables a Fund to
earn additional income, but could result in a loss or delay in recovering these
securities.
PORTFOLIO TURNOVER. Each Fund's portfolio turnover rate may vary greatly from
year to year and will not be a limiting factor when Mitchell Hutchins deems
portfolio changes appropriate. A higher turn-over rate (100% or more) for a Fund
will involve correspondingly greater transaction costs, which will be borne
directly by the Fund, and may increase the potential for short-term capital
gains.
DEFENSIVE POSITIONS. When Mitchell Hutchins believes that unusual market or
economic circumstances warrant a defensive posture, a Fund may temporarily
commit all or any portion of its assets to cash or investment grade money market
instruments, including repurchase agreements. In a typical repurchase agreement,
a Fund buys a security and simultaneously agrees to sell it back at an
agreed-upon price and time, usually no more than seven days after purchase.
ILLIQUID SECURITIES. Growth and Income Fund and Growth Fund each may invest up
to 10% of its net assets, and Small Cap Fund up to 15% of its net assets, in
illiquid securities. These include certain cover for OTC options and securities
whose disposition is restricted under the federal securities laws. The Funds do
not consider securities that are eligible for resale pursuant to SEC Rule 144A
to be illiquid securities if Mitchell Hutchins has determined such securities to
be liquid, based upon the trading markets for the securities under procedures
approved by the Funds' boards of trustees.
OTHER INFORMATION. Each Fund may purchase securities on a when-issued basis or
may purchase or sell securities for delayed delivery. A Fund generally would not
pay for such securities or start earning interest on them until they are
delivered, but it would immediately assume the risks of ownership, including the
risk of price fluctuation. Each Fund may invest up to 35% of its total assets in
investment grade money market instruments and/or cash for liquidity purposes or
pending investment in other securities.
Each Fund may borrow money for temporary or emergency purposes but not in excess
of 10% of its total assets, including reverse repurchase agreements up to an
aggregate value of 5% (10% for Small Cap Fund) of its net assets.
- --------------------------------------------------------------------------------
FLEXIBLE PRICINGSM
- --------------------------------------------------------------------------------
Each Fund offers four classes of shares that differ in terms of sales charges
and expenses. An investor can select the class that is best suited to his or her
investment needs, based upon the holding period and the amount of investment.
CLASS A SHARES
HOW PRICE IS CALCULATED: The price is the net asset value plus the initial sales
charge (the maximum is 4.5% of the public offering price) next calculated after
PaineWebber's New York City headquarters or PFPC Inc., the Funds' transfer agent
('Transfer Agent') receives the purchase order. Although investors pay an
initial sales charge when they buy Class A shares, the ongoing expenses for this
class are lower than those of Class B and Class C shares. Class A shares sales
charges are calculated as follows:
--------------------
Prospectus Page 25
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF: DISCOUNT TO SELECTED
---------------------------------------- DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- ----------------------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000.................. 4.50% 4.71% 4.25%
$50,000 to $99,999................. 4.00 4.17 3.75
$100,000 to $249,999............... 3.50 3.63 3.25
$250,000 to $499,999............... 2.50 2.56 2.25
$500,000 to $999,999............... 1.75 1.78 1.50
$1,000,000 and over(1)............. None None 1.00(2)
</TABLE>
- ------------------
(1) A contingent deferred sales charge of 1% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. However, Class A shares representing reinvestment of any dividends or
other distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may not withdraw more than 12% of the value of the Fund account
under the Plan in the first year after purchase.
(2) Mitchell Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS
Investors purchasing Class A shares in more than one PaineWebber mutual fund may
combine those purchases to get a reduced sales charge. Investors who already own
Class A shares in one or more PaineWebber mutual funds may combine the amount
they are currently purchasing with the value of such previously owned shares to
qualify for a reduced sales charge. To determine the sales charge reduction,
please refer to the chart above.
Investors may also qualify for a reduced sales charge when they combine their
purchases with those of:
o their spouses, parents or children under age 21;
o their Individual Retirement Accounts (IRAs);
o certain employee benefit plans, including 401(k) plans;
o any company controlled by the investor;
o trusts created by the investor;
o Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of investors for the benefit of the investors'
children; or
o accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
o is an employee, director, trustee or officer of PaineWebber, its affiliates or
any PaineWebber mutual fund;
o is the spouse, parent or child of any of the above;
o buys these shares through a PaineWebber investment executive who was formerly
employed as a broker with a competing brokerage firm that was registered as a
broker-dealer with the SEC and
o was the investment executive's client at the competing brokerage firm;
o within 90 days of buying Class A shares in a Fund, the investor sells shares
of one or more mutual funds that (a) were principally underwritten by the
competing brokerage firm or its affiliates and (b) the investor either paid a
sales charge to buy those shares, paid a contingent deferred sales charge when
selling them or held those shares until the contingent deferred sales charge
was waived; and
o the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;
o is a certificate holder of unit investment trusts sponsored by PaineWebber and
has elected to have dividends and other distributions from that investment
automatically invested in Class A shares;
o is an employer establishing an employee benefit plan qualified under section
401, including a salary reduction plan qualified under section 401(k), or
Section 403(b) of the Internal Revenue Code ('Code') (each a 'qualified
plan'). (This waiver is subject to minimum requirements, with respect to the
number of employees and investment amount, established by Mitchell Hutchins.
Currently, the plan must have 50 or more eligible employees and at least $1
million in plan assets.) For investments made pursuant to this waiver,
Mitchell Hutchins may make a payment to PaineWebber out of its own resources
in an amount not to exceed 1% of the amount invested;
o is a participant in the PaineWebber Members Only Program(Trademark). For
investments made pursuant to this waiver, Mitchell Hutchins may make payments
out of its own resources to PaineWebber and to participating membership
organizations in a total amount not to exceed 1% of the amount invested;
--------------------
Prospectus Page 26
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
o is a variable annuity offered only to qualified pension plans. For investments
made pursuant to this waiver. Mitchell Hutchins may make payments out of its
own resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
o acquires Class A shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a written
agreement with PaineWebber permitting the sale of Class A shares at net asset
value to that program. For investments made pursuant to this waiver, Mitchell
Hutchins may make a payment to PaineWebber out of its own resources in an
amount not to exceed 1% of the amount invested. For subsequent investments or
exchanges made to supplement a rebalancing feature of such an investment
program, the minimum subsequent investment requirement is waived; or
o acquires Class A shares in connection with a reorganization pursuant to which
a Fund acquires substantially all of the assets and liabilities of another
investment company in exchange solely for shares of the Fund.
For more information on how to get any reduced sales charge, investors should
contact a PaineWebber investment executive or a correspondent firm or call
1-800-647-1568. Investors must provide satisfactory information to PaineWebber
or the Fund if they seek any of these sales charge reductions or waivers.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated after
PaineWebber's New York City headquarters or the Transfer Agent receives the
purchase order. The ongoing expenses investors pay for Class B shares are higher
than those of Class A shares. Because investors do not pay an initial sales
charge when they buy Class B shares, 100% of their purchase is immediately
invested.
Depending on how long they own their Fund investment, investors may have to pay
a sales charge when they sell their Fund shares. This sales charge is called a
'contingent deferred sales charge.' The amount of the charge depends on how long
the investor owned the shares. The sales charge is calculated by multiplying the
offering price (net asset value of the shares at the time of purchase) or the
net asset value at the time of sale by the shareholder, whichever is less, by
the percentage shown on the following table. Investors who own shares for more
than six years do not have to pay a sales charge when selling those shares.
<TABLE>
<CAPTION>
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES'
SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED:
- ------------------------ -------------------------------
<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A shares
of equal dollar value after the investor has owned them for six years. Dividends
and other distributions paid to the investor by the Fund in the form of
additional Class B shares will also convert to Class A shares on a pro-rata
basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares. If the investor has exchanged Class B shares
between PaineWebber funds, the Fund uses the purchase date at which the initial
investment was made to determine the conversion date.
MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE
When investors sell Class B shares they have owned for less than six years, the
Fund automatically will minimize the sales charge by assuming the investors are
selling:
o First, Class B shares owned through reinvested dividends and capital gain
distributions; and
o Second, Class B shares held in the portfolio the longest.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
o sales of shares under the Fund's Systematic Withdrawal Plan (investors may not
withdraw annually more than 12% of the value of the Fund account under the
Plan);
o a distribution from an IRA, a self-employed individual retirement plan ('Keogh
Plan') or a custodial account under section 403(b) of the Code (after the
investor reaches age 59 1/2);
o a tax-free return of an excess IRA contribution;
o a tax-qualified retirement plan distribution following retirement; or
o Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.
--------------------
Prospectus Page 27
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
An investor must provide satisfactory information to PaineWebber or the Fund if
the investor seeks any of these waivers.
CLASS C SHARES
HOW PRICE IS CALCULATED: The price of Class C shares is the net asset value
next calculated after PaineWebber's New York City headquarters or the Transfer
Agent receives the purchase order. The ongoing expenses of Class C shares are
higher than those of Class A shares. Investors do not pay an initial sales
charge when they buy Class C shares, 100% of their purchase is immediately
invested.
A contingent deferred sales charge of 1% of the net asset value of the shares at
the time of purchase or sale, whichever is less, is charged on sales of shares
made within one year of the purchase date. Other PaineWebber mutual funds may
impose a different contingent deferred sales charge on Class C shares sold
within one year of the purchase date. A sale of Class C shares acquired through
an exchange and held less than one year will be subject to the same contingent
deferred sales charge that would have been imposed on the Class C shares of the
PaineWebber mutual fund originally purchased. Class C shares representing
reinvestment of any dividends or capital gains will not be subject to the 1%
charge. Withdrawals under the Systematic Withdrawal Plan also will not be
subject to this charge. However, investors may not withdraw more than 12% of the
value of the Fund account under the Plan in the first year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED: Class Y shares are sold to eligible investors at the
net asset value next calculated after PaineWebber's New York City headquarters
or at the Transfer Agent. Because investors do not pay an initial sales charge
when they buy Class Y shares, 100% of their purchase is immediately invested. No
contingent deferred sales charge is imposed on Class Y shares, and the ongoing
expenses for Class Y shares are lower than for the other classes because Class Y
shares are not subject to 12b-1 distribution or service fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to
buy Class Y shares.
o a participant in INSIGHT when Class Y shares are purchased through that
program;
o an investor who buys $10 million or more at any one time in any combination of
PaineWebber mutual funds in the Flexible Pricing(Service Mark) System;
o a qualified plan that has either 5,000 or more eligible employees or $50
million or more in assets;
o an investment company advised by PaineWebber or an affiliate of PaineWebber;
and
o for Growth and Income Fund and Growth Fund, the trustee of the PaineWebber
Savings Investment Plan ('PW SIP')
INSIGHT. An investor who purchases $50,000 or more of shares of the mutual
funds that are available to INSIGHT participants (which include the PaineWebber
mutual funds in the Flexible Pricing(Trademark) System and certain other
specified mutual funds) may take part in INSIGHT, a total portfolio asset
allocation program sponsored by PaineWebber, and thus become eligible to
purchase Class Y shares. INSIGHT offers comprehensive investment services,
including a personalized asset allocation investment strategy using an
appropriate combination of funds, monitoring of investment performance and
comprehensive quarterly reports that cover market trends, portfolio summaries
and personalized account information.
Participation in INSIGHT is subject to payment of an advisory fee to PaineWebber
at the maximum annual rate of 1.5% of assets held through the program (generally
charged quarterly in advance), which covers all INSIGHT investment advisory
services and program administration fees. Employees of PaineWebber and its
affiliates are entitled to a 50% reduction in the fee otherwise payable for
participation in INSIGHT. INSIGHT clients may elect to have their INSIGHT fees
charged to their PaineWebber accounts (by the automatic redemption of money
market fund shares) or, if a qualifed plan, invoiced.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available to INSIGHT participants or for other INSIGHT Information.
--------------------
Prospectus Page 28
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Prices are calculated for each class of a Fund's shares once each Business Day,
at the close of regular trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). A 'Business Day' is any day, Monday through Friday, on
which the New York Stock Exchange is open for business.
The Funds and Mitchell Hutchins reserve the right to reject any purchase order
and to suspend the offering of Fund shares for a period of time.
When placing an order to buy shares, investors should specify which class of
shares they want to buy. If investors fail to specify the class, they will
automatically receive Class A shares, which include an initial sales charge.
Investors in Class Y shares must provide satisfactory information to PaineWebber
or an individual Fund that they are eligible to purchase Class Y shares.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's New
York City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its correspondent
firms. Payment is due on the third Business Day after PaineWebber's New York
City headquarters receives the purchase order.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up an
account through the Transfer Agent (PFPC Inc.) by completing and signing an
account application which you may obtain by calling 1-800-647-1568. The
application and check must be mailed to PFPC Inc., Attn: PaineWebber Mutual
Funds, P.O. Box 8950, Wilmington, DE 19899.
New investors to PaineWebber may complete and sign an account application and
mail it along with a check. Investors may also open an account in person.
Investors who already have money invested in a PaineWebber mutual fund, and want
to invest in another PaineWebber mutual fund, can:
o mail an application with a check; or
o open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional investments
in the Fund.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account................. $1,000
To add to an account............... $ 100
</TABLE>
A Fund may waive or reduce these minimums for:
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 plan.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, B and C
shares for shares of the same class of other PaineWebber mutual funds. For
classes of shares where no initial sales charge is imposed, a contingent
deferred sales charge may apply if the investor sells the shares acquired
through the exchange. Class Y shares are not exchangeable.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
o Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or wire.
o Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a 'letter of instruction' to the Transfer Agent. The letter of
instruction must include:
o the investor's name and address;
o the Fund's name;
o the Fund account number;
o the dollar amount or number of shares to be sold; and
--------------------
Prospectus Page 29
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
o a guarantee of each registered owner's signature by an eligible institution,
such as a commercial bank, trust company or stock exchange member.
The letter must be mailed to PFPC Inc., Attn:
PaineWebber Mutual Funds, P.O. Box 8950,
Wilmington, DE 19899.
No contingent deferred sales charge is imposed when Class B or C shares are
exchanged for Class B or C shares of other PaineWebber mutual funds. A Fund will
use the purchase date of the initial investment to determine any contingent
deferred sales charge due when the acquired shares are sold. Fund shares may be
exchanged only after the settlement date has passed and payment for the shares
has been made. The exchange privilege is available only in those jurisdictions
where the sale of the fund shares to be acquired is authorized. This exchange
privilege may be modified or terminated at any time and, when required by SEC
rules, upon a 60-day notice. See the back cover of this Prospectus for a listing
of other PaineWebber mutual funds.
- --------------------------------------------------------------------------------
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Investors can sell (redeem) shares at any time. Shares will be sold at the share
price for that class as next calculated after the order is received and accepted
(less any applicable contingent deferred sales charge). Share prices are
normally calculated at the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time).
Investors who own more than one class of shares should specify which class they
are selling. If they do not, the Fund will assume they are first selling their
Class A shares, then Class C, then Class B and last, Class Y.
If a shareholder wants to sell shares that were purchased recently, the Fund may
delay payment until it verifies that good payment was received. In the case of
purchases by check, this can take up to 15 days.
Investors who have an account with PaineWebber or one of PaineWebber's
correspondent firms can sell their shares by contacting their investment
executive. Investors who do not have an account and have bought their shares
through PFPC Inc., the Funds' Transfer Agent, may sell shares by writing a
'letter of instruction,' as detailed in 'How to Exchange Shares.'
Because the Funds incur certain fixed costs in maintaining shareholder accounts,
each Fund reserves the right to purchase back all of its shares in any
shareholder account with a net asset value of less than $500. If a Fund elects
to do so, it will notify the shareholder of the opportunity to increase the
amount invested to $500 or more within 60 days of the notice. The Fund will not
purchase back accounts that fall below $500 solely due to a reduction in net
asset value per share.
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive at
PaineWebber or one of its correspondent firms at the time of purchase.
--------------------
Prospectus Page 30
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
OTHER SERVICES
- --------------------------------------------------------------------------------
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Funds' Class A, Class B and C shares:
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which the Fund will deduct $50 or more each month
from the investor's bank account to invest directly in the Fund. In addition to
providing a convenient and disciplined manner of investing, participation in the
Automatic Investment Plan enables the investor to use the technique of 'dollar
cost averaging.'
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or annual
(December) withdrawals from their 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, semi-annual and annual withdrawals of $200, $400, $600 and $800,
respectively.
Withdrawals under the Systematic Withdrawal Plan will not be subject to a
contingent deferred sales charge. Investors may not withdraw annually more than
12% of the value of the Fund account when the investor signed up for the Plan.
Shareholders who elect to receive dividends or other distributions in cash may
not participate in the Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-Directed IRAs are available through PaineWebber in which purchases of
PaineWebber funds and other investments may be made. Investors considering
establishing an IRA should review applicable tax laws and should consult their
tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of a Fund in a PaineWebber brokerage account
transfer their brokerage accounts to another firm, the Fund shares will be moved
to an account with the Transfer Agent. However, if the other firm has entered
into a selected dealer agreement with Mitchell Hutchins relating to the Fund,
the shareholder may be able to hold Fund shares in an account with the other
firm.
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
Each Fund is governed by its board of trustees, which oversees the Fund's
operations. Each board has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority of
the board). As investment adviser and administrator, Mitchell Hutchins
supervises all aspects of each Fund's operations and makes and implements all
investment decisions for that Fund.
The boards, as part of their overall management responsibility, oversee various
organizations responsible for the day-to-day management of each Fund.
In accordance with procedures adopted by the boards, brokerage transactions for
the Funds may be conducted through PaineWebber or its affiliates and the Funds
may pay fees to PaineWebber for its services as lending agent in their portfolio
securities lending programs.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is the asset management subsidiary of PaineWebber, which is wholly owned
by Paine Webber Group Inc., a publicly owned financial services holding company.
On October 31, 1997, Mitchell Hutchins was adviser or sub-adviser of 29
investment companies with 64 separate portfolios and aggregate assets of
approximately $35.6 billion.
Personnel of Mitchell Hutchins may engage in securities transactions for their
own accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
--------------------
Prospectus Page 31
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
As investment adviser for Growth and Income Fund, Growth Fund and Small Cap
Fund, Mitchell Hutchins makes and implements all investment decisions and
supervises all aspects of each Fund's operations.
Mark A. Tincher is a managing director and chief investment officer of equities
of Mitchell Hutchins, responsible for overseeing the management of equity
investments. Upon his arrival at Mitchell Hutchins, Mr. Tincher formed the
Mitchell Hutchins Equity Research Team. Each analyst on the Team focuses on
different industries. As a result, the Team provides PaineWebber Stock Funds
with more specialized knowledge of the various industries in which the Funds
generally invest. The Equity Research Team is also assisted by members of
Mitchell Hutchins' fixed income groups, who provide input on market outlook,
interest rate forecasts and other considerations pertaining to domestic equity
and fixed income investments.
GROWTH AND INCOME FUND
Mr. Tincher has been responsible for the day-to-day management of Growth and
Income Fund since April 1995. From March 1988 to March 1995, Mr. Tincher worked
for Chase Manhattan Private Bank where he was a vice president. Mr. Tincher
directed the U.S. funds management and equity research area at Chase and oversaw
the management of all Chase U.S. equity funds (the Vista Funds and Trust
Investment Funds).
Mr. Tincher was the sole portfolio manager of Vista Growth and Income Fund
('Vista Fund'), with full discretionary authority over the selection of
investments, from July 31, 1991 through March 16, 1995. Vista Fund's investment
objectives of long-term capital appreciation and dividend income are
substantially similar to Growth and Income Fund's investment objective of
current income and capital growth. Mr. Tincher used and relied upon the same
valuation model and analytical methods when managing the Vista Fund as he now
uses for Growth and Income Fund.
The cumulative total return for Vista Fund for the period it was managed by Mr.
Tincher was 46.18%; 39.24% after deducting that Fund's maximum sales charge of
4.75%. As of March 31, 1995, the Vista Fund had $1.6 billion in net assets. The
chart below shows calendar year total returns for Vista Fund; the 1991 return
represents the period from July 31, 1991 when Mr. Tincher took over day-to-day
management of the Vista Fund through December 31, 1991. Sales charges have not
been deducted from total returns. Returns would be lower if sales charges were
deducted.
[BAR GRAPH]
Mr. Tincher's Terms as Manager of Vista Growth and Income Fund
7/31/91-12/31/91 9.69%
1992 15.11%
1993 12.99%
1994 -3.41%
Average annual returns both before and after deducting the maximum sales charges
are shown in the table below. Average annual returns are for the one- and
three-year periods ended December 31, 1994 and the entire period during which
Mr. Tincher managed the Vista Fund (July 31, 1991 through March 16, 1995) and
are compared with the performance of the Standard & Poor's 500 Composite Stock
Price Index for each such period.
<TABLE>
<CAPTION>
VISTA S&P 500
FUND(1) INDEX(2)
------------ -------
<S> <C> <C>
Mr. Tincher's Term as Manager
7/31/91 through 3/16/95
Before deducting maximum sales
charges........................... 11.04% 10.17%
After deducting maximum sales
charges........................... 9.56% 10.17%
Three Years Ended 12/31/94
Before deducting maximum sales
charges........................... 7.90% 6.26%
After deducting maximum sales
charges........................... 6.16% 6.26%
One Year Ended 12/31/94
Before deducting maximum sales
charges........................... -3.41% 1.31%
After deducting maximum sales
charges........................... -8.00% 1.31%
</TABLE>
- ------------------
1. Average annual returns are for Class A shares and reflect the deduction of
the maximum sales charge of 4.75%, changes in share prices, reinvestment of
dividends and distributions and are net of fund expenses. For the fiscal
years ended October 31, 1991 and October 31, 1992, expenses in the amount of
0.51% and 0.03%, respectively, were waived or reimbursed.
(Footnotes on next page)
--------------------
Prospectus Page 32
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
(Footnotes from previous page)
2. The Standard & Poor's 500 Composite Stock Price Index ('Index') is an
unmanaged index of common stocks that is considered to be generally
representative of the United States stock market. The Index is adjusted to
reflect reinvestment of dividends. No sales charges are applicable.
- ------------------
Historical performance is not indicative of future performance. Vista Fund is a
separate fund and its historical performance is not indicative of the past or
future performance of Growth and Income Fund. S&P 500 Index and Vista Fund
performance information calculated by Lipper Analytical Services Inc; used with
permission.
GROWTH FUND
Ellen R. Harris has been responsible for the day-to-day portfolio management of
Growth Fund since its inception. Ms. Harris is a managing director of Mitchell
Hutchins. Prior to joining Mitchell Hutchins in 1983 as a portfolio manager, Ms.
Harris served as a vice president and portfolio manager at American General
Capital Management (now American Capital Management).
SMALL CAP FUND
Donald R. Jones has been primarily responsible for day-to-day portfolio
management of Small Cap Fund since April 1996. Mr. Jones has been a first vice
president of Mitchell Hutchins since February 1996. Prior to joining Mitchell
Hutchins, Mr. Jones was a vice president in the Asset Management Group of First
Fidelity Bancorporation, which he joined in 1983.
MANAGEMENT FEES & OTHER EXPENSES
The Funds pay Mitchell Hutchins a monthly fee for its services. For the most
recently ended fiscal year, the Funds paid advisory fees at the annual rate (as
a percentage of average daily net assets) of 0.75% for Growth Fund, 0.70% for
Growth and Income Fund and 1.00% for Small Cap Fund.
DISTRIBUTION ARRANGEMENTS
Mitchell Hutchins is the distributor of each Fund's shares and has appointed
PaineWebber as the exclusive dealer for the sale of those shares. There is no
distribution plan with respect to the Funds' Class Y shares. Under distribution
plans for Class A, Class B and Class C shares ('Class A Plan,' 'Class B Plan'
and 'Class C Plan,' collectively, 'Plans'), the Funds pay Mitchell Hutchins:
o Monthly service fees at the annual rate of up to 0.25% of the average daily
net assets of each class of shares.
o Monthly distribution fees at the annual rate of 0.75% of the average daily net
assets of Class B and Class C shares.
Under the Plans, Mitchell Hutchins primarily uses the service fees to pay
PaineWebber for shareholder servicing, currently at the annual rate of up to
0.25% of the aggregate investment amounts maintained in each Fund's Class A,
Class B and Class C shares by PaineWebber clients. PaineWebber then compensates
its investment executives for shareholder servicing that they perform and
offsets its own expenses in servicing and maintaining shareholder accounts.
Mitchell Hutchins uses the distribution fees under the Class B and Class C Plans
to:
o Offset the commissions it pays to PaineWebber for selling each Fund's Class B
and Class C shares, respectively.
o Offset each Fund's marketing costs attributable to such classes, such as
preparation, printing and distribution of sales literature, advertising and
prospectuses to prospective investors and related overhead expenses, such as
employee salaries and bonuses.
PaineWebber compensates investment executives when Class B and Class C shares
are bought by investors, as well as on an ongoing basis. Mitchell Hutchins
receives no special compensation from any of the Funds or investors at the time
Class B or C shares are bought.
Mitchell Hutchins receives the proceeds of the initial sales charge paid when
Class A shares are bought and of the contingent deferred sales charge paid upon
sales of shares. These proceeds may be used to cover distribution expenses.
The Plans and the related distribution contracts for each class of shares
('Distribution Contracts') specify that each 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 Funds 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 Funds. Annually, the board of trustees of
each Fund reviews each Plan and Mitchell Hutchins' corresponding expenses for
each class separately from the Plans and expenses of the other classes.
--------------------
Prospectus Page 33
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
DETERMINING THE SHARES'
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of a Fund's shares fluctuates and is determined separately
for each class as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) each Business Day. Each Fund's net asset
value per share is determined by dividing the value of the securities held by
the Fund, plus any cash or other assets, minus all liabilities, by the total
number of Fund shares outstanding.
Each Fund values its assets based on their current market value when market
quotations are readily available. If market quotations are not readily
available, assets are valued at fair value as determined in good faith by or
under the direction of its board of trustees. The amortized cost method of
valuation generally is used to value debt obligations with 60 days or less
remaining to maturity, unless a Fund's board of trustees determines that this
does not represent fair value. It should be recognized that judgment plays a
greater role in valuing lower-rated corporate bonds because there is less
reliable, objective data available.
- --------------------------------------------------------------------------------
DIVIDENDS & TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
Growth Fund and Small Cap Fund each pays an annual dividend, and Growth and
Income Fund pays a semi-annual dividend, from its net investment income and net
short-term capital gain, if any. Each Fund also distributes annually
substantially all of its net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any. Each Fund may make additional
distributions, if necessary, to avoid a 4% excise tax on certain undistributed
income and capital gain. If determined by its board of trustees to be in the
best interests of its shareholders, Growth and Income Fund may also make
additional distributions of net investment income and net short-term capital
gain, if any.
Dividends and other distributions paid on each class of shares of a Fund are
calculated at the same time and in the same manner. Dividends on Class A, B and
C shares of a Fund are expected to be lower than those on its Class Y shares
because the other shares have higher expenses resulting from their service fees
and, in the case of Class B and Class C shares, their distribution fees.
Dividends on Class B and Class C shares of a Fund are expected to be lower than
those on its Class A shares because Class B and Class C shares have higher
expenses resulting from their distribution fees. Dividends on each class might
be affected differently by the allocation of other class-specific expenses. See
'General Information.'
Each Fund's dividends and other distributions are paid in additional Fund shares
of the same class at net asset value, unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and other distributions in
cash, either mailed to them by check or credited to their PaineWebber accounts,
should contact their investment executives at PaineWebber or one of its
correspondent firms or complete the appropriate section of the account
application.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated investment
company under the Code so that it will not have to pay federal income tax on
that part of its investment company taxable income (generally consisting of net
investment income and net short-term capital gain) and net capital gain that it
distributes to its shareholders.
Dividends from each Fund's investment company taxable income (whether paid in
cash or additional shares) are generally taxable to its shareholders as ordinary
income. Distributions of each Fund's net capital gain (whether paid in cash or
additional shares) are taxable to its shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. Under the Taxpayer
Relief Act of 1997, different maximum tax rates apply to net capital gain
depending on the taxpayer's holding period and marginal rate of federal income
tax -- generally, 28% for gain recognized on capital assets held for more than
one
--------------------
Prospectus Page 34
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
year but not more than 18 months and 20% (10% for taxpayers in the 15% marginal
tax bracket) for gain recognized on capital assets held for more than 18 months.
A notice issued by the Internal Revenue Service in November 1997 permits each
Fund to bifurcate each net capital gain distribution into a 20% rate gain
distribution and a 28% rate gain distribution (in accordance with the Fund's
holding periods for the securities it sold that generated the gain) and requires
its shareholders to treat those portions accordingly. Shareholders who are not
subject to tax on their income generally will not be required to pay tax on
distributions from the Funds.
YEAR-END TAX REPORTING
Following the end of each calendar year, each Fund notifies its shareholders of
the amounts of dividends and capital gain distributions paid (or deemed paid) by
the Fund that year and any portion of those dividends that qualifies for special
tax treatment. The information regarding capital gain distributions designates
the portions thereof subject to the different maximum rates of tax applicable to
individuals' net capital gain indicated above.
BACKUP WITHHOLDING
Each Fund must withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the Funds with a correct taxpayer identification
number. Withholding at that rate also is required from dividends and capital
gain distributions payable to such shareholders who otherwise are subject to
backup withholding.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
A shareholder's sale (redemption) of Fund shares may result in a taxable gain or
loss. This depends upon whether the shareholder receives more or less than the
adjusted basis for the shares (which normally includes any initial sales charge
paid on Class A shares). An exchange of any Fund's shares for shares of another
PaineWebber mutual fund generally will have similar tax consequences. In
addition, if a Fund's shares are bought within 30 days before or after selling
other shares of that Fund (regardless of class) at a loss, all or a portion of
that loss will not be deductible and will increase the basis of the newly
purchased shares.
SPECIAL TAX RULES FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells (redeems) or exchanges Class A
shares within 90 days of purchase and subsequently acquires Class A shares of
the same or another PaineWebber mutual fund without paying a sales charge due to
the 365-day reinstatement privilege or the exchange privilege. In these cases,
any gain on the sale or exchange of the original Class A shares would be
increased, or any loss would be decreased, by the amount of the sales charge
paid when those shares were bought, and that amount would increase the basis of
the PaineWebber mutual fund shares subsequently acquired.
No gain or loss will be recognized to a shareholder as a result of conversion of
Class B shares into Class A shares.
* * * *
Because the foregoing only summarizes some of the important considerations
affecting the Funds and their shareholders, a further discussion is contained in
the Statement of Additional Information. Prospective shareholders are urged to
consult their tax advisers.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION
GROWTH AND INCOME FUND
Growth and Income Fund is a diversified series of PaineWebber America Fund, an
open-end management investment company that was formed on October 31, 1986 as a
business trust under the laws of the Commonwealth of Massachusetts. The board
has authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share.
GROWTH FUND
Growth Fund is a diversified series of PaineWebber Olympus Fund, an open-end
management investment company that was formed on October 31, 1986 as a business
trust under the laws of the Commonwealth of Massachusetts. The board has
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share.
--------------------
Prospectus Page 35
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
SMALL CAP FUND
Small Cap Fund is a diversified series of PaineWebber Securities Trust
('Securities Trust'), an open-end management investment company that was formed
on December 3, 1992 as a business trust under the laws of the Commonwealth of
Massachusetts. The board has authority to issue an unlimited number of shares of
beneficial interest of separate series, par value $0.001 per share. In addition
to Small Cap Fund, shares of one other series have been authorized.
SHARES
The shares of each Fund are divided into four classes, designated Class A, Class
B, Class C and Class Y shares. Each class of shares of a Fund represents an
identical interest in that 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
Funds will affect the performance of those classes.
Each share of a 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 on a Fund's Class A, B, C and Y
shares will differ.
Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for a misstatement in the Prospectus about another Fund. The
board of each Fund considered this factor in approving the use of a combined
Prospectus.
VOTING RIGHTS
Shareholders of each 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 any Fund (or
Securities Trust, which has more than one series) may elect all of the trustees
of that Fund or of Securities Trust. The shares of a Fund will be voted together
except that only the shareholders of a particular class of a Fund may vote on
matters affecting only that class, such as the terms of a Plan as it relates to
the class. The shares of each series of Securities Trust will be voted
separately except where an aggregate vote of all series is required by law.
SHAREHOLDER MEETINGS
The Funds do not hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of a
Fund or Securities Trust may remove a trustee through a declaration in writing
or by vote cast in person or by proxy at a meeting called for that purpose. A
meeting will be called to vote on the removal of a trustee at the written
request of holders of 10% of a Fund's or Securities Trust's outstanding shares.
REPORTS TO SHAREHOLDERS
Each Fund sends its shareholders audited annual and unaudited semiannual
reports, each of which includes a list of the investment securities held by that
Fund as of the end of the period covered by the report. The Statement of
Additional Information, which is incorporated herein by reference, is available
to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT;
TRANSFER & DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as each Fund's custodian and recordkeeping
agent. PFPC Inc., a subsidiary of PNC Bank, N.A., serves as each Fund's transfer
and dividend disbursing agent. It is located at 400 Bellevue Parkway,
Wilmington, DE 19809. PFPC (not the Funds) pays PaineWebber for certain transfer
agency related services that PFPC has delegated to PaineWebber.
--------------------
Prospectus Page 36
<PAGE>
------------------------------
PaineWebber Growth and Income Fund Growth Fund Small Cap Fund
[This page intentionally left blank]
--------------------
Prospectus Page 37
<PAGE>
PaineWebber Growth and Income Fund
PaineWebber Growth Fund
PaineWebber Small Cap Fund
PROSPECTUS--DECEMBER 1, 1997
<TABLE>
<S> <C>
/ / PAINEWEBBER BOND FUNDS / / PAINEWEBBER STOCK FUNDS
High Income Fund Capital Appreciation Fund
Investment Grade Income Fund Financial Services Growth Fund
Low Duration U.S. Government Growth Fund
Income Fund Growth and Income Fund
Strategic Income Fund Small Cap Fund
U.S. Government Income Fund Utility Income Fund
/ / PAINEWEBBER TAX-FREE BOND FUNDS / / PAINEWEBBER GLOBAL FUNDS
California Tax-Free Income Fund Asia Pacific Growth Fund
Municipal High Income Fund Emerging Markets Equity Fund
National Tax-Free Income Fund Global Equity Fund
New York Tax-Free Income Fund Global Income Fund
/ / PAINEWEBBER ASSET / / PAINEWEBBER MONEY MARKET FUND
ALLOCATION FUNDS
Balanced Fund
Tactical Allocation Fund
</TABLE>
A prospectus containing more complete information for any of
these funds, including charges and expenses, can be obtained
from a PaineWebber investment executive or correspondent firm.
Please read it carefully before investing. It is important you
have all the information you need to make a sound investment
decision.
(Copyright) 1997 PaineWebber Incorporated
---------------
<PAGE>
PAINEWEBBER GROWTH AND INCOME FUND
PAINEWEBBER GROWTH FUND
PAINEWEBBER SMALL CAP FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
The three funds named above (each a 'Fund' and, collectively, 'Funds') are
diversified series of professionally managed, open-end management investment
companies organized as Massachusetts business trusts (each a 'Trust' and,
collectively, 'Trusts'). PaineWebber Growth and Income Fund ('Growth and Income
Fund'), a series of PaineWebber America Fund ('America Fund'), seeks to provide
current income and capital growth; it invests primarily in dividend-paying
equity securities believed to have the potential for rapid earnings growth.
PaineWebber Growth Fund ('Growth Fund'), a series of PaineWebber Olympus Fund
('Olympus Fund'), seeks long-term capital appreciation; it invests primarily in
equity securities of companies believed to have substantial potential for
capital growth. PaineWebber Small Cap Fund ('Small Cap Fund'), a series of
PaineWebber Securities Trust ('Securities Trust'), also seeks long-term capital
appreciation; it invests primarily in equity securities of small capitalization
companies.
Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a
wholly-owned asset management subsidiary of PaineWebber Incorporated
('PaineWebber'), serves as investment adviser, administrator and distributor for
each Fund. As distributor, Mitchell Hutchins has appointed PaineWebber as the
exclusive dealer for the sale of Fund shares.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Funds' current Prospectus, dated December 1,
1997. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free
1-800-647-1568. This Statement of Additional Information is dated December 1,
1997.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations. Except as otherwise
indicated in the Prospectus or Statement of Additional Information, there are no
policy limitations on a Fund's ability to use the investments or techniques
discussed in these documents.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ('Moody's'),
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ('S&P'), and
other nationally recognized statistical rating organizations ('NRSROs') are
private services that provide ratings of the credit quality of debt obligations.
A description of the ratings assigned to corporate debt obligations by Moody's
and S&P is included in the Appendix to this Statement of Additional Information.
The Funds may use these ratings in determining whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices.
Ratings of debt securities represent the NRSROs' opinions regarding their
quality, are not a guarantee of quality, and may be reduced after a Fund has
acquired the security. Mitchell Hutchins will consider such an event in
determining whether a Fund should continue to hold the security but is not
required to dispose of it. In the event that, due to a downgrade of one or more
debt securities, an amount in excess of the permitted percentage of a Fund's net
assets is held in securities rated below investment grade and comparable unrated
securities, the Fund will engage in an orderly disposition of such securities to
the extent necessary to ensure that its holdings of such securities does not
exceed that percentage.
Debt securities rated Ba or lower by Moody's, BB or lower by S&P,
comparably rated by another NRSRO or determined by Mitchell Hutchins to be of
comparable quality are below investment grade, are deemed by those agencies to
be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and may involve major risk exposure to adverse
conditions. Lower rated debt securities
<PAGE>
generally offer a higher current yield than that available for investment grade
issues, but they involve higher risks, in that they are especially subject to
adverse changes in general economic conditions and in the industries in which
the issuers are engaged, to changes in the financial condition of the issuers
and to price fluctuations in response to changes in interest rates. During
periods of economic downturn or rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
make payments of interest and principal and increase the possibility of default.
In addition, such issuers may not have more traditional methods of financing
available to them and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default by such issuers is significantly greater because
such securities frequently are unsecured and subordinated to the prior payment
of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth generally paralleled a long economic expansion. In the
past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or defaults. There can be no
assurance that such declines will not recur. The market for lower rated debt
issues generally is thinner and less active than that for higher quality
securities, which may limit a Fund's ability to sell such securities at fair
value in response to changes in the economy or financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. Securities of foreign
issuers may not be registered with the Securities and Exchange Commission
('SEC'), nor may the issuers thereof be subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the Funds than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.
The Funds may invest in foreign securities by purchasing American
Depository Receipts ('ADRs'). Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. For purposes of each Fund's
investment policies, ADRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR representing ownership of
common stock will be treated as common stock. ADRs are publicly traded on
exchanges or over-the-counter ('OTC') in the United States and are issued
through 'sponsored' or 'unsponsored' arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid directly by the ADR holders. In addition, less information is available in
the United States about an unsponsored ADR than about a sponsored ADR.
Investment income on certain foreign securities in which the Funds 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 Funds would be subject.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets (15%
for Small Cap Fund) in illiquid securities. The term 'illiquid securities' for
this purpose means securities that cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which a Fund has
valued the securities and includes, among other things, purchased OTC options,
repurchase agreements maturing in more than seven days and restricted securities
other than those Mitchell Hutchins has determined are liquid pursuant to
guidelines established by each Trust's board of trustees (each sometimes
referred to as a 'board'). The assets used as cover for OTC options written by
each Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option
2
<PAGE>
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
Illiquid restricted securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the Securities Act of 1933 ('1933 Act'). Where
registration is required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a 'safe harbor' from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Funds, however, could affect adversely the marketability of such portfolio
securities, and the Funds might be unable to dispose of such securities promptly
or at favorable prices.
Each board has delegated the function of making day-to-day determinations
of liquidity to Mitchell Hutchins, pursuant to guidelines approved by the board.
Mitchell Hutchins takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Mitchell Hutchins monitors the liquidity of
restricted securities in each Fund's portfolio and reports periodically on such
decisions to the boards.
CONVERTIBLE SECURITIES. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
non-convertible securities.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases. The value of a convertible security is a
function of its 'investment value' (determined by its yield comparison with the
yields of other securities of comparable maturity and quality that do not have a
conversion privilege) and its 'conversion value' (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is
3
<PAGE>
low relative to the investment value, the price of the convertible security is
governed principally by its investment value, and generally the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. In addition, a convertible security generally will sell at
a premium over its conversion value determined by the extent to which investors
place value on the right to acquire the underlying common stock while holding a
fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into underlying common stock or sell it to a third party.
Lower rated convertible securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks, in
that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes in
the financial condition of the issuers and to price fluctuation in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress, which
could adversely affect their ability to make payments of principal and interest
(or, in the case of convertible preferred stock, dividends) and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them, and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
GOVERNMENT SECURITIES. Government securities in which the Funds may invest
include direct obligations of the U.S. Treasury and obligations issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities
('Government Securities'). Direct obligations of the U.S. Treasury include a
variety of securities that differ in their interest rates, maturities and dates
of issuance. Among the Government Securities that may be held by the Funds are
instruments that are supported by the full faith and credit of the United
States; instruments that are supported by the right of the issuer to borrow from
the U.S. Treasury; and instruments that are supported solely by the credit of
the agency or instrumentality.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
The Fund maintains custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the repurchase
price on the date agreed to or upon demand is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price, plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by a Fund upon acquisition is accrued as
interest and included in its net investment income. Repurchase agreements carry
certain risks not associated with direct investments in securities, including
possible declines in the market value of the underlying securities and delays
and costs to the Funds if the other party to a repurchase agreement becomes
insolvent.
The Funds intend to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins to present minimal credit
risks in accordance with guidelines established by each board. Mitchell Hutchins
reviews and monitors the creditworthiness of those institutions under each
board's general supervision.
REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's net assets (10% of total assets for Small Cap Fund).
Such agreements involve the sale of securities held by a Fund subject to its
agreement to repurchase the securities at an agreed-upon date and price
reflecting a market rate of interest.
Such agreements are considered to be borrowings and may be entered into only for
temporary purposes. While a reverse repurchase agreement is outstanding, a
Fund's custodian segregates assets to cover the Fund's
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obligations under the reverse repurchase agreement. See 'Investment Policies and
Restrictions--Segregated Accounts.'
LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend portfolio
securities up to 33 1/3% of its total assets taken at market value to
broker-dealers or institutional investors that Mitchell Hutchins deems
qualified, but only when the borrower maintains with that Fund's custodian bank
acceptable collateral, marked to market daily, in an amount at least equal to
the market value of the securities loaned, plus accrued interest and dividends.
Acceptable collateral is limited to cash, U.S. government securities and
irrevocable letters of credit that meet certain guidelines established by
Mitchell Hutchins. In determining whether to lend securities to a particular
broker-dealer or institutional investor, Mitchell Hutchins will consider, and
during the period of the loan will monitor, all relevant facts and
circumstances, including the creditworthiness of the borrower. Each Fund will
retain authority to terminate any loans at any time. Each Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. Each Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. Each Fund will regain record ownership of loaned securities
to exercise beneficial rights, such as voting and subscription rights and rights
to dividends, interest or other distributions, when regaining such rights is
considered to be in the Fund's interest.
Pursuant to procedures adopted by the appropriate board governing each
Fund's securities lending program, the boards have approved retention of
PaineWebber to serve as lending agent for the Funds. The appropriate board also
has authorized each Fund to pay fees (including fees calculated as a percentage
of invested cash collateral) to PaineWebber for these services. Each board
periodically reviews all portfolio securities loan transactions for which
PaineWebber acted as lending agent.
SHORT SALES 'AGAINST THE BOX'. Each Fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales 'against the
box'). To make delivery to the purchaser in a short sale, the executing broker
borrows the securities being sold short on behalf of a Fund, and that Fund is
obligated to replace the securities borrowed at a date in the future. When a
Fund sells short, it establishes a margin account with the broker effecting the
short sale, and deposits collateral with the broker. In addition, that Fund
maintains with its custodian, in a segregated account, the securities that could
be used to cover the short sale. Each Fund will incur transaction costs,
including interest expense, in connection with opening, maintaining and closing
short sales against the box. No Fund currently expects to have obligations under
short sales that at any time during the coming year exceed 5% of its net assets.
The Funds might make a short sale 'against the box' in order to hedge
against market risks when Mitchell Hutchins believes that the price of a
security may decline, thereby causing a decline in the value of a security owned
by a Fund or a security convertible into or exchangeable for a security owned by
a Fund. In such case, any loss in a Fund's long position after the short sale
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which gains or losses in the long position are reduced will depend upon the
amount of the securities sold short relative to the amount of the securities a
Fund owns, either directly or indirectly, and in the case where a Fund owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase
securities on a 'when-issued' basis or may purchase or sell securities for
'delayed delivery.' In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but a Fund generally
would not pay for such securities or start earning interest or dividends on them
until they are delivered. However, when a Fund purchases securities on a
when-issued or delayed delivery basis, it immediately assumes the risks of
ownership, including the risk of price fluctuation. Failure by a counter party
to deliver a security purchased on a when-issued or delayed delivery basis may
result in a loss or missed opportunity to make an alternative investment.
Depending on market conditions, a Fund's when-issued and delayed delivery
purchase commitments could cause its net asset value per share to be more
volatile, because such securities may increase the amount by which the Fund's
total assets, including the value of when-issued and delayed delivery securities
held by the Fund, exceeds its net assets.
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A security purchased on a when-issued or delayed delivery basis is recorded
as an asset on the commitment date and is subject to changes in market value.
Thus, fluctuation in the value of the security from the time of the commitment
date will affect a Fund's net asset value. When a Fund agrees to purchase
securities on a when-issued basis, its custodian segregates assets to cover the
amount of the commitment. See 'Investment Policies and Restrictions--Segregated
Accounts.' The Funds purchase when-issued securities only with the intention of
taking delivery, but may sell the right to acquire the security prior to
delivery if Mitchell Hutchins deems it advantageous to do so, which may result
in capital gain or loss to a Fund.
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions that
involve obligations to make future payments to third parties, such as reverse
repurchase agreements or the purchase of securities on a when-issued or delayed
delivery basis, it will maintain with an approved custodian in a segregated
account cash or liquid securities, marked to market daily, in an amount at least
equal to the Fund's obligation or commitment under such transactions. As
described below under 'Hedging Strategies Using Derivative Instruments,'
segregated accounts may also be required in connection with certain transactions
involving options and futures contracts.
FUNDAMENTAL INVESTMENT LIMITATIONS. The following fundamental investment
limitations cannot be changed for a Fund without the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of that Fund or (b) 67% or
more of the shares of that Fund present at a shareholders' meeting if more than
50% of the outstanding shares are represented at the meeting in person or by
proxy. If a percentage restriction is adhered to at the time of an investment or
transaction, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the following limitations.
Each Fund will not:
(1) purchase securities of any one issuer if, as a result, more than 5% of
the Fund's total assets would be invested in securities of that issuer or the
Fund would own or hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the Fund's total assets may be invested
without regard to this limitation, and except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment companies.
The following interpretation applies to, but is not a part of, this
fundamental limitation: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.
(2) purchase any security if, as a result of that purchase, 25% or more of
the Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry, except that this limitation
does not apply to securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or to municipal securities.
(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ('1940 Act') and then not in excess of 33 1/3% of
the Fund's total assets (including the amount of the senior securities issued
but reduced by any liabilities not constituting senior securities) at the time
of the issuance or borrowing, except that the Fund may borrow up to an
additional 5% of its total assets (not including the amount borrowed) for
temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter under the
federal securities laws in connection with its disposition of portfolio
securities.
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(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by interests
in real estate are not subject to this limitation, and except that the Fund may
exercise rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an orderly
manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell or enter
in financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions are not
fundamental and may be changed by each board without shareholder approval.
Each Fund will not:
(1) invest more than 10% of its net assets (15% of net assets for Small Cap
Fund) in illiquid securities, a term which means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which it has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days.
(2) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
(3) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Fund may make margin
deposits in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(4) engage in short sales of securities or maintain a short position,
except that the Fund may (a) sell short 'against the box' and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
(5) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act and except that 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.
HEDGING STRATEGIES USING DERIVATIVE INSTRUMENTS
HEDGING INSTRUMENTS. Mitchell Hutchins may use a variety of financial
instruments ('Derivative Instruments'), including certain options, futures
contracts (sometimes referred to as 'futures') and options on futures contracts,
to attempt to hedge each Fund's portfolio. A Fund may enter into transactions
involving one or more types of Derivative Instruments under which the full value
of its portfolio is at risk. Under normal circumstances, however, a Fund's use
of Derivative Instruments will place at risk a much smaller portion of its
assets. In particular, each Fund may use the Derivative Instruments described
below:
OPTIONS ON EQUITY AND DEBT SECURITIES--A call option is a short-term
contract pursuant to which the purchaser of the option, in return for a premium,
has the right to buy the security underlying the option at a specified price at
any time during the term of the option. 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. 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 STOCK INDEXES--A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
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STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE FUTURES CONTRACTS--Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities, except that an option on a futures contract gives the
purchaser the right, in return for the premium, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell a security, at a
specified price at any time during the option term. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by delivery of the accumulated balance that represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future. The writer of an option, upon exercise, will assume a short position in
the case of a call and a long position in the case of a put.
GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be
broadly categorized as 'short hedges' and 'long hedges.' A short hedge is a
purchase or sale of a Hedging Instrument intended to partially or fully offset
potential declines in the value of one or more investments held in a Fund's
portfolio. Thus, in a short hedge, a 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, a 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, a 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, a Fund might be able to close out the put option
and realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Fund intends to acquire. Thus, in a long
hedge, a 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, a 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, a Fund could exercise the call and thus limit its acquisition
cost to the exercise price plus the premium paid and transaction costs.
Alternatively, a Fund might be able to offset the price increase by closing out
an appreciated call option and realizing a gain.
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a Fund owns
or intends to acquire. Derivative Instruments on stock indices, in contrast,
generally are used to hedge against price movements in broad equity market
sectors in which a Fund has invested or expects to invest. Derivative
Instruments on debt securities may be used to hedge either individual securities
or broad fixed income market sectors.
The use of Derivative Instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded
and the Commodity Futures Trading Commission ('CFTC'). In addition, a Fund's
ability to use Hedging Instruments will be limited by tax considerations. See
'Taxes.'
In addition to the products, strategies and risks described below and in
the Prospectus, Mitchell Hutchins expects to discover additional opportunities
in connection with options, futures contracts and other hedging techniques.
These new opportunities may become available as Mitchell Hutchins develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, or other techniques are
developed. Mitchell Hutchins may utilize these opportunities to the extent that
they are
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consistent with a Fund's investment objective and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Funds'
Prospectus or Statement of Additional Information will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Derivative Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Derivative Instruments are described in the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the ability
of Mitchell Hutchins to predict movements of the overall securities and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. While Mitchell Hutchins is experienced in the
use of Derivative Instruments, there can be no assurance that any particular
hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments being hedged. For example, if 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 unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Hedging
Instruments are traded.
The effectiveness of hedges using Derivative Instruments on indices will
depend on the degree of correlation between price movements in the index and
price movements in the securities being hedged. Because the Funds invest
primarily in common stocks of issuers meeting the specific criteria described in
the Prospectus, there might be a significant lack of correlation between the
portfolio and the stock indices underlying any such Hedging Instruments used by
a Fund.
(3) Derivative 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 a Fund entered into a short
hedge because Mitchell Hutchins projected a decline in the price of a security
in that Fund's portfolio, and the price of that security increased instead, the
gain from that might be wholly or partially offset by a decline in the price of
the Derivative Instrument. Moreover, if the price of the Hedging Instrument
declined by more than the increase in the price of the security, that 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, a Fund might be required to maintain assets as
'cover,' maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Derivative Instruments other than purchased options). If the Fund were unable to
close out its positions in such Derivative Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
positions expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Derivative Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of a contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to a Fund.
COVER FOR HEDGING STRATEGIES. The Funds will not use Derivative
Instruments for speculative purposes or for purposes of leverage. Transactions
using Derivative Instruments, other than purchased options, expose the Funds to
an obligation to another party. A Fund will not enter into any such transactions
unless it owns either (1) an offsetting ('covered') position in securities,
other options or futures contracts or (2) cash and liquid securities, with a
value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Funds will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so require,
set aside cash or liquid securities in a segregated account with its custodian
in the prescribed amount.
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Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Derivative Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. The Funds may purchase put and call options, and write (sell)
covered put or call options, on equity and debt securities and stock indices.
The purchase of call options serves as a long hedge, and the purchase of put
options serves as a short hedge. Writing covered call options serves as a
limited short hedge, because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
affected Fund will be obligated to sell the security at less than its market
value. Writing covered put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security at more than its market value. The securities or other
assets used as cover for OTC options written by a Fund would be considered
illiquid to the extent described under 'Investment Policies and
Restrictions--Illiquid Securities.'
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a 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, a 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 a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
The Funds may purchase and write both exchange-traded and OTC options.
Exchange markets for options on debt securities exist but are relatively new,
and these instruments are primarily traded on the OTC market. Exchange-traded
options in the United States are issued by a clearing organization affiliated
with the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC options
are contracts between a Fund and its contra party (usually a securities dealer
or a bank) with no clearing organization guarantee. Thus, when a Fund purchases
or writes an OTC option, it relies on the contra party to make or take delivery
of the underlying investment upon exercise of the option. Failure by the contra
party to do so would result in the loss of any premium paid by the Fund as well
as the loss of any expected benefit of the transaction. The Funds will enter
into OTC option transactions only with contra parties that have a net worth of
at least $20 million.
Generally, the OTC debt options used by the Funds are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
The Funds' ability to establish and close out positions in exchange-traded
options depends on the existence of a liquid market. The Funds intend to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although the
Funds will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Funds, there is no
assurance that the Funds will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency of
the contra party, the Funds might be unable to close out an OTC option position
at any time prior to its expiration.
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If a 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 a 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.
LIMITATIONS ON THE USE OF OPTIONS. The Funds' use of options is governed
by the following guidelines, which can be changed by each board without
shareholder vote:
(1) Each Fund may purchase a put or call option, including any
straddle or spread, only if the value of its premium, when aggregated with
the premiums on all other options held by that Fund, does not exceed 5% of
its total assets.
(2) The aggregate value of underlying securities on which a Fund
writes covered calls will not exceed 50% of its total assets.
(3) To the extent cash or cash equivalents, including Government
Securities, are maintained in a segregated account to collateralize options
written on securities or stock indexes, each Fund will limit
collateralization to 20% of its net assets.
FUTURES. The Funds may purchase and sell stock index futures contracts and
interest rate futures contracts. The Funds may also purchase put and call
options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve as
a long hedge, and the sale of futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options on futures contracts can
serve as a limited short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a strategy similar to that
used for writing covered options on securities or indices.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, 'initial margin' consisting of cash obligations of the
U.S. government or obligations fully guaranteed as to principal and interest by
the United States, in an amount generally equal to 10% or less of the contract
value. Margin must also be deposited when writing a call option on a futures
contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a Fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a 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 each Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a 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 a 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 Funds intend to enter into futures transactions only on exchanges or boards
of trade where there appears to be a liquid secondary market. However, there can
be no assurance that such a market will exist for a particular contract at a
particular time.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because
11
<PAGE>
prices could move to the daily limit for several consecutive days with little or
no trading, thereby preventing liquidation of unfavorable positions.
If a 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. A Fund would continue to be subject
to market risk with respect to the position. In addition, except in the case of
purchased options, a 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 Funds' use of
futures and related options is governed by the following guidelines, which can
be changed by each board without shareholder vote:
(1) To the extent a Fund enters into futures contracts and options on
futures positions that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums on those positions
(excluding the amount by which options are 'in-the-money') may not exceed
5% of its net assets.
(2) The aggregate premiums paid on all options (including options on
securities and stock or bond indices and options on futures contracts)
purchased by a Fund that are held at any one time will not exceed 20% of
its net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any one time by a Fund will not exceed 5% of its total
assets.
12
<PAGE>
TRUSTEES AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The trustees and executive officers of each Trust (the same positions are
held in each of the three Trusts, except as otherwise indicated), their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Margo N. Alexander**; 50 Trustee and Mrs. Alexander is president, chief executive
President officer and a director of Mitchell Hutchins
(since January 1995) and an executive
vice president and a director of Paine-
Webber. Mrs. Alexander is president and a
director or trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Richard Q. Armstrong; 62 Trustee Mr. Armstrong is chairman and principal of
78 West Brother Drive RQA Enterprises (management consulting
Greenwich, CT 06830 firm) (since April 1991 and principal
occupation since March 1995). He is also a
director of Hi Lo Automotive, Inc. He was
chairman of the board, chief executive
officer and co-owner of Adirondack
Beverages (producer and distributor of soft
drinks and sparkling/still waters) (Oc-
tober 1993-March 1995). Mr. Armstrong was a
partner of the New England Consulting Group
(management consulting firm) (December
1992-September 1993). He was managing
director of LVMH U.S. Corporation (U.S.
subsidiary of the French luxury goods
conglomerate, Luis 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
27 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
E. Garrett Bewkes, Jr.**; 71 Trustee and Mr. Bewkes is a director of Paine Webber
Chairman of the Group Inc. ('PW Group') (holding company of
Board of Trustees PaineWebber and Mitchell Hutchins). Prior
to December 1995, he was a consultant to PW
Group. Prior to 1988, he was chairman of
the board, president and chief executive
officer of American Bakeries Company. Mr.
Bewkes is also a director of Interstate
Bakeries Corporation and NaPro
BioTherapeutics, Inc. Mr. Bewkes is a
director or trustee of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Richard R. Burt; 50 Trustee Mr. Burt is chairman of International Equity
1101 Connecticut Avenue, N.W. Partners (international investments and
Washington, D.C. 20036 consulting firm) (since March 1994) and a
partner of McKinsey & Company (management
consulting firm) (since 1991). He is also a
director of American Publishing Company and
Archer-Daniels-Midland Co. (agricultural
commodities). 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 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Mary C. Farrell**; 47 Trustee Ms. Farrell is a managing director, senior
investment strategist, and member of the
Investment Policy Committee of PaineWeb-
ber. Ms. Farrell joined PaineWebber in
1982. She is a member of the Financial
Women's Association and Women's Economic
Roundtable and is employed 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 27 investment com-
panies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Meyer Feldberg; 55 Trustee Mr. Feldberg is Dean and Professor of Man-
Columbia University agement of the Graduate School of Busi-
101 Uris Hall ness, Columbia University. Prior to 1989,
New York, New York 10027 he was president of the Illinois Institute
of Technology. Dean Feldberg is also a di-
rector of K-III Communications, Federated
Department Stores, Inc., and Revlon, Inc.
Dean Feldberg is a director or trustee of
27 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
George W. Gowen; 68 Trustee Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York 10017 May 1994, he was a partner in the law firm
of Fryer, Ross & Gowen. Mr. Gowen is also a
director of Columbia Real Estate
Investments, Inc. Mr. Gowen is a director
or trustee of 27 investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Frederic V. Malek; 60 Trustee Mr. Malek is chairman of Thayer Capital
1455 Pennsylvania Avenue, N.W. Partners (merchant bank) and a co-chairman
Suite 350 and director of CB Commercial Group Inc.
Washington, D.C. 20004 (real estate). From January 1992 to
November 1992, he was campaign manager of
Bush-Quayle '92. From 1990 to 1992, he was
vice chairman, and from 1989 to 1990, he
was president of Northwest Airlines Inc.,
NWA Inc. (holding company of Northwest
Airlines Inc.) and Wings Holdings Inc.
(holding company of NWA Inc.) Prior to
1989, he was employed by the Marriott
Corporation (hotels, restaurants, airline
catering and contract feeding), where he
most recently was an executive vice
president and president of Marriott Hotels
and Resorts. Mr. Malek is also a director
of American Management Systems, Inc.
(management consulting and computer-related
services), Automatic Data Processing, Inc.,
CB Commercial Group, Inc. (real estate ser-
vices), Choice Hotels International (hotel
and hotel franchising), FPL Group, Inc.
(electric services), Integra, Inc.
(bio-medical), Manor Care, Inc. (health
care), National Education Corporation and
Northwest Airlines Inc. Mr. Malek is a
director or trustee of 27 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Carl W. Schafer; 61 Trustee Mr. Schafer is president of the Atlantic
P.O. Box 1164 Foundation (charitable foundation sup-
Princeton, N.J. 08542 porting mainly oceanographic exploration
and research). He is a director of Roadway
Express, Inc. (trucking), The Guardian
Group of Mutual Funds, Evans Systems, Inc.
(a motor fuels, convenience store and
diversified company), Electronic Clearing
House, Inc. (financial transactions
processing), Wainoco Oil Corporation and
Nutraceutix Inc. (biotechnology). Prior to
January 1993, Mr. Schafer was chairman of
the Investment Advisory Committee of the
Howard Hughes Medical Institute. Mr.
Schafer is a director or trustee of 27
investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Ellen R. Harris; 51 Vice President Ms. Harris is a managing director and a
(Olympus Fund only) portfolio manager of Mitchell Hutchins. Ms.
Harris is a vice president of two in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Donald R. Jones; 37 Vice President Mr. Jones is a first vice president and a
(Securities Trust only) portfolio manager of Mitchell Hutchins.
Prior to February 1996, he was a vice
president in the asset management group of
First Fidelity Bancorporation. Mr. Jones is
a vice president of one investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Thomas J. Libassi; 38 Vice President Mr. Libassi is a senior vice president and
(Securities Trust only) portfolio manager of Mitchell Hutchins.
Prior to May 1994, he was a vice president
of Keystone Custodian Funds Inc. with
portfolio management responsibility. Mr.
Libassi is a vice president of four in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Dennis McCauley; 51 Vice President Mr. McCauley is a managing director and chief
(Securities Trust only) investment officer--fixed income of
Mitchell Hutchins. Prior to December 1994,
he was director of fixed income in-
vestments of IBM Corporation. Mr. McCauley
is a vice president of 18 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a manager
Assistant Treasurer of the mutual fund finance division of
Mitchell Hutchins. Ms. Moran is a vice
president and assistant treasurer of 28 in-
vestment companies for which Mitchell
Hutchins and or PaineWebber serves as in-
vestment adviser.
Dianne E. O'Donnell; 45 Vice President and Ms. O'Donnell is a senior vice president and
Secretary deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is a vice president
and secretary of 27 investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Emil Polito; 37 Vice President Mr. Polito is a senior vice president and
director of operations and control for
Mitchell Hutchins. From March 1991 to
September 1993, he was director of the
Mutual Funds Sales Support and Service
Center for Mitchell Hutchins and
PaineWebber. Mr. Polito is also vice pres-
ident of 28 investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Victoria E. Schonfeld; 46 Vice President Ms. Schonfeld is a managing director and
general counsel of Mitchell Hutchins. Prior
to May 1994, she was a partner in the law
firm of Arnold & Porter. Ms. Schonfeld is a
vice president of 27 investment companies
and a vice president and secretary of one
investment company for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Paul H. Schubert; 34 Vice President and Mr. Schubert is a first vice president and
Assistant Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. From August
1992 to August 1994, he was a vice
president at BlackRock Financial Management
Inc. Mr. Schubert is a vice president and
assistant treasurer of 28 investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Nirmal Singh; 41 Vice President Mr. Singh is a senior vice president and a
(Securities Trust only) portfolio manager of Mitchell Hutchins.
Prior to September 1993, he was a member of
the portfolio management team at Merrill
Lynch Asset Management, Inc. Mr. Singh is
vice president of four investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Barney A. Taglialatela; 36 Vice President and Mr. Taglialatela is a vice president and a
Assistant Treasurer manager of the mutual fund finance divi-
sion of Mitchell Hutchins. Prior to Febru-
ary 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
28 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME, ADDRESS* AND AGE POSITION WITH THE TRUST OTHER DIRECTORSHIPS
- ------------------------------------ --------------------------- ---------------------------------------------
<S> <C> <C>
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing director and chief
investment officer--U.S. equity invest-
ments of Mitchell Hutchins. Prior to March
1995, he was a vice president and directed
the U.S. funds management and equity re-
search areas of Chase Manhattan Private
Bank. Mr. Tincher is a vice president of 13
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Craig M. Varrelman; 38 Vice President Mr. Varrelman is a senior vice president and
(Securities Trust only) a portfolio manager of Mitchell Hutchins.
Mr. Varrelman is a vice president of four
investment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
Stuart Waugh; 42 Vice President Mr. Waugh is a managing director and a
(Securities Trust only) portfolio manager of Mitchell Hutchins
responsible for global fixed income in-
vestments and currency trading. Mr. Waugh
is a vice president of five investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice president and
Assistant Secretary associate general counsel of Mitchell
Hutchins. Prior to May 1995, he was an
attorney in private practice. Mr. Weller is
a vice president and assistant secretary of
27 investment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Ian W. Williams; 40 Vice President and Mr. Williams is a vice president and a man-
Assistant Treasurer ager of the mutual fund finance division of
Mitchell Hutchins. Mr. Williams is a vice
president and assistant treasurer of 28
investment companies for which Mitchell
Hutchins or PaineWebber serves as in-
vestment adviser.
</TABLE>
- ------------------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are 'interested persons' of each
Trust as defined in the 1940 Act by virtue of their positions with Mitchell
Hutchins, PaineWebber, and/or PW Group.
Olympus Fund and America Fund each pay trustees who are not 'interested
persons' of the Trust $1,500 annually for each series. Olympus Fund and America
Fund each presently has one series and thus pays each such trustee $1,500
annually; Securities Trust pays trustees who are not 'interested persons' of the
Trust $1,500 for Small Cap Fund and $1,000 for the Trust's second series and
thus pays each such trustee $2,500 annually. Each Trust pays $150 for each board
meeting and separate meeting of a board committee (other than committee meetings
held on the same day as a board meeting). In addition, each Trust pays any
additional amounts due for board
18
<PAGE>
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 each from the relevant funds. All Trustees are
reimbursed for any expenses incurred in attending meetings. Trustees and
officers own in the aggregate less than 1% of the outstanding shares of each
Fund. Because PaineWebber and Mitchell Hutchins perform substantially all of the
services necessary for the operation of the Trusts and each Fund, the Trusts
require no employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from any Trust for acting as a
trustee or officer.
The table below includes certain information relating to the compensation
of each Trust's current trustees who held office with that Trust or with other
PaineWebber funds during the fiscal year indicated.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION AGGREGATE AGGREGATE TOTAL
FROM PW COMPENSATION COMPENSATION COMPENSATION
AMERICA FUND FROM PW FROM PW FROM THE
(GROWTH AND OLYMPUS FUND SECURITIES TRUSTS AND
INCOME (GROWTH TRUST (SMALL THE FUND
NAME OF PERSON, POSITION FUND)(1) FUND)(1) CAP FUND)(2) COMPLEX(3)
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Richard Q. Armstrong, Trustee...... $2,400 $2,400 $2,950 $ 59,873
Richard R. Burt, Trustee........... $2,250 $2,250 $2,650 $ 51,173
Meyer Feldberg, Trustee............ $2,400 $2,400 $2,950 $ 96,181
George W. Gowen, Trustee........... $2,400 $2,400 $2,950 $ 92,431
Frederic V. Malek, Trustee......... $2,400 $2,400 $2,950 $ 92,431
Carl W. Schafer, Trustee........... $2,400 $2,400 $2,950 $ 62,307
</TABLE>
- ------------------
Only independent members of the board are compensated by the Trusts and
identified above; trustees who are 'interested persons,' as defined by the 1940
Act, do not receive compensation.
(1) Represents fees paid to each trustee during the fiscal year ended August 31,
1997.
(2) Represents fees paid to each trustee during the fiscal year ended July 31,
1997.
(3) Represents total compensation paid to each trustee during the calendar year
ended December 31, 1996; no fund within the fund complex has a bonus,
pension, profit sharing or retirement plan.
OWNERSHIP OF GREATER THAN 5% OF FUND SHARES
The following shareholder is shown in Olympus Fund's records as owning more
than 5% of Growth Fund's shares.
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF SHARES OWNED
NAME AND ADDRESS* AS OF NOVEMBER 1, 1997
- ---------------------------------------- ----------------------
<S> <C>
Northern Trust Company as Trustee for
the benefit of PaineWebber 401(k)
Plan.................................. 747,480.500 5.44%
</TABLE>
- ------------------
* The shareholder listed may be contacted c/o Mitchell Hutchins Asset
Management Inc., 1285 Avenue of the Americas, New York, NY 10019.
19
<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator of each Fund pursuant to separate advisory contracts
(each an 'Advisory Contract') with each Trust. Under the Advisory Contracts,
each Fund pays Mitchell Hutchins a fee, computed daily and paid monthly, at the
annual rate specified below. Prior to August 1, 1997, PaineWebber provided
certain services to the Funds not otherwise provided by the transfer agent.
These agreements were reviewed annually by each Trust's board. Effective August
1, 1997, PaineWebber provides transfer agency related services to the Funds
pursuant to a delegation of authority from PFPC Inc. and is compensated for
those services by PFPC Inc., not the Funds.
Under the terms of the Advisory Contracts, each Fund bears all expenses
incurred in its operation that are not specifically assumed by Mitchell
Hutchins. Expenses borne by each Fund include the following: (1) the cost
(including brokerage commissions) of securities purchased or sold by the Fund
and any losses incurred in connection therewith; (2) fees payable to and
expenses incurred on behalf of the Fund by Mitchell Hutchins; (3) organizational
expenses; (4) filing fees and expenses relating to the registration and
qualification of the Fund's shares under federal and state securities laws and
maintenance of such registrations and qualifications; (5) fees and salaries
payable to trustees and officers who are not interested persons (as defined in
the 1940 Act) of the Fund or Mitchell Hutchins; (6) all expenses incurred in
connection with the trustees' services, including travel expenses; (7) taxes
(including any income or franchise taxes) and governmental fees; (8) costs of
any liability, uncollectible items of deposit and other insurance or fidelity
bonds; (9) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Trust or Fund for violation of
any law; (10) legal, accounting and auditing expenses, including legal fees of
special counsel for the independent trustees; (11) charges of custodians,
transfer agents and other agents; (12) costs of preparing share certificates;
(13) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto, reports and proxy materials for
existing shareholders, and costs of mailing such materials to shareholders; (14)
any extraordinary expenses (including fees and disbursements of counsel)
incurred by the Fund; (15) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (16)
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the boards 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 each Advisory Contract, Mitchell Hutchins will not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the contracts, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. Each Advisory Contract terminates
automatically upon assignment and is terminable at any time without penalty by
the applicable board or by vote of the holders of a majority of a Fund's
outstanding voting securities on 60 days' written notice to Mitchell Hutchins,
or by Mitchell Hutchins on 60 days' written notice to a Fund.
GROWTH AND INCOME FUND. Pursuant to the Advisory Contract dated March 1,
1989, between America Fund and Mitchell Hutchins, Growth and Income Fund pays
Mitchell Hutchins a fee at the annual rate of 0.70% of the Fund's average daily
net assets, computed daily and paid monthly. For the fiscal years ended August
31, 1997, August 31, 1996 and August 31, 1995, Growth and Income Fund paid (or
accrued) to Mitchell Hutchins investment advisory and administration fees of
$5,312,189, $4,075,174 and $3,378,079, respectively. Pursuant to the applicable
service agreement, during the fiscal years ended August 31, 1997, August 31,
1996 and August 31, 1995, Growth and Income Fund paid (or accrued) to
PaineWebber service fees of $191,744, $206,622 and $219,613, respectively.
Mitchell Hutchins Institutional Investors Inc. ('MHII'), a wholly owned
subsidiary of Mitchell Hutchins, served as sub-adviser to Growth and Income Fund
from May 19, 1994 to April 25, 1995 pursuant to a sub-advisory contract between
MHII and Mitchell Hutchins under which Mitchell Hutchins (not the Fund) paid
MHII a fee in the annual amount of 0.25% of the Fund's average daily net assets.
During the period from September 1, 1994 to April 25, 1995 Mitchell Hutchins
paid or accrued to MHII sub-advisory fees of $998,353.
20
<PAGE>
GROWTH FUND. Pursuant to the Advisory Contract dated March 1, 1989,
between Olympus Fund and Mitchell Hutchins, Growth Fund pays Mitchell Hutchins a
fee at the annual rate of 0.75% of the Fund's average daily net assets, computed
daily and paid monthly. For the fiscal years ended August 31, 1997, August 31,
1996 and August 31, 1995, Growth Fund paid (or accrued) to Mitchell Hutchins
investment advisory and administration fees of $2,934,644, $2,985,925 and
$1,993,930, respectively. Pursuant to the applicable service agreement, during
the fiscal years ended August 31, 1997, August 31, 1996 and August 31, 1995,
Growth Fund paid (or accrued) to PaineWebber service fees of $110,890, $134,864
and $114,163, respectively.
SMALL CAP FUND. Pursuant to the Advisory Contract dated January 28, 1993,
between Securities Trust and Mitchell Hutchins, Small Cap Fund pays Mitchell
Hutchins a fee at the annual rate of 1.00% of the Fund's average daily net
assets, computed daily and paid monthly. For the fiscal years ended July 31,
1997, July 31, 1996, and July 31, 1995, Small Cap Fund paid (or accrued) to
Mitchell Hutchins investment advisory and administration fees of $873,636,
$731,472 and $829,906, respectively. Pursuant to the applicable service
agreement during the fiscal years ended July 31, 1997, July 31, 1996 and July
31, 1995, Small Cap Fund paid (or accrued) to PaineWebber service fees of
$35,040, $36,944 and $72,929, respectively.
Royce and Associates ('Royce'), formerly Quest Advisory Corp., served as a
sub-adviser to Small Cap Fund from February 1, 1993 through March 31, 1996,
pursuant to a sub-advisory contract between Royce and Mitchell Hutchins dated
January 28, 1993, under which Mitchell Hutchins (not the Fund) paid or accrued
to Royce Advisory during the fiscal years ended July 31, 1996 and July 31, 1995,
$249,955 and $414,953, respectively, in sub-advisory fees.
NET ASSETS. The following table shows the approximate net assets as of
October 31, 1997, sorted by category of investment objective, of the investment
companies for which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
INVESTMENT CATEGORY ($ MIL)
---------------------------------------- ----------
<S> <C>
Domestic (excluding Money Market)....... $ 6,349.3
Global.................................. 3,280.3
Equity/Balanced......................... 4,776.0
Fixed Income (excluding Money Market)... 4,853.6
Taxable Fixed Income.................. 3,287.5
Tax-Free Fixed Income................. 1,566.1
Money Market Funds...................... 26,066.9
</TABLE>
PERSONNEL TRADING POLICIES. Mitchell Hutchins personnel may invest in
securities for their own accounts pursuant to a code of ethics that describes
the fiduciary duty owed to shareholders of PaineWebber mutual funds and other
Mitchell Hutchins' advisory accounts by all Mitchell Hutchins' directors,
officers and employees, establishes procedures for personal investing and
restricts certain transactions. For example, employee accounts generally must be
maintained at PaineWebber, personal trades in most securities require
pre-clearance and short-term trading and participation in initial public
offerings generally are prohibited. In addition, the code of ethics puts
restrictions on the timing of personal investing in relation to trades by
PaineWebber funds and other Mitchell Hutchins advisory clients.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of
each class of shares of each Fund under separate distribution contracts with
each Trust (collectively, 'Distribution Contracts') that require Mitchell
Hutchins to use its best efforts, consistent with its other businesses, to sell
shares of each Fund. Shares of each of the Funds are offered continuously. Under
separate exclusive dealer agreements between Mitchell Hutchins and PaineWebber
relating to each class of shares (collectively, 'Exclusive Dealer Agreements'),
PaineWebber and its correspondent firms sell the Funds' shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by each Trust in the manner prescribed under Rule 12b-1
under the 1940 Act ('Class A Plan,' 'Class B Plan' and 'Class C Plan,'
collectively, 'Plans'), each Fund pays Mitchell Hutchins a service fee, accrued
daily and payable monthly, at the annual rate of 0.25% of the average daily net
assets for each class, except that the Class A Plans for Growth and Income Fund
and Growth Fund provide that the service fee paid with respect to shares sold
21
<PAGE>
prior to December 2, 1988 ('Old Shares') is paid at the annual rate of 0.15% of
the Fund's net assets represented by such Old Shares. Shares acquired through
new purchases, reinvestment of dividends and other distributions and exchanges
on/or after December 2, 1988 are not considered 'Old Shares' for this purpose.
Under the Class B Plan and the Class C Plan, those Funds also pay Mitchell
Hutchins a distribution fee, accrued daily and payable monthly, at the annual
rate of 0.75% of the average daily net assets of the Class B shares and Class C
shares, respectively. There is no distribution plan with respect to the Funds'
Class Y shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the applicable board at least quarterly, and the trustees will review,
reports regarding all amounts expended under the Plan and the purposes for which
such expenditures were made, (2) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendment thereto is
approved, by the applicable board, including those trustees who are not
'interested persons' of the relevant Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan, acting in person at a meeting called for that purpose, (3) payments by a
Fund under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding shares of the relevant
class of the Fund, and (4) while the Plan remains in effect, the selection and
nomination of trustees who are not 'interested persons' of a Trust shall be
committed to the discretion of the trustees who are not 'interested persons' of
the respective Trust.
In reporting amounts expended under the Plans to the trustees, Mitchell
Hutchins allocates expenses attributable to the sale of each class of each
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 a
Fund's shares will not be used to subsidize the sale of any other class of Fund
shares.
For the fiscal year ended August 31, 1997, (for Growth and Income Fund and
Growth Fund) and July 31, 1997 (for Small Cap Fund), the Funds paid (or accrued)
the following fees to Mitchell Hutchins under the Plans:
<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Class A................................. $ 478,075 $ 784,677 $ 75,231
Class B................................. $1,326,859 $3,245,358 $ 367,939
Class C................................. $ 287,127 $ 596,262 $ 177,393
</TABLE>
Mitchell Hutchins estimates that it and its parent corporation,
PaineWebber, incurred the following shareholder service-related and
distribution-related expenses with respect to each Fund during the fiscal years
ended August 31, 1997 (for Growth and Income Fund and Growth Fund) and July 31,
1997 (for Small Cap Fund):
CLASS A
<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Marketing and advertising............... $ 132,602 $ 137,579 $ 38,909
Printing of prospectuses and statements
of additional information to other
than current shareholders............ 1,256 1,770 1,806
Branch network costs allocated and
interest expense..................... 604,346 737,383 94,235
Service fees paid to PaineWebber
investment executives................ 180,442 296,483 28,201
</TABLE>
22
<PAGE>
CLASS B
<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Marketing and advertising............... $ 84,008 $ 130,498 $ 47,577
Amortization of commissions............. 400,905 1,042,924 111,944
Printing of prospectuses and statements
of additional information to other
than current shareholders............ 796 1,679 2,208
Branch network costs allocated and
interest expense..................... 415,934 773,637 125,942
Service fees paid to PaineWebber
investment executives................ 125,142 306,470 34,485
</TABLE>
CLASS C
<TABLE>
<CAPTION>
GROWTH AND
GROWTH INCOME SMALL CAP
FUND FUND FUND
---------- ---------- ---------
<S> <C> <C> <C>
Marketing and advertising............... $ 18,167 $ 24,166 $ 22,935
Amortization of commissions............. 81,244 169,049 49,855
Printing of prospectuses and statements
of additional information to other
than current shareholders............ 172 311 1,065
Branch network costs allocated and
interest expense..................... 81,848 133,397 55,902
Service fees paid to PaineWebber
investment executives................ 27,082 56,351 16,619
</TABLE>
'Marketing and advertising' includes various internal costs allocated by
Mitchell Hutchins to its efforts at distributing the Funds' 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 Funds' shares, including the PaineWebber retail branch system.
In approving the Fund's overall Flexible Pricing(Service Mark) system of
distribution, each board considered several factors, including that
implementation of Flexible Pricing would (1) enable investors to choose the
purchasing option best suited to their individual situation, thereby encouraging
current shareholders to make additional investments in the Funds and attracting
new investors and assets to the Funds to the benefit of each Fund and its
shareholders, (2) facilitate distribution of the Fund's shares and (3) maintain
the competitive position of a Fund in relation to other funds that have
implemented or are seeking to implement similar distribution arrangements.
In approving the Class A Plan, each board considered all the features of
the distribution system, including (1) the conditions under which initial sales
charges would be imposed and the amount of such charges, (2) Mitchell Hutchins'
belief that the initial sales charge combined with a service fee would be
attractive to PaineWebber investment executives and correspondent firms,
resulting in greater growth of the Funds than might otherwise be the case, (3)
the advantages to the shareholders of economies of scale resulting from growth
in each Fund's assets and potential continued growth, (4) the services provided
to each 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, each board considered all the features of
the distribution system, including (1) the conditions under which contingent
deferred sales charges would be imposed and the amount of such charges, (2) the
advantage to investors in having no initial sales charges deducted from Fund
purchase payments and instead having the entire amount of their purchase
payments immediately invested in Fund shares, (3) Mitchell Hutchins' belief that
the ability of PaineWebber investment executives and correspondent firms to
receive sales commissions when Class B shares are sold and continuing service
fees thereafter while their customers invest their entire purchase payments
immediately in Class B shares would prove attractive to the investment
executives and correspondent firms, resulting in greater growth of each Fund
than might otherwise be the case, (4) the advantages to the shareholders of
economies of scale resulting from growth in each Fund's assets and potential
continued growth, (5) the services provided to a Fund and its shareholders by
Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins
23
<PAGE>
and (7) Mitchell Hutchins' shareholder service- and distribution-related
expenses and costs. The trustees also recognized that Mitchell Hutchins'
willingness to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.
In approving the Class C Plan, each board considered all the features of
the distribution system, including (1) the advantage to investors in having no
initial sales charges deducted from Fund purchase payments and instead having
the entire amount of an investor's purchase payments immediately invested in
Fund shares, (2) the advantage to investors in being free from contingent
deferred sales charges upon redemption for shares held more than one year and
paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief that
the ability of PaineWebber investment executives and correspondent firms to
receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and generally do not face
contingent deferred sales charges, would prove attractive to the investment
executives and correspondent firms, resulting in greater growth to each Fund
than might otherwise be the case, (4) the advantages to the shareholders of
economies of scale resulting from growth in each Fund's assets and potential
continued growth, (5) the services provided to each Fund and its shareholders by
Mitchell Hutchins, (6) the services provided by PaineWebber pursuant to its
Exclusive Dealer Agreement with Mitchell Hutchins and (7) Mitchell Hutchins'
shareholder service- and distribution-related expenses and costs. The trustees
also recognized that Mitchell Hutchins' willingness to compensate PaineWebber
and its investment executives without the concomitant receipt by Mitchell
Hutchins of initial sales charges or contingent deferred sales charges upon
redemption, was conditioned upon its expectation of being compensated under the
Class C Plan.
With respect to each Plan, the boards 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 boards also considered the
benefits that would accrue to Mitchell Hutchins under each Plan in that Mitchell
Hutchins would receive service, distribution and advisory fees which are
calculated based upon a percentage of the average net assets of each Fund, which
fees would increase if the Plan were successful and the Funds attained and
maintained significant asset levels.
Under the Distribution Contract for the Class A shares and similar prior
distribution contracts, for the fiscal years set forth below, Mitchell Hutchins
earned the following approximate amounts of sales charges and retained the
following approximate amounts, net of concessions to PaineWebber as exclusive
dealer.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------
1997 1996 1995
---------- -------- -------
<S> <C> <C> <C>
GROWTH FUND
Earned.................................. $ 113,033 $104,474 $62,298
Retained................................ $ 6,886 $ 6,032 $ 3,619
GROWTH AND INCOME FUND
Earned.................................. $1,057,894 $369,006 $68,358
Retained................................ $ 28,748 $ 21,741 $ 3,619
SMALL CAP FUND
Earned.................................. $ 39,599 $ 16,418 $41,750
Retained................................ $ 2,303 $ 1,131 $ 1,208
</TABLE>
For the last fiscal year of the relevant Fund, Mitchell Hutchins earned and
retained $251,694 from Growth Fund, $375,279 from Growth and Income Fund and
$85,036 from Small Cap Fund in contingent deferred sales charges paid upon
certain redemptions of Class A, B and C shares.
24
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by each board, Mitchell Hutchins is
responsible for the execution of each 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 Funds, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved. While Mitchell Hutchins generally
seeks reasonably competitive commission rates, payment of the lowest commission
is not necessarily consistent with obtaining the best net results. Prices paid
to dealers in principal transactions, through which most debt securities and
some equity securities are traded, generally include a 'spread,' which is the
difference between the prices at which the dealer is willing to purchase and
sell a specific security at the time. The Funds may invest in securities traded
in the OTC market and will engage primarily in transactions directly with the
dealers who make markets in such securities, unless a better price or execution
could be obtained by using a broker. During the indicated fiscal years ended
August 31 (for Growth and Income Fund and Growth Fund) and July 31 (for Small
Cap Fund), the Funds paid the brokerage commissions set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Growth and Income Fund........................................ $1,139,813 $1,246,465 $1,241,906
Growth Fund................................................... 665,156 400,232 273,991
Small Cap Fund................................................ 147,913 211,004 120,717
</TABLE>
The Funds have no obligation to deal with any broker or group of brokers in
the execution of portfolio transactions. The Funds contemplate that, consistent
with the policy of obtaining the best net results, brokerage transactions may be
conducted through PaineWebber. Each board has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid
to PaineWebber are reasonable and fair. Specific provisions in the Advisory
Contracts authorize PaineWebber to effect portfolio transactions for the Funds
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. During the indicated
fiscal years ended August 31 (for Growth and Income Fund and Growth Fund) and
July 31 (for Small Cap Fund), the Funds paid to PaineWebber the brokerage
commissions set forth below:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Growth and Income Fund................................................. $43,440 $22,470 $65,991
Growth Fund............................................................ 32,130 2,400 4,200
Small Cap Fund......................................................... 3,900 0 665
</TABLE>
The amounts paid by the Funds to PaineWebber in brokerage commissions for
their most recent fiscal years represent (1) for Growth and Income Fund, 3.81%
of the total brokerage commission paid and 3.36% of the total dollar amount of
transactions involving the payment of brokerage commissions, (2) for Growth
Fund, 4.90% of the total brokerage commission paid and 5.04% of the total dollar
amount of transactions involving the payment of brokerage commissions, and (3)
for Small Cap Fund, 2.64% of the total brokerage commission paid and 2.00% of
the total dollar amount of transactions involving the payment of brokerage
commissions.
Transactions in futures contracts are executed through futures commission
merchants ('FCMs'), who receive brokerage commissions for their services. The
Funds' procedures in selecting FCMs to execute their transactions in futures
contracts, including procedures permitting the use of PaineWebber, are similar
to those in effect with respect to brokerage transactions in securities.
Consistent with the interests of each Fund and subject to the review of
each Trust's board of trustees, Mitchell Hutchins may cause the Fund to purchase
and sell portfolio securities from and to dealers or through brokers who provide
the Fund with research, analysis, advice and similar services. In return for
such services, the Fund may pay to those brokers a higher commission than may be
charged by other brokers, provided that Mitchell Hutchins determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Mitchell Hutchins to the
particular Fund and its other clients and that the total commissions paid by the
Fund will be reasonable in relation to the benefits to the Fund over the long
25
<PAGE>
term. During the fiscal years ended August 31, 1997 (for Growth and Income Fund
and Growth Fund) and July 31, 1997 (for Small Cap Fund), the Funds directed the
portfolio transactions indicated below to brokers chosen because they provide
research and analysis, for which the Funds paid the brokerage commissions
indicated below:
<TABLE>
<CAPTION>
AMOUNT OF PORTFOLIO BROKERAGE COMMISSIONS
TRANSACTIONS PAID
------------------- ---------------------
<S> <C> <C>
Growth and Income Fund...................................... $70,042,961 $93,938
Growth Fund................................................. 56,438,985 66,329
Small Cap Fund.............................................. 10,390,512 27,170
</TABLE>
For purchases or sales with broker-dealer firms which act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight were
attributed to the services provided by the executing dealer. Moreover, Mitchell
Hutchins will not enter into any explicit soft dollar arrangements relating to
principal transactions and will not receive in principal transactions the types
of services which could be purchased for hard dollars. Mitchell Hutchins may
engage in agency transactions in OTC equity and debt securities in return for
research and execution services. These transactions are entered into only in
compliance with procedures ensuring that the transaction (including commissions)
is at least as favorable as it would have been if effected directly with a
market-maker that did not provide research or execution services. These
procedures include Mitchell Hutchins receiving multiple quotes from dealers
before executing the transactions on an agency basis.
Information and research services furnished by brokers or dealers through
which or with which the Funds effect securities transactions may be used by
Mitchell Hutchins in advising other funds or accounts and, conversely,
information and research services furnished to Mitchell Hutchins by brokers or
dealers in connection with other funds or accounts that either of them advises
may be used in advising the Funds. Information and research received from
brokers or dealers will be in addition to, and not in lieu of, the services
required to be performed by Mitchell Hutchins under the Advisory Contracts.
Investment decisions for the Funds 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 a Fund and one or more of such accounts.
In such cases, simultaneous transactions are inevitable. Purchases or sales are
then averaged as to price and allocated between that Fund and such other
account(s) as to amount according to a formula deemed equitable to the Fund and
such account(s). While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Funds are
concerned, or upon their ability to complete their entire order, in other cases
it is believed that coordination and the ability to participate in volume
transactions will be beneficial to the Funds.
The Funds will not purchase securities that are offered in underwritings in
which PaineWebber is a member of the underwriting or selling group, except
pursuant to procedures adopted by each board pursuant to Rule 10f-3 under the
1940 Act. Among other things, these procedures require that the spread or
commission paid in connection with such a purchase be reasonable and fair, the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offering and that PaineWebber or
any affiliate thereof not participate in or benefit from the sale to the Funds.
PORTFOLIO TURNOVER. The Funds' 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 each 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.
26
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO
TURNOVER RATE
-------------
<S> <C>
GROWTH AND INCOME FUND
Fiscal Year Ended August 31, 1997................. 70%
Fiscal Year Ended August 31, 1996................. 112%
GROWTH FUND
Fiscal Year Ended August 31, 1997................. 86%
Fiscal Year Ended August 31, 1996................. 60%
SMALL CAP FUND
Fiscal Year Ended July 31, 1997................... 54%
Fiscal Year Ended July 31, 1996................... 84%
</TABLE>
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES
COMBINED PURCHASE PRIVILEGE--CLASS A SHARES. Investors and eligible groups
of related Fund investors may combine purchases of Class A shares of the Funds
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 Funds and Class A shares of such other
funds will be at the rates applicable to the total amount of the combined
concurrent purchases.
An 'eligible group of related Fund investors' can consist of any
combination of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account
('IRA');
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by such individual(s);
(e) an individual (or eligible group of individuals) and a trust
created by the individual(s), the beneficiaries of which are the individual
and/or the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act account created by the individual or the individual's spouse;
(g) an employer (or group of related employers) and one or more
qualified retirement plans of such employer or employers (an employer
controlling, controlled by or under common control with another employer is
deemed related to that other employer); or
(h) an individual's accounts with the same investment adviser.
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 Funds among related accounts at the offering price
applicable to the total of (1) the dollar amount then being purchased plus (2)
an amount equal to the then-current net asset value of the purchaser's combined
holdings of Class A Fund shares and Class A shares of any other PaineWebber
mutual fund. The purchaser must provide sufficient information to permit
confirmation of his or her holdings, and the acceptance of the purchase order is
subject to such confirmation. The right of accumulation may be amended or
terminated at any time.
WAIVERS OF SALES CHARGES--CLASS B SHARES. Among other circumstances, the
contingent deferred sales charge on Class B shares is waived where a total or
partial redemption is made within one year following the
27
<PAGE>
death of the shareholder. The contingent deferred sales charge waiver is
available where the decedent is either the individual shareholder or owns the
shares with his or her spouse as a joint tenant with right of survivorship. This
waiver applies only to redemption of shares held at the time of death.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of the Funds may be exchanged for shares of the
corresponding class of most other PaineWebber mutual funds. This exchange
privilege is available only in those jurisdictions where the sale of PaineWebber
fund shares to be acquired through such exchange may be legally made.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given of
an amendment whose only material effect is to reduce the exchange fee and no
notice need be given if, under extraordinary circumstances, either redemptions
are suspended under the circumstances described below or a Fund temporarily
delays or ceases the sales of its shares because it is unable to invest amounts
effectively in accordance with the Fund's investment objective, policies and
restrictions.
If conditions exist that make cash payments undesirable, the Funds reserve
the right to honor any request for redemption by making payment in whole or in
part in securities chosen by the Funds and valued in the same way as they would
be valued for purposes of computing the Funds' 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. Each Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which a
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of its net asset value during any 90-day period for one shareholder. This
election is irrevocable unless the SEC permits its withdrawal. The Funds may
suspend redemption privileges or postpone the date of payment during any period
(1) when the New York Stock Exchange ('NYSE') is closed or trading on the NYSE
is restricted as determined by the SEC, (2) when an emergency exists, as defined
by the SEC, that makes it not reasonably practicable for a Fund to dispose of
securities owned by it or fairly to determine the value of its assets or (3) as
the SEC may otherwise permit. The redemption price may be more or less than the
shareholder's cost, depending on the market value of a Fund's portfolio at the
time.
AUTOMATIC INVESTMENT PLAN. Participation in the Automatic Investment Plan
enables an investor to use the technique of 'dollar cost averaging.' When the
investor invests the same dollar amount each month under the Plan, the investor
will purchase more shares when a Fund's net asset value per share is low and
fewer shares when the net asset value per share is high. Using this technique,
an investor's average purchase price per share over any given period will be
lower than if the investor purchased a fixed number of shares on a monthly basis
during the period. Of course, investing through the automatic investment plan
does not assure a profit or protect against loss in declining markets.
Additionally, because the automatic investment plan involves continuous
investing regardless of price levels, an investor should consider his or her
financial ability to continue purchases through periods of low price levels.
SYSTEMATIC WITHDRAWAL PLAN. An investor's participation in the systematic
withdrawal plan will terminate automatically if the 'Initial Account Balance' (a
term that means the value of the Fund account at the time the investor elects to
participate in the systematic withdrawal plan) less aggregate redemptions made
other than pursuant to the systematic withdrawal plan is less than $5,000 for
Class A and Class C shareholders or $20,000 for Class B shareholders. Purchases
of additional Fund shares concurrent with withdrawals are ordinarily
disadvantageous to shareholders because of tax liabilities and, for Class A
shares, initial sales charges. On or about the 20th of each month for monthly,
quarterly, semiannual or annual plans, PaineWebber will arrange for redemption
by a Fund of sufficient Fund shares to provide the withdrawal payment specified
by participants in the Funds' systematic withdrawal plan. The payment generally
is mailed approximately five business days (defined under 'Valuation of Shares')
after the redemption date. Withdrawal payments should not be considered
dividends, but redemption proceeds, with the tax consequences described under
'Dividends & Taxes' in the Prospectus. If periodic withdrawals continually
exceed reinvested dividends, a shareholder's investment may be correspondingly
reduced. A shareholder may change the amount of the systematic withdrawal or
terminate participation in the systematic withdrawal plan at any time without
charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ('Transfer Agent'). Instructions to participate in the
plan, change the withdrawal amount or terminate participation in the plan will
not be effective until five days after written instructions with signatures
guaranteed are received by the Transfer Agent. Shareholders may request the
28
<PAGE>
forms needed to establish a systematic withdrawal plan from their PaineWebber
investment executives, correspondent firms or the Transfer Agent at
1-800-647-1568.
REINSTATEMENT PRIVILEGE--CLASS A SHARES. As described in the Prospectus,
shareholders who have redeemed their Class A shares may reinstate their account
in the Funds without a sales charge. Shareholders may exercise the reinstatement
privilege by notifying the Transfer Agent of such desire and forwarding a check
for the amount to be purchased within 365 days after the date of redemption. The
reinstatement will be made at the net asset value per share next computed after
the notice of reinstatement and check are received. The amount of a purchase
under this reinstatement privilege cannot exceed the amount of the redemption
proceeds. Gain on a redemption is taxable regardless of whether the
reinstatement privilege is exercised; however, a loss arising out of a
redemption will not be deductible to the extent the reinstatement privilege is
exercised within 30 days after redemption, and an adjustment will be made to the
shareholder's tax basis for shares acquired pursuant to the reinstatement
privilege. Gain or loss on a redemption also will be adjusted for federal income
tax purposes by the amount of any sales charge paid on Class A shares, under the
circumstances and to the extent described in 'Dividends & Taxes' in the
Prospectus.
PAINEWEBBER RMA RESOURCE ACCUMULATION PLAN(SERVICE MARK);
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 by customers of PaineWebber and its
correspondent firms who maintain Resource Management Accounts ('RMA
Accountholders') through the RMA Resource Accumulation Plan ('Plan') by
customers of PaineWebber and its correspondent firms who maintain Resource
Management Accounts ('RMA accountholders'). The Plan allows an RMA accountholder
to continually invest in one or more of the PW Funds at regular intervals, with
payment for shares purchased automatically deducted from the client's RMA
account. The client may elect to invest at monthly or quarterly intervals and
may elect either to invest a fixed dollar amount (minimum $100 per period) or to
purchase a fixed number of shares. A client can elect to have Plan purchases
executed on the first or fifteenth day of the month. Settlement occurs three
Business Days (defined under 'Valuation of Shares') after the trade date, and
the purchase price of the shares is withdrawn from the investor's RMA account on
the settlement date from the following sources and in the following order:
uninvested cash balances, balances in RMA money market funds, or margin
borrowing power, if applicable to the account.
To participate in the Plan, an investor must be an RMA accountholder, must
have made an initial purchase of the shares of each PW Fund selected for
investment under the Plan (meeting applicable minimum investment requirements)
and must complete and submit the RMA Resource Accumulation Plan Client Agreement
and Instruction Form available from PaineWebber. The investor must have received
a current prospectus for each PW Fund selected prior to enrolling in the Plan.
Information about mutual fund positions and outstanding instructions under the
Plan are noted on the RMA accountholder's account statement. Instructions under
the Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Plan, or an RMA accountholder's participation in the Plan,
may be modified or terminated at any time. It is anticipated that, in the
future, shares of other PW Funds and/or mutual funds other than the PW Funds may
be offered through the Plan.
PERIODIC INVESTING AND DOLLAR COST AVERAGING. Periodic investing in the PW
Funds or other mutual funds, whether through the Plan or otherwise, helps
investors establish and maintain a disciplined approach to accumulating assets
over time, de-emphasizing the importance of timing the market's highs and lows.
Periodic investing also permits an investor to take advantage of 'dollar cost
averaging.' By investing a fixed amount in mutual fund shares at established
intervals, an investor purchases more shares when the price is lower and fewer
shares when the price is higher, thereby increasing his or her earning
potential. Of course, dollar cost averaging does not guarantee a profit or
protect against a loss in a declining market, and an investor should consider
his or her financial ability to continue investing through periods of low share
prices. However, over time, dollar cost averaging generally results in a lower
average original investment cost than if an investor invested a larger dollar
amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT. In order to enroll in the Plan,
an investor must have opened an RMA account with PaineWebber or one of its
correspondent firms. The RMA account is
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<PAGE>
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 preliminary 9-month and 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. Each money market fund attempts to maintain a
stable price per share of $1.00, although there can be no assurance that
it will be able to do so. Investments in the money market funds are not
insured or guaranteed by the U.S. government;
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;
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 the transfer agent 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 a Fund will automatically convert to Class A shares of
that 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 availability of the conversion feature is subject to the continuing
availability of an opinion of counsel to the effect that the dividends and other
distributions paid on Class A and Class B shares will not result in
'preferential dividends' under the Internal Revenue Code and the conversion of
shares will not constitute a taxable event. If the conversion feature ceased to
be available, the Class B shares would not be converted and would continue to be
subject to the higher ongoing expenses of the Class B shares beyond six years
from the date
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<PAGE>
of purchase. Mitchell Hutchins has no reason to believe that this condition for
the availability of the conversion feature will not be met.
VALUATION OF SHARES
The Funds determine their net asset values per share separately for each
class of shares as of the close of regular trading (currently 4:00 p.m., Eastern
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open. Currently the NYSE is closed on the observance of
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Securities that are listed on U.S. stock exchanges are valued at the last
sale price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. In cases where securities are traded on
more than one exchange, the securities are generally valued on the exchange
considered by Mitchell Hutchins as the primary market. Securities traded in the
OTC market and listed on The Nasdaq Stock Market ('Nasdaq') are valued at the
last trade price on Nasdaq at 4:00 p.m., Eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of each Trust's board.
PERFORMANCE INFORMATION
The Funds' performance data quoted in advertising and other promotional
materials ('Performance Advertisements') represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes
('Standardized Return') used in each Fund's Performance Advertisements are
calculated according to the following formula:
<TABLE>
<S> <C>
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a specified class
T = average annual total return of shares of that class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or 'T' in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over the
period. In calculating the ending redeemable value, for Class A shares, the
maximum 4.5% sales charge is deducted from the initial $1,000 payment and, for
Class B and Class C shares, the applicable contingent deferred sales charge
imposed on a redemption of Class B or Class C shares held for the period is
deducted. All dividends and other distributions are assumed to have been
reinvested at net asset value.
The Funds 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 Funds calculate 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.
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<PAGE>
The following table shows performance information for each classs of shares
of the Funds for the periods indicated. All returns for periods of more than one
year are expressed as an average return.
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended August 31, 1997:
Standardized Return*.................. 36.00% 36.33% 40.30% 42.74%
Non-Standardized Return............... 42.42% 41.33% 41.30% 42.74%
Five years ended August 31, 1997:
Standardized Return*.................. 14.12% 14.07% 14.31% 15.51%
Non-Standardized Return............... 15.19% 14.30% 14.31% 15.51%
Ten years ended August 31, 1997
Standardized Return*.................. 11.34% NA NA N/A
Non-Standardized Return............... 11.85% NA NA N/A
Inception** to August 31, 1997:
Standardized Return*.................. 13.43% 13.85% 14.44% 13.54%
Non-Standardized Return............... 13.81% 13.85% 14.44% 13.54%
</TABLE>
- ------------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the period.
Class Y shares do not impose an initial or contingent deferred sales charge;
therefore, Non-Standardized Return is identical to Standardized Return.
** The inception date for each class of shares is as follows: Class A--December
20, 1983, Class B--July 1, 1991, Class C--July 2, 1992 and Class Y--February
12, 1992.
GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended August 31, 1997:
Standardized Return*.................. 10.63% 9.98% 13.95% 16.24%
Non-Standardized Return............... 15.85% 14.98% 14.95% 16.24%
Five years ended August 31, 1997:
Standardized Return*.................. 13.62% 13.53% 13.76% 14.99%
Non-Standardized Return*.............. 14.67% 13.77% 13.76% 14.99%
Ten years ended August 31, 1997:
Standardized Return*.................. 10.98% NA NA NA
Non-Standardized Return*.............. 11.49% NA NA NA
Inception** to August 31, 1997:
Standardized Return*.................. 13.83% 12.77% 12.91% 12.65%
Non-Standardized Return............... 14.25% 12.77% 12.91% 12.65%
</TABLE>
- ------------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the period.
Class Y shares do not impose an initial or contingent deferred sales charge;
therefore, Non-Standardized Return is identical to Standardized Return.
** The inception date for each class of shares is as follows: Class A--March 18,
1985, Class B--July 1, 1991, Class C--July 2, 1992 and Class Y--August 26,
1991.
32
<PAGE>
SMALL CAP FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
One year ended July 31, 1997:
Standardized Return*.................. 30.01% 30.16 % 34.09% 36.65%
Non-Standardized Return............... 36.11% 35.16 % 35.09% 36.65%
Inception** to July 31, 1997:
Standardized Return*.................. 11.64% 11.64 % 11.92% 35.81%
Non-Standardized Return............... 12.79% 11.94 % 11.92% 35.81%
</TABLE>
- ------------------
* All Standardized Return figures for Class A shares reflect deduction of the
current maximum sales charge of 4.5%. All Standardized Return figures for
Class B and Class C shares reflect deduction of the applicable contingent
deferred sales charges imposed on a redemption of shares held for the period.
Class Y shares do not impose an initial or contingent deferred sales charge;
therefore, Non-Standardized Return is identical to Standardized Return.
** The inception date for Class A, Class B and Class C shares is February 1,
1993. The inception date for Class Y shares is July 26, 1996.
OTHER INFORMATION. In Performance Advertisements, the Funds may compare
their Standardized Return and/or their Non-Standardized Return with data
published by Lipper Analytical Services, Inc. ('Lipper'), CDA Investment
Technologies, Inc. ('CDA'), Wiesenberger Investment Companies Service
('Wiesenberger'), Investment Company Data, Inc. ('ICD') or Morningstar Mutual
Funds ('Morningstar'), with the performance of recognized stock and other
indices, including the Standard & Poor's 500 Composite Stock Price Index ('S&P
500'), the Standard & Poor's 600 Small-Cap Index, the Standard & Poor's 400
Mid-Cap Index, the Dow Jones Industrial Average, the Nasdaq Composite Index, the
Russell 2000 Index, the Russell 1000 Index (including Value and Growth
sub-indexes), the Wilshire 5000 Index, the Lehman Bond Index, 30-year and
10-year U.S. Treasury bonds, the Morgan Stanley Capital International World
Index and changes in the Consumer Price Index as published by the U.S.
Department of Commerce. The Funds also may refer in such materials to mutual
fund performance rankings and other data, such as comparative asset, expense and
fee levels, published by Lipper, CDA, Wiesenberger, ICD or Morningstar.
Performance Advertisements also may refer to discussions of the Funds and
comparative mutual fund data and ratings reported in independent periodicals,
including THE WALL STREET JOURNAL, MONEY, SMART MONEY, MUTUAL FUNDS, FORBES,
BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE NEW YORK TIMES, THE
CHICAGO TRIBUNE, THE WASHINGTON POST and THE KIPLINGER LETTERS. Comparisons in
Performance Advertisements may be in graphic form.
The Funds 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 a Fund investment are reinvested in
additional Fund shares, any future income or capital appreciation of a 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 a Fund investment would increase more quickly than if dividends or other
distributions had been paid in cash.
The Funds may also compare their performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Certificate of Deposit
Index, the Bank Rate Monitor National Index and the averages of yields of CDs of
major banks published by Banxquote(Registered) Money Markets. In comparing the
Funds' performance to CD performance, investors should keep in mind that bank
CDs are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that bank CD
yields may vary depending on the financial institution offering the CD and
prevailing interest rates. Shares of the Funds are not insured or guaranteed by
the U.S. government and returns and net asset value will fluctuate. The debt
securities held by the Funds generally have longer maturities than most CDs and
may reflect interest rate fluctuations for longer term securities. An investment
in any Fund involves greater risks than an investment in either a money market
fund or a CD.
The Funds may also compare their performance to general trends in the stock
and bond markets, as illustrated by the following graph prepared by Ibbotson
Associates, Chicago.
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<PAGE>
[GRAPHICS -- CAMERA READY CHART]
The chart is shown for illustrative purposes only and does not represent
any 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 indices are unmanaged and
are not available for investment.
- ------------------
Source: Stocks, Bonds, Bills and Inflation 1996 YearbookTM Ibbotson Assoc.,
Chi., (annual updates work by Roger C. Ibbotson & Rex A Sinquefield).
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1996, stocks beat all
other traditional asset classes. A $10,000 investment in the stocks comprising
the S&P 500 grew to $13,710,736, significantly more than any other investment.
34
<PAGE>
TAXES
In order to continue to qualify for treatment as a regulated investment
company ('RIC') under the Internal Revenue Code, each Fund must distribute to
its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income and net short-term
capital gain) ('Distribution Requirement') and must meet several additional
requirements. For each Fund, these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income (including gains
from options or futures) derived with respect to its business of investing in
securities ('Income Requirement'); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer. In addition, through the end of its current
taxable year (July 31, 1998), Small Cap Fund must derive less than 30% of its
gross income from the sale or other disposition of securities, options or
futures held for less than three months ('Short-Short Limitation'). Thereafter,
Small Cap Fund will no longer need to satisfy the Short-Short Limitation to
qualify as a RIC, as a result of the Taxpayer Relief Act of 1997 ('Tax Act').
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or additional shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by a Fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
Each Fund will be subject to a nondeductible 4% excise tax ('Excise Tax')
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Each Fund may invest in the stock of 'passive foreign investment companies'
('PFICs') if such stock is a permissible investment. A PFIC is a foreign
corporation--other than a 'controlled foreign corporation' (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of all voting stock therein or the total value of all stock
therein is owned, directly, indirectly, or constructively, by 'U.S.
shareholders,' defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which a
Fund is a U.S. shareholder (effective for its taxable year beginning in
1998)--that, in general, meets either of the following tests: (1) at least 75%
of its gross income is passive or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to federal income tax on a portion of any
'excess distribution' received on the stock of a PFIC or of any gain from
disposition of such stock (collectively 'PFIC income'), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in each Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If a Fund invests in
a PFIC and elects to treat the PFIC as a 'qualified electing fund' ('QEF'), then
in lieu of the foregoing tax
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<PAGE>
and interest obligation, the Fund would be required to include in income each
year its pro rata share of the QEF's annual ordinary earnings and net capital
gain (the excess of net long-term capital gain over net short-term capital
loss)--which likely would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax--even if those
earnings and gain were not distributed to the Fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
Effective for its taxable year beginning in 1998, each Fund may elect to
'mark to market' its stock in any PFIC. 'Marking-to-market,' in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of a PFIC's stock over a Fund's adjusted basis therein as of
the end of that year. Pursuant to the election, a Fund also would be allowed to
deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted
basis in PFIC stock over the fair market value thereof as of the taxable
year-end, but only to the extent of any net mark-to-market gains with respect to
that stock included by the Fund for prior taxable years. A Fund's adjusted basis
in each PFIC's stock with respect to which it makes this election will be
adjusted to reflect the amounts of income included and deductions taken under
the election. Regulations proposed in 1992 would provide a similar election with
respect to the stock of certain PFICs.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the amount, character and timing of recognition of the gains
and losses a Fund realizes in connection therewith. Gains from options and
futures derived by a Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
However, for Small Cap Fund, income from the disposition of options and futures
contracts will be subject to the Short-Short Limitation if they are held for
less than three months.
If Small Cap Fund satisfies certain requirements, any increase in value of
a position that is part of a 'designated hedge' will be offset by any decrease
in value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Small
Cap Fund will consider whether it should seek to qualify for this treatment for
its hedging transactions. To the extent Small Cap Fund does not qualify for this
treatment, it may be forced to defer the closing out of certain options and
futures beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.
OTHER INFORMATION
Growth and Income Fund's name was changed from 'PaineWebber Dividend Growth
Fund' to its current name effective April 3, 1995. Effective July 26, 1996, the
name of Small Cap Fund was changed from 'PaineWebber Small Cap Value Fund' to
its current name. On July 26, 1996, Small Cap Fund was combined in a tax-free
reorganization with PaineWebber Small Cap Growth Fund, a series of PaineWebber
Investment Trust III. As a result of the reorganization, each shareholder of
PaineWebber Small Cap Growth Fund became a shareholder of Small Cap Fund. Prior
to November 10, 1995, each Fund's Class C shares were known as 'Class D' shares.
Prior to November 10, 1995, the Class Y shares of Growth and Income Fund and
Growth Fund were known as Class C shares.
Each Trust is an entity of the type commonly known as a 'Massachusetts
business trust.' Under Massachusetts law, shareholders of a Fund could, under
certain circumstances, be held personally liable for the obligations of the
applicable Trust or Fund. However, each Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust or the Fund and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate or undertaking made or issued by the trustees or by any
officers or officer by or on behalf of the Trust or Fund, the trustees or any of
them in connection with the Trust. Each Declaration of Trust provides for
indemnification from a Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of that Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations, a possibility that Mitchell Hutchins believes is remote
and not material. Upon payment of any liability incurred by a shareholder solely
by reason of being or having been a shareholder, the shareholder paying such
liability will be entitled to reimbursement from the general assets of that
Fund. The trustees intend to
36
<PAGE>
conduct the operations of each Fund in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Funds.
CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of
its expenses (in addition to distribution fees) to the specific classes of its
shares to which those expenses are attributable. For example, Class B shares
bear higher transfer agency fees per shareholder account than those borne by
other classes. The higher fee is imposed due to the higher costs incurred by the
Transfer Agent in tracking shares subject to a contingent deferred sales charge
because, upon redemption, the duration of the shareholder's investment must be
determined in order to determine the applicable charge. Moreover, the tracking
and calculations required by the automatic conversion feature of the Class B
shares will cause the Transfer Agent to incur additional costs. Although the
transfer agency fee will differ on a per account basis as stated above, the
specific extent to which the transfer agency fees will differ between the
classes as a percentage of net assets is not certain, because the fee as a
percentage of net assets will be affected by the number of shareholder accounts
in each class and the relative amounts of net assets in each class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the Funds.
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 Growth Fund and Growth and Income Fund. Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as
independent accountants for Small Cap Fund.
FINANCIAL STATEMENTS
Each Fund's Annual Report to Shareholders for its last fiscal year is a
separate document supplied with this Statement of Additional Information, and
the financial statements, accompanying notes and report of independent auditors
appearing therein are incorporated herein by this reference.
37
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues; Aa. Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities; A. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; Baa. Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from 'Aa' through 'B' in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category, the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P CORPORATE DEBT RATINGS
AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong; AA. An obligation rated AA differs from the higher rated
issues only in small degree; A. An obligation rated A is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still strong;
BBB. An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation; BB, B, CCC, CC, C. Obligations rated BB, B, CCC, CC and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions; BB. An obligation rated
BB is less vulnerable to nonpayment than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation; BB. An obligation rated BB is
less vulnerable to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation; B. An obligation rated B is
more vulnerable to nonpayment than obligations rated BB, but the obligor
currently has the capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its
A-1
<PAGE>
financial commitment on the obligation; CCC. An obligation rated CCC is
currently vulnerable to nonpayment and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitments on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation; CC. An obligation rated CC is currently
highly vulnerable to nonpayment; C. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued; D. An obligation
rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or Minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THE PROSPECTUS
AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN OFFERING BY
ANY FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Additional Information............ 1
Investment Policies and Restrictions........... 1
Hedging Strategies Using Derivative
Instruments.................................. 7
Trustees and Officers; Principal Holders of
Securities................................... 13
Investment Advisory and Distribution
Arrangements................................. 20
Portfolio Transactions......................... 25
Reduced Sales Charges, Additional Exchange and
Redemption Information and Other Services.... 27
Conversion of Class B Shares................... 30
Valuation of Shares............................ 31
Performance Information........................ 31
Taxes.......................................... 35
Other Information.............................. 36
Financial Statements........................... 37
Appendix....................................... A-1
</TABLE>
(Copyright)1997 PaineWebber Incorporated
PaineWebber
Growth and Income Fund
PaineWebber
Growth Fund
PaineWebber
Small Cap Fund
Statement of Additional Information
December 1, 1997
PAINEWEBBER
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (filed herewith)
PaineWebber Growth Fund
Included in Part A of the Registration Statement:
Financial Highlights for one Class A share of PaineWebber Growth Fund
for each of the ten years in the period ended August 31, 1997.
Financial Highlights for one Class B share of the Fund for each of the
six years in the period ended August 31, 1997 and for the period July
1, 1991 (commencement of offering) to August 31, 1991.
Financial Highlights for one Class C share of the Fund for each of the
five years in the period ended August 31, 1997 and for the period July
2, 1992 (commencement of offering) to August 31, 1992.
Financial Highlights for one Class Y share of the Fund for each of the
six years in the period ended August 31, 1997.
Included in Part B of the Registration Statement through incorporation by
reference from the Annual Report to Shareholders, previously filed with the
Securities and Exchange Commission through EDGAR on August 31, 1997 (Accession
No. 0000759729-97-000003):
Portfolio of Investments at August 31, 1997.
Statement of Assets and Liabilities at August 31, 1997.
Statement of Operations for the year ended August 31, 1997.
Statement of Changes in Net Assets for the two years in the period
ended August 31, 1997.
Notes to Financial Statements
Financial Highlights for one Class A, Class, B, Class C and Class Y
share of the Fund for each of the five years in the period ended August
31, 1997.
Report of Ernst & Young LLP, Independent Auditors, dated October 14,
1997.
(b) Exhibits:
<TABLE>
<S> <C>
(1) Amended and Restated Declaration of Trust (filed herewith)
(2) Restated By-laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's
share of beneficial interest 1/
(5) Investment Advisory and Administration Contract 2/
(6) (a) Distribution Contract with respect to Class A shares 3/
(b) Distribution Contract with respect to Class B shares 3/
(c) Distribution Contract with respect to Class C shares 4/
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(d) Distribution Contract with respect to Class Y shares 4/
(e) Exclusive Dealer Agreement with respect to Class A shares 3/
(f) Exclusive Dealer Agreement with respect to Class B shares 3/
(g) Exclusive Dealer Agreement with respect to Class C shares 4/
(h) Exclusive Dealer Agreement with respect to Class Y shares 4/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 5/
(9) Form of Transfer Agency Agreement (filed herewith)
(10) (a) Opinion and consent of Kirkpatrick & Lockhart
LLP, counsel to the Registrant, with respect to
Class A and Class B shares of PaineWebber Growth
Fund 6/
(b) Opinion and consent of Kirkpatrick & Lockhart
LLP, counsel to the Registrant, with respect to
the Class C shares of PaineWebber Growth Fund 7/
(c) Opinion and consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant, with respect to Class Y
shares of PaineWebber Growth Fund 8/
(11) Other opinions, appraisals, rulings and consents:
Independent Auditor's Consent (filed herewith)
(12) Financial statements omitted from prospectus-none
(13) Letter of investment intent 9/
(14) Prototype Retirement Plan 10/
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class A shares 11/
(b) Plan of Distribution pursuant to Rule 12b-1 with
respect to Class B shares 11/
(c) Plan of Distribution pursuant to Rule 12b-l with
respect to Class C shares 12/
(16) (a) Schedule for Computation of Performance Quotations
for Class A, Class B, and Class Y Shares of PaineWebber
Growth Fund 11/
(b) Schedule for Computation of Performance Quotations
with respect to Class C Shares of PaineWebber Growth Fund 12/
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 13/
</TABLE>
- -------------------------------------
1/ Incorporated by reference from Articles III, VIII, IX, X and XI of
Registrant's Amended and Declaration of Trust and from Articles II, VII
and X of Registrants Restated By-Laws.
2/ Incorporated by reference from Post-Effective Amendment No. 14 to the
registration statement, SEC File No. 2-94983, filed December 29, 1989
C-2
<PAGE>
3/ Incorporated by reference from Post-Effective Amendment No. 25 to the
Registration Statement, SEC File No. 2-94983, filed December 29, 1993
4/ Incorporated by reference from Post-Effective Amendment No. 31 to the
Registration Statement. SEC File No. 2-94983. filed November 14. 1995
5/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No. 2-94983, filed December 22, 1987.
6/ Incorporated by reference from Post-Effective Amendment No. 19 to the
registration statement, SEC File No. 2-94983, filed May 3, 1991.
7/ Incorporated by reference from Post-Effective Amendment No. 22 to the
registration statement. SEC File No. 2-94983. filed June 23. 1992.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
registration statement. SEC File No. 2-94983. filed March 26. 1991.
9/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 2-94983, filed March 11, 1985.
10/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
11/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement, SEC File No. 2-94983, filed December 24, 1991
12/ Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement, SEC File No. 2-94983, filed December 21, 1992
13/ Incorporated by reference from Post-Effective Amendment No. 37 to the
Registration Statement, SEC File No. 2-94983, filed September 25, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
Number of Record Shareholders
Title of Class as of October 31, 1997
-------------- ----------------------
Shares of beneficial interest, par
value $0.001 per share, in
PaineWebber Growth Fund
Class A shares 14,120
Class B shares 9,649
Class C shares 2,517
Class Y shares 0
C-3
<PAGE>
Item 27. Indemnification
Section 2 of "Indemnification" in Article X of the Declaration of Trust
provides that the appropriate series of 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 or a particular series thereof; 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, 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 IX 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, director, officer or employee of a corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity or arising out of his or her
status as such, whether or not the Registrant would have the power to indemnify
him or her against such liability, provided that the Registrant may not acquire
insurance protecting any Trustee or officer against liability to the Registrant
or its shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office.
Section 9 of the Investment Advisory and Administration Contract
("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
provides that Mitchell Hutchins shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any series of the Registrant in
connection with the matters to which the Contract relates, except for a loss
resulting from the willful misfeasance, bad faith, or gross negligence of
Mitchell Hutchins in the performance of its duties or from its reckless
disregard of its obligations and duties under the Contract. Section 10 of the
Contract provides that the Trustees shall not be liable for any obligations of
the Trust or any series under the Contract and that Mitchell Hutchins shall look
only to the assets and property of the Registrant 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 and 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
C-4
<PAGE>
furnished by Mitchell Hutchins to the Trust for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of each Distribution Contract also provides
that Mitchell Hutchins agrees to indemnify, defend and hold the Trust, its
officers and Trustees free and harmless of any claims arising out of any alleged
untrue statement or any alleged omission of material fact contained in
information furnished by Mitchell Hutchins for use in the Registration Statement
or arising out of an agreement between Mitchell Hutchins and any retail dealer,
or arising out of supplementary literature or advertising used by Mitchell
Hutchins in connection with the Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of the Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Section 10 of each Distribution Contract contains provisions similar to
Section 10 of the Investment Advisory and Administration Contract, with respect
to Mitchell Hutchins and PaineWebber, as appropriate.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to Trustees, officers and controlling
persons of the Trust, pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a Trustee, officer or controlling person of the Trust in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Trust by such
Trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
Mitchell Hutchins, a Delaware corporation, is a registered investment
adviser and is a wholly owned subsidiary of PaineWebber which is, in turn, a
wholly owned subsidiary of Paine Webber Group Inc. Mitchell Hutchins is
primarily engaged in the investment advisory business. Information as to the
officers and directors of Mitchell Hutchins is included in its Form ADV as filed
with the Securities and Exchange Commission (registration number 801-13219) and
is incorporated herein by reference.
Item 29. Principal Underwriters
a) Mitchell Hutchins serves as principal underwriter and/or investment
adviser for the following 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.
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
C-5
<PAGE>
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
b) Mitchell Hutchins is the Registrant's principal underwriter.
PaineWebber acts as exclusive dealer of the Registrant's shares. 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 herein by
reference. The information set forth below is furnished for those directors and
officers of Mitchell Hutchins or PaineWebber who also serve as trustees or
officers of the Registrant. Unless otherwise indicated, the principal business
address of each person named is 1285 Avenue of the Americas, New York, NY 10019.
<TABLE>
<CAPTION>
Position and Offices With
Name Positions and Offices with Registrant Underwriter or Exclusive Dealer
- ---- ------------------------------------- -------------------------------
<S> <C> <C>
Margo N. Alexander President and Trustee Director, President and Chief Executive
Officer of Mitchell Hutchins; Director and
Executive Vice President of PaineWeber
Mary C. Farrell Trustee Managing Director, Senior Investment
Strategist and Member of the Investment
Policy Committee of PaineWebber
Ellen R. Harris Vice President Managing Director and a Portfolio Manager
of Mitchell Hutchins
Ann E. Moran Vice President and Vice President and a Manager of the Mutual
Assistant Treasurer Fund Finance Division of Mitchell Hutchins
Dianne E. O'Donnell Vice President and Senior Vice President and Deputy General
Secretary 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
Barney A. Taglialatela Vice President and Assistant Treasurer Vice President and a Manager of the Mutual
Fund Finance Division of Mitchell Hutchins
Paul H. Schubert Vice President and Treasurer First Vice President and Director of the
Mutual Fund Finance Division of Mitchell
Hutchins
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Position and Offices With
Name Positions and Offices with Registrant Underwriter or Exclusive Dealer
<S> <C> <C>
Mark A. Tincher Vice President Managing Director and Chief Investment
Officer - U.S. Equity Investments of
Mitchell Hutchins
Keith A. Weller Vice President and Assistant Secretary First Vice President and Associate General
Counsel of Mitchell Hutchins
Ian W. Williams Vice President and Assistant Treasurer Vice President and a Manager of the Mutual
Fund Finance Division of Mitchell Hutchins
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Registrant's investment adviser and administrator,
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 custodians.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York, on the 20th day of November, 1997.
PAINEWEBBER OLYMPUS FUND
By: /s/ Dianne E. ODonnell
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee November 20, 1997
Margo N. Alexander * (Chief Executive Officer)
/s/ E. Garrett Bewkes, Jr. Trustee and Chairman November 20, 1997
E. Garrett Bewkes, Jr. * of the Board of Trustees
/s/ Richard Q. Armstrong Trustee November 20, 1997
Richard Q. Armstrong *
/s/ Richard R. Burt Trustee November 20, 1997
Richard R. Burt *
/s/ Mary C. Farrell Trustee November 20, 1997
Mary C. Farrell *
/s/ Meyer Feldberg Trustee November 20, 1997
Meyer Feldberg *
/s/ George W. Gowen Trustee November 20, 1997
George W. Gowen *
/s/ Frederic V. Malek Trustee November 20, 1997
Frederic V. Malek *
/s/ Carl W. Schafer Trustee November 20, 1997
Carl W. Schafer *
/s/ Paul H. Schubert Vice President and Treasurer (Chief November 20, 1997
Paul H. Schubert Financial and Accounting Officer)
</TABLE>
<PAGE>
SIGNATURES (Continued)
* Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 30 to the registration statement of PaineWebber Managed Municipal
Trust, SEC File 2-89016, filed June 27, 1996.
<PAGE>
PAINEWEBBER OLYMPUS FUND
EXHIBIT INDEX
Exhibit
Number
<TABLE>
<S> <C>
(1) Amended and Restated Declaration of Trust (filed herewith)
(2) Restated By-laws (filed herewith)
(3) Voting trust agreement - none
(4) Instruments defining the rights of holders of the Registrant's
share of beneficial interest 1/
(5) Investment Advisory and Administration Contract 2/
(6) (a) Distribution Contract with respect to Class A shares 3/
(b) Distribution Contract with respect to Class B shares 3/
(c) Distribution Contract with respect to Class C shares 4/
(d) Distribution Contract with respect to Class Y shares 4/
(e) Exclusive Dealer Agreement with respect to Class A
shares 3/
(f) Exclusive Dealer Agreement with respect to Class B shares 3/
(g) Exclusive Dealer Agreement with respect to Class C shares 4/
(h) Exclusive Dealer Agreement with respect to Class Y shares 4/
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement 5/
(9) Form of Transfer Agency Agreement (filed herewith)
(10) (a) Opinion and consent of Kirkpatrick & Lockhart
LLP, counsel to the Registrant, with respect to
Class A and Class B shares of PaineWebber Growth
Fund 6/
(b) Opinion and consent of Kirkpatrick & Lockhart
LLP, counsel to the Registrant, with respect to
the Class C shares of PaineWebber Growth Fund 7/
(c) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel
to the Registrant, with respect to Class Y shares of PaineWebber
Growth Fund 8/
(11) Other opinions, appraisals, rulings and consents:
Independent Auditor's Consent (filed herewith)
(12) Financial statements omitted from prospectus-none
(13) Letter of investment intent 9/
(14) Prototype Retirement Plan 10/
(15) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class A shares 11/
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to
Class B shares 11/
(c) Plan of Distribution pursuant to Rule 12b-l with respect to
Class C shares 12/
(16) (a) Schedule for Computation of Performance Quotations for Class A,
Class B, and Class Y Shares of PaineWebber Growth Fund 11/
(b) Schedule for Computation of Performance Quotations with respect
to Class C Shares of PaineWebber Growth Fund 12/
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(17) and (27) Financial Data Schedule (filed herewith)
(18) Plan pursuant to Rule 18f-3 13/
</TABLE>
- -------------------------------------
1/ 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 Registrants Restated By-Laws.
2/ Incorporated by reference from Post-Effective Amendment No. 14 to the
registration statement, SEC File No. 2-94983, filed December 29, 1989
3/ Incorporated by reference from Post-Effective Amendment No. 25 to the
Registration Statement, SEC File No. 2-94983, filed December 29, 1993
4/ Incorporated by reference from Post-Effective Amendment No. 31 to the
Registration Statement. SEC File No. 2-94983. filed November 14. 1995
5/ Incorporated by reference from Post-Effective Amendment No. 9 to the
registration statement, SEC File No. 2-94983, filed December 22, 1987.
6/ Incorporated by reference from Post-Effective Amendment No. 19 to the
registration statement, SEC File No. 2-94983, filed May 3, 1991.
7/ Incorporated by reference from Post-Effective Amendment No. 22 to the
registration statement. SEC File No. 2-94983. filed June 23. 1992.
8/ Incorporated by reference from Post-Effective Amendment No. 18 to the
registration statement. SEC File No. 2-94983. filed March 26. 1991.
9/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
registration statement, SEC File No. 2-94983, filed March 11, 1985.
10/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement of PaineWebber Managed Investments Trust, SEC File
No. 2-91362, filed April 1, 1992.
11/ Incorporated by reference from Post-Effective Amendment No. 20 to the
registration statement, SEC File No. 2-94983, filed December 24, 1991
12/ Incorporated by reference from Post-Effective Amendment No. 23 to the
Registration Statement, SEC File No. 2-94983, filed December 21, 1992
13/ Incorporated by reference from Post-Effective Amendment No. 37 to the
Registration Statement, SEC File No. 2-94983, filed September 25, 1996.
<PAGE>
PAINEWEBBER OLYMPUS FUND
AMENDED AND RESTATED DECLARATION OF TRUST
DECLARATION OF TRUST, made at Boston, Massachusetts, this 31st day of
October1986 and amended and restated this 19th day of November, 1997 by the
Trustees:
WHEREAS, the Trustees desire to establish a trust fund for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed in trust under
this Declaration of Trust as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
NAME
Section 1. This Trust shall be known as "PaineWebber Olympus Fund." The
resident agent for the Trust in Massachusetts shall be CT Corporation System,
whose address is 2 Oliver Street, Boston, Massachusetts, or such other person as
the Trustees may from time to time designate.
DEFINITIONS
Section 2. Wherever used herein, unless otherwise required by the
context or specifically provided:
(a) The Terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Majority Shareholder Vote" (the 67% or 50% requirement of
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them in
the 1940 Act, as amended from time to time;
(b) The "Trust" refers to PaineWebber Olympus Fund and reference to the
Trust, when applicable to one or more Series of the Trust, shall refer to any
such Series;
(c) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 3;
(d) "Shareholder" means a record owner of Shares of the Trust;
(e) The "Trustees" means the person who has signed this Declaration of
Trust so long as he shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
of Article IV hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in his capacity or their capacities as trustees
hereunder.
(f) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class thereof
shall be divided from time to time and includes fractions of shares as well as
whole shares (all of the transferable units of a Series or of a single Class may
be referred to as "Shares" as the context may require);
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(g) The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time;
(h) "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article III;
(i) "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the Provisions of Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source
of managed investment in securities.
ARTICLE III
BENEFICIAL INTEREST
SHARES OF BENEFICIAL INTEREST
Section 1. The beneficial interest in the Trust shall be divided into
such transferable Shares of one or more separate and distinct Series or Classes
thereof as the Trustees shall from time to time create and establish. The number
of Shares is unlimited and each Share shall have a par value of $0.001 per Share
and upon issuance in accordance with the terms hereof shall be fully paid and
nonassessable. The Trustees shall have full power and authority, in their sole
discretion and without obtaining any prior authorization or vote of the
Shareholders of the Trust, to create and establish (and to change in any manner)
Shares with such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may from time to time determine, to divide or combine
the Shares into a greater or lesser number, to classify or reclassify any
unissued Shares into one or more Series or Classes of Shares, to abolish any one
or more Series or Classes of Shares, and to take such other action with respect
to the Shares as the Trustees may deem desirable. The Trustees, in their
discretion without a vote of the Shareholders, may divide the Shares of any
Series into Classes. In such event, each Class of a Series shall represent
interests in the assets of that Series and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class of a Series may be borne solely by such Class as
shall be determined by the Trustees and a Class of a Series may have exclusive
voting rights with respect to matters affecting only that Class. Without
limiting the authority of the Trustees set forth in this Section 1 to establish
and designate any further Series or Classes, the Trustees have established and
designated the Series of Shares and Classes listed in Schedule A attached hereto
and made a part hereof.
ESTABLISHMENT OF SERIES OR CLASS
Section 2. The establishment of any Series or Class in addition to
those set forth in Section 1 shall be effective upon the adoption of a
resolution by a majority of the then Trustees setting forth such establishment
and designation and the relative rights and preferences of the Shares of such
Series or Class thereof. At any time that there are no Shares outstanding of any
particular Series previously established and designated, the Trustees may by a
majority vote abolish that Series and the establishment and designation thereof.
At any time that there are no shares outstanding of any
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particular Class of a Series, the Trustees may by a majority vote abolish that
Class and the establishment and designation thereof. The Trustees by a majority
vote may change the name of any Series or Class.
OWNERSHIP OF SHARES
Section 3. The ownership of Shares shall be recorded in the books of
the Trust. The Trustees may make such rules as they consider appropriate for the
transfer of Shares and similar matters. The record books of the Trust shall be
conclusive as to who are the holders of Shares and as to the number of Shares
held from time to time by each Shareholder.
INVESTMENT IN THE TRUST
Section 4. The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize. Such
investments may be in the form of cash or securities in which the appropriate
Series is authorized to invest, valued as provided in Article IX, Section 3.
After the date of the initial contribution of capital, the number of Shares to
represent the initial contribution may in the Trustees' discretion be considered
as outstanding and the amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust or a Series thereof, as
appropriate. Subsequent investments in the Trust shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received; provided, however, that
the Trustees may, in their sole discretion, (a) impose a sales charge upon
investments in the Trust or Series and (b) issue fractional Shares. The Trustees
shall have the right to refuse to accept investments in the Trust or any Series
at any time without any cause or reason therefor whatsoever.
ASSETS AND LIABILITIES OF SERIES
Section 5. All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition, any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as they, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and shall be referred to as assets belonging to that Series.
The assets belonging to a particular Series shall be so recorded upon the books
of the Trust, and shall be held by the Trustees in Trust for the benefit of the
holders of Shares of that Series. The assets belonging to each particular Series
shall be charged with the liabilities of that Series and all expenses, costs,
charges and reserves attributable to that Series except that liabilities and
expenses allocated solely to a particular Class shall be borne by that Class.
Any general liabilities, expenses, costs, charges or reserves of the Trust or
Series which are not readily identifiable as belonging to any particular Series
or Class shall be allocated and charged by the Trustees between or among any one
or more of the Series or Classes in such manner as the Trustees in their sole
discretion deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes. Any
creditor of any Series may look only to the assets of that Series to satisfy
such creditor's debt. See Article X, Section 1.
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NO PREEMPTIVE RIGHTS
Section 6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust or
the Trustees.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 7. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust. Every Shareholder by virtue of
having become a Shareholder shall be held expressly to have assented and agreed
to the terms of this Declaration of Trust and to have become a party hereto. The
death of a Shareholder during the continuance of the Trust shall not operate to
terminate the Trust nor entitle the representative of any deceased Shareholder
to an accounting or to take any action in court or elsewhere against the Trust
or the Trustees, but only to the rights of said decedent under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay by way of
subscription for any Shares or otherwise.
ARTICLE IV
THE TRUSTEES
MANAGEMENT OF THE TRUST
Section 1. The business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. A Trustee shall not be required to be a Shareholder of
the Trust.
ELECTION OF TRUSTEES AND APPOINTMENT OF INITIAL TRUSTEE
Section 2. On a date fixed by the Trustees, the Shareholders shall
elect the Trustees. Until such election, the Trustees shall be the initial
Trustee and such other persons as may be hereafter appointed pursuant to Section
4 of this Article IV. The initial Trustee shall be Dianne E. O'Donnell.
TERM OF OFFICE OF TRUSTEES
Section 3. The Trustees shall hold office during the lifetime of this
Trust, and until its termination as hereinafter provided; except (a) that any
Trustee may resign his trust by written instrument signed by him and delivered
to the other Trustees or to any officer of the Trust, which shall take effect
upon such delivery or upon such later date as is specified therein; (b) that any
Trustee may be removed with or without cause at any time by written instrument,
signed by at least two-thirds of the number of Trustees prior to such removal,
specifying the date when such removal shall become effective; (c) that any
Trustee who requests in writing to be retired or who has become incapacitated by
illness or injury may be retired by written instrument signed by a majority of
other Trustees, specifying the date of his retirement; and (d) that any Trustee
may be removed at any Special Meeting of the Trust by a vote of at least
two-thirds of the outstanding Shares.
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RESIGNATION AND APPOINTMENT OF TRUSTEES
Section 4. In case of the declination, death, resignation, retirement,
removal, incapacity, or inability of any of the Trustees, or in case a vacancy
shall exist by reason of an increase in number or for any other reason, the
remaining Trustees shall fill such vacancy by appointment of such other person
as they in their discretion shall see fit consistent with the limitations under
the 1940 Act. Such appointment shall be evidenced by a written instrument signed
by a majority of the Trustees in office or by a recording in the records of the
Trust, whereupon the appointment shall take effect. An appointment of a Trustee
may be made by the Trustees then in office as aforesaid in anticipation of a
vacancy to occur by reason of retirement, resignation or increase in number of
Trustees effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement, resignation or
increase in number of Trustees. As soon as any Trustee so appointed shall have
accepted this trust, the trust estate shall vest in the new Trustee or Trustees,
together with the continuing Trustees, without any further act or conveyance,
and he shall be deemed a Trustee hereunder. The power of appointment is subject
to the provisions of Section 16(a) of the 1940 Act.
TEMPORARY ABSENCE OF TRUSTEE
Section 5. Any Trustee may, by power of attorney, delegate his power
for a period not exceeding six months at any one time to any other Trustee or
Trustees, provided that in no case shall less than two Trustees personally
exercise the other powers hereunder except as herein otherwise expressly
provided.
NUMBER OF TRUSTEES
Section 6. The number of Trustees shall initially be one (1) and
thereafter shall be such number as shall be fixed from time to time by a written
instrument signed by a majority of the Trustees (or by an officer of the Trust
pursuant to a vote of the majority of such Trustees); provided, however, that
the number of Trustees serving hereunder at any time shall in no event be less
than one (1) nor more than fifteen (15).
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled, or while any Trustee is absent from his state of domicile
(unless said Trustee has made arrangements to be informed about, and to
participate in, the affairs of the Trust during such absence), or is physically
or mentally incapacitated by reason of disease or otherwise, the other Trustees
shall have all the powers hereunder and the certificate of the other Trustees of
such vacancy, absence or incapacity, shall be conclusive.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
Section 7. The death, declination, resignation, retirement, removal,
incapacity, or inability of the Trustee, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust.
OWNERSHIP OF ASSETS OF THE TRUST
Section 8. The assets of the Trust shall be held separate and apart
from any assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets of the
Trust shall at all times be considered as vested in the Trustees.
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ARTICLE V
POWERS OF THE TRUSTEES
POWERS
Section 1. The Trustees in all instances shall act as principals, and
are and shall be free from the control of the Shareholders. The Trustees shall
have full power and authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The Trustees shall
not in any way be bound or limited by present or future laws or customs in
regard to trust investments, but shall have full authority and power to make any
and all investments which they, in their uncontrolled discretion, shall deem
proper to accomplish the purposes of this Trust. Subject to any applicable
limitation in this Declaration of Trust or the By-Laws of the Trust, the
Trustees shall have power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the assets of the Trust; to purchase and sell (or write) options
on securities, currencies, indices, futures contracts and other financial
instruments and enter into closing transactions in connection therewith; to
enter into all types of commodities contracts, including without limitation the
purchase and sale of futures contracts and forward contracts on securities,
indices, currencies, and other financial instruments; to engage in forward
commitment, "when issued" and delayed delivery transactions; to enter into
repurchase agreements and reverse repurchase agreements; and to employ all kinds
of hedging techniques and investment management strategies.
(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve the right to the Shareholders.
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate.
(d) To employ as custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the By-Laws, if any, a
bank, trust company, or other entity permitted by the Commission to serve as
such.
(e) To retain a transfer agent and Shareholder servicing agent, or
both.
(f) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both.
(g) To set record dates in the manner hereinafter provided for.
(h) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, independent contractor, custodian or
underwriter.
(i) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, Section 4(b) hereof.
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(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper.
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities.
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of
Massachusetts trust companies or investment companies.
(m) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article III and to establish separate Classes
thereof.
(n) To allocate assets, liabilities and expenses of the Trust to a
particular Series and liabilities and expenses to a particular Class thereof or
to apportion the same between or among two or more Series or Classes, provided
that any liabilities or expenses incurred by a particular Series or Class shall
be payable solely out of the assets belonging to that Series or Class as
provided for in Article III.
(o) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust.
(p) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes.
(q) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for.
(r) To borrow money.
(s) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
TRUSTEES AND OFFICERS AS SHAREHOLDERS
Section 2. Any Trustee, officer, other agent or independent contractor
of the Trust may acquire, own and dispose of Shares to the same extent as if he
were not a Trustee, officer, agent or independent contractor; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
By-Laws.
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ACTION BY THE TRUSTEES
Section 3. The Trustees shall act by majority vote at a meeting duly
called or by unanimous written consent without a meeting or by telephone consent
provided a quorum of Trustees participate in any such telephonic meeting, unless
the 1940 Act requires that a particular action be taken only at a meeting in
person of the Trustees. At any meeting of the Trustees, a majority of the
Trustees shall constitute a quorum. Meetings of the Trustees may be called
orally or in writing by the Chairman of the Trustees or by any two other
Trustees. Notice of the time, date and place of all meetings of the Trustees
shall be given by the party calling the meeting to each Trustee by telephone or
telegram sent to his home or business address at least twenty-four hours in
advance of the meeting or by written notice mailed to his home or business
address at least seventy-two hours in advance of the meeting. Notice need not be
given to any Trustee who attends the meeting without objecting to the lack of
notice or who executes a written waiver of notice with respect to the meeting
either before or after such meeting. Subject to the requirements of the 1940
Act, the Trustees by majority vote may delegate to any one of their number their
authority to approve particular matters or take particular actions on behalf of
the Trust.
CHAIRMAN OF THE TRUSTEES
Section 4. The Trustees may appoint one of their number to be Chairman
of the Board of Trustees. The Chairman shall preside at all meetings of the
Trustees, shall be responsible for the execution of policies established by the
Trustees and the administration of the Trust, and may be the chief executive,
financial and/or accounting officer of the Trust.
ARTICLE VI
EXPENSES OF THE TRUST
TRUSTEE REIMBURSEMENT
Section 1. Subject to the provisions of Article III, Section 5, the
Trustees shall be reimbursed from the Trust estate or the assets belonging to
the appropriate Series for their expenses and disbursements, including, without
limitation, fees and expenses of Trustees who are not Interested Persons of the
Trust, interest expense, taxes, fees and commissions of every kind, expenses of
pricing Trust portfolio securities, expenses of issue, repurchase and redemption
of Shares including expenses attributable to a program of periodic repurchases
or redemptions, expenses of distributing its Shares and providing services to
Shareholders, expenses of registering and qualifying the Trust and its Shares
under Federal and State laws and regulations, charges of investment advisers,
administrators, custodians, transfer agents, and registrars, expenses of
preparing and setting in type prospectuses and statements of additional
information, expenses of printing and distributing prospectuses and statements
of additional information sent to existing Shareholders, auditing and legal
expenses, reports to Shareholders, expenses of meetings of Shareholders and
proxy solicitations therefor, insurance expense, association membership dues and
for such non-recurring items as may arise, including litigation to which the
Trust is a party (except those losses and expenses the indemnification of which
is not permitted under Article X hereof), and for all losses and liabilities by
them incurred in administering the Trust; and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series prior to any rights or interests of
the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
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ARTICLE VII
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER AND TRANSFER AGENT
INVESTMENT ADVISER
Section 1. Subject to a Majority Shareholder Vote, the Trustees may in
their discretion from time to time enter into an investment advisory or
management contract(s) with respect to the Trust or any Series thereof whereby
the other party(ies) to such contract(s) shall undertake to furnish the Trustees
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions, as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize the investment adviser(s) (subject to such general or specific
instruments as the Trustees may from time to time adopt) to effect purchases,
sales or exchanges of portfolio securities and other investment instruments of
the Trust on behalf of the Trustees or may authorize any officer, agent, or
Trustee to effect such purchases, sales or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the Trustees). Any
such purchases, sales and exchanges shall be deemed to have been authorized by
all of the Trustees.
The Trustees may, subject to applicable requirements of the 1940 Act,
including those relating to Shareholder approval, authorize the investment
adviser to employ one or more sub-advisers from time to time to perform such of
the acts and services of the investment adviser, and upon such terms and
conditions, as may be agreed upon between the investment adviser and
sub-adviser.
PRINCIPAL UNDERWRITER
Section 2. The Trustees may in their discretion from time to time enter
into one or more contract(s) providing for the sale of the Shares, whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
By-Laws, if any, and such further terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this Article
VII, or of the By-Laws, if any; and such contract may also provide for the
repurchase or sale of Shares by such other party as principal or as agent of the
Trust. The Trustees may in their discretion adopt a plan or plans of
distribution and enter into any related agreements whereby the Trust finances
directly or indirectly any activity that is primarily intended to result in
sales of Shares. Such plan or plans of distribution and any related agreements
may contain such terms and conditions as the Trustees may in their discretion
determine subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder and any other applicable rules and regulations.
TRANSFER AGENT
Section 3. The Trustees may in their discretion from time to time enter
into a transfer agency and Shareholder service contract whereby the other party
shall undertake to furnish the Trustees and Trust with transfer agency and
shareholder services. The contract shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Declaration of Trust or of the By-Laws, if any. Such services may be
provided by one or more entities, including one or more agents of such other
party.
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PARTIES TO CONTRACT
Section 4. Any contract of the character described in Sections 1, 2 and
3 of this Article VII or that relates to the provision of custodian services to
the Trust may be entered into with any corporation, firm, partnership, trust or
association, although one more of the Trustees or officers of the Trust may be
an officer, director, trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was reasonable and fair and not inconsistent with the
provisions of this Article VII or the By-Laws, if any. The same person
(including a firm, corporation, partnership, trust, or association) may be the
other party to contracts entered into pursuant to Sections 1, 2 and 3 above or
with respect to the provision of custodian services to the Trust, and any
individual may be financially interested in or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 4.
PROVISIONS AND AMENDMENTS
Section 5. Any contract entered into pursuant to Sections 1 and 2 of
this Article VII shall be consistent with and subject to the applicable
requirements of Sections 12 and 15 of the 1940 Act and the rules and orders
thereunder (including any amendments thereto or other applicable Act of Congress
hereafter enacted) with respect to its continuance in effect, its termination,
and the method of authorization and approval of such contract or renewal
thereof.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. The Shareholders shall have power to vote (i) for the
election of Trustees as provided in Article IV, Section 2, (ii) for the removal
of Trustees as provided in Article IV, Section 3(d), (iii) with respect to any
investment advisory or management contract as provided in Article VII, Section
1, (iv) with respect to any termination or reorganization of the Trust as
provided in Article XI, Section 4, (v) with respect to the amendment of this
Declaration of Trust to the extent and as provided in Article XI, Section 7,
(vi) to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, provided, however, that a Shareholder of a particular
Series shall not be entitled to bring any derivative or class action on behalf
of any other Series of the Trust, and provided further that, within a Series, a
Shareholder of a particular Class shall not be entitled to bring any derivative
or class action on behalf of any other Class except with respect to matters
sharing a common fact pattern with said Shareholder's own Class; and (vii) with
respect to such additional matters relating to the Trust as may be required or
authorized by law, by this Declaration of Trust, or the By-Laws of the Trust, if
any, or any registration of the Trust with the Commission or any State, or as
the Trustees may consider desirable. On any matter submitted to a vote of the
Shareholders, all Shares shall be voted by individual Series, except (i) when
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (ii) when the Trustees have determined that the matter
affects only the interests of one or more Classes, then only the Shareholders of
such Class or Classes shall be entitled to vote thereon. Each whole Share shall
be entitled to one vote as to any matter on which it is entitled to vote, and
each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
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voted in person or by proxy. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required or permitted by law,
this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
MEETINGS
Section 2. The first Shareholders' meeting shall be held as specified
in Section 2 of Article IV at the principal office of the Trust or such other
place as the Trustees may designate. Special meetings of the Shareholders or any
Series or Class thereof may be called by the Trustees and shall be called by the
Trustees upon the written request of Shareholders owning at least one-tenth of
the outstanding Shares entitled to vote. Whenever ten or more Shareholders
meeting the qualifications set forth in Section 16(c) of the 1940 Act, as the
same may be amended from time to time, seek the opportunity of furnishing
materials to the other Shareholders with a view to obtaining signatures on such
a request for a meeting, the Trustees shall comply with the provisions of said
Section 16(c) and any rules or orders thereunder with respect to providing such
Shareholders access to the list of the Shareholders of record of the Trust or
the mailing of such materials to such Shareholders of record. Shareholders shall
be entitled to at least fifteen days' notice of any meeting.
QUORUM AND REQUIRED VOTE
Section 3. A majority of Shares entitled to vote in person or by proxy
shall be a quorum for the transaction of business at a Shareholders' meeting,
except that where any provision of law or of this Declaration of Trust permits
or requires that holders of any Series or Class thereof shall vote as a Series
or Class, then a majority of the aggregate number of Shares of that Series or
Class thereof entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within one hundred twenty (120) days after the date set for the original
meeting, without the necessity of further notice. Except when a larger vote is
required by any provision of this Declaration of Trust or the By-Laws, a
majority of the Shares voted in person or by proxy shall decide any questions
and a plurality shall elect a Trustee, provided that where any provision of law
or of this Declaration of Trust permits or requires that the holders of any
Series or Class shall vote as a Series or Class, then a majority of the Shares
of that Series or Class voted on the matter shall decide that matter insofar as
that Series or Class is concerned.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
DISTRIBUTIONS
Section 1.
(a) The Trustees may from time to time declare and pay dividends and
other distributions. The amount of such dividends and the payment of them shall
be wholly in the discretion of the Trustees.
(b) The Trustees shall have power, to the fullest extent permitted by
the laws of the Commonwealth of Massachusetts, at any time to declare and cause
to be paid dividends on Shares of a particular Series, from the assets belonging
to that Series, which dividends and other distributions, at the election of the
Trustees, may be paid daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, and may be payable in Shares of that Series or Class thereof, as
appropriate, at the election of each Shareholder of that Series or Class. All
dividends and distributions on Shares of a particular Series
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shall be distributed pro rata to the holders of that Series in proportion to the
number of Shares of that Series held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that such dividends and distributions shall appropriately reflect expenses
allocated to a particular Class of such Series.
(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a "stock dividend" pro rata
among the Shareholders of a particular Series or of a Class thereof as of the
record date of that Series (fixed as provided in Section 3 of Article XI
hereof).
REDEMPTIONS
Section 2. In case any holder of record of Shares of a particular
Series or Class desires to dispose of his Shares, he may deposit at the office
of the transfer agent or other authorized agent of that Series a written request
or such other form of request as the Trustees may from time to time authorize,
requesting that the Series purchase the Shares in accordance with this Section
2; and the Shareholder so requesting shall be entitled to require the Series to
purchase, and the Series or the principal underwriter of the Series shall
purchase his said Shares, but only at the Net Asset Value of the Series or Class
held by the Shareholder (as described in Section 3 hereof) minus any applicable
sales charge or redemption or repurchase fee. The Series shall make payment for
any such Shares to be redeemed, as aforesaid, in cash or property from the
assets of that Series and payment for such Shares shall be made by the Series or
the principal underwriter of the Series to the Shareholder of record within
seven (7) days after the date upon which the request is effective; provided,
however, that if Shares being redeemed have been purchased by check, the Trust
may postpone payment until the Trust has assurance that good payment has been
collected for the purchase of the Shares. The Trust may require Shareholders to
pay a sales charge to the Trust, the underwriter or any other person designated
by the Trustees upon redemption or repurchase of Shares of any Series or Class
thereof, in such amount as shall be determined from time to time by the
Trustees. The amount of such sales charge may but need not vary depending on
various factors, including without limitation the holding period of the redeemed
or repurchased Shares. The Trustees may also charge a redemption or repurchase
fee in such amount as may be determined from time to time by the Trustees.
DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO ASSETS
Section 3. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. Net Asset Value per Share
shall be determined separately for each Series of Shares and shall be determined
on such days and at such times as the Trustees may determine. Such determination
may be made on a Series-by-Series or Class-by-Class basis, as appropriate, and
shall include any expenses allocated to a specific Series or Class. The
determination shall be made with respect to securities for which market
quotations are readily available at the market value of such securities; and
with respect to other securities and assets, at the fair value as determined in
good faith by the Trustees, provided, however, that the Trustees, without
Shareholder approval, may alter the method of appraising portfolio securities
insofar as permitted under the 1940 Act and the rules, regulations and
interpretations thereof promulgated or issued by the Commission or insofar as
permitted by any order of the Commission applicable to the Series. The Trustees
may delegate any of their powers and duties under this Section 3 with respect to
appraisal of assets and liabilities. At any time the Trustees may cause the Net
Asset Value per Share last determined to be determined again in a similar manner
and may fix the time when such redetermined values shall become effective.
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SUSPENSION OF THE RIGHT OF REDEMPTION
Section 4. Notwithstanding Section 2 hereof, the Trustees may declare a
suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share existing after the termination of the
suspension.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular Series shall look only to the assets
of the Trust or such Series, as the case may be, for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, nor any
other Series shall be personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust, any Series, or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that the
same was executed or made by them on behalf of the Trust or by them as Trustees
or Trustee or as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or the particular Series in question, as the case may be, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually.
Section 2. Provided they have exercised reasonable care and have acted
under the reasonable belief that their actions are in the best interest of the
Trust, the Trustees and officers of the Trust shall not be responsible for or
liable in any event for neglect or wrongdoing of them or any officer, agent,
employee, investment adviser or independent contractor of the Trust, but nothing
contained in this Declaration of Trust shall protect any Trustee or officer
against any liability to which he 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 office.
INDEMNIFICATION
Section 3.
(a) Subject to the exceptions and limitations contained in
Section 3(b) below:
(i) every person who is, or has been a Trustee or officer of
the Trust (hereinafter referred to as "Covered Person") shall be indemnified by
the appropriate Series to the fullest extent permitted by law against liability
and against all expenses reasonably incurred or paid by him in
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connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office,
(A) by the court or other body approving the
settlement;
(B) by at least a majority of those Trustees who are
neither interested persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or
(C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled to by contract or otherwise under
law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 3 may be paid by the applicable Series from time
to time prior to final disposition thereof upon receipt of an undertaking by or
on behalf of such Covered Person that such amount will be paid over by him to
the applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section 3; provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither interested persons of
the Trust nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available facts
(as opposed to a trial-type inquiry or full investigation), that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section 3.
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SHAREHOLDERS
Section 4. In case any Shareholder or former Shareholder of any Series
of the Trust shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Series shall, upon request by the Shareholder, assume the defense
of any claim made against the Shareholder for any act or obligation of the
Series and satisfy any judgment thereon.
ARTICLE XI
MISCELLANEOUS
TRUST NOT A PARTNERSHIP
Section 1. It is hereby expressly declared that a trust and not a
partnership is created hereby. No Trustee hereunder shall have any power to bind
personally either the Trust's officers or any Shareholder.
TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
Section 2. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the provisions
of Article X, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and subject to the provisions of Article X, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is obtained.
ESTABLISHMENT OF RECORD DATES
Section 3. The Trustees may close the stock transfer books of the Trust
for a period not exceeding sixty (60) days preceding the date of any meeting of
Shareholders, or the date for the payment of any dividends, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect; or in lieu of closing the stock transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding ninety (90)
days preceding the date of any meeting of Shareholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or to receive payment of such dividend, or to receive
such allotment or rights, or to exercise such rights in respect of any such
change, conversion or exchange of Shares, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any Shares on
the books of the Trust after any such record date fixed or aforesaid.
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TERMINATION OF TRUST
Section 4.
(a) This Trust shall continue without limitation of time but subject to
the provisions of sub-section (b) of this Section 4.
(b) Subject to a Majority Shareholder Vote of each Series affected by
the matter or, if applicable, to a Majority Shareholder Vote of the Trust, the
Trustees may
(i) sell, convey, merge and transfer all or substantially all
of the assets of the Trust or any affected Series to another Series or to a
trust, partnership, association or corporation organized under the laws of any
state which is an investment company as defined in the 1940 Act, for adequate
consideration which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of beneficial interest or stock of such
Series, trust, partnership, association or corporation; or
(ii) at any time sell and convert into money all or
substantially all of the assets of the Trust or any affected Series.
Upon making provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the holders of the Shares of the Trust or any
affected Series then outstanding; however, the payment to any particular Class
within such Series may be reduced by any fees, expenses or charges allocated to
that Class. Nothing in this Declaration of Trust shall preclude the Trustees
from distributing such remaining proceeds or assets so that holders of the
Shares of a particular Class of the Trust or any affected Series receive as
their ratable distribution shares solely of an analogous class, as determined by
the Trustees, of such trust, partnership, association or corporation.
The Trustees may take any of the actions specified in clauses (i) and
(ii) above without obtaining a Majority Shareholder Vote of any Series or the
Trust if a majority of the Trustees makes a determination that the continuation
of a Series or the Trust is not in the best interests of such Series, the Trust
or their respective Shareholders as a result of factors or events adversely
affecting the ability of such Series or the Trust to conduct its business and
operations in an economically viable manner. Such factors and events may include
the inability of a Series or the Trust to maintain its assets at an appropriate
size, changes in laws or regulations governing the Series or Trust or affecting
assets of the type in which such Series or the Trust invests or economic
developments or trends having a significant adverse impact on the business or
operations of such Series or the Trust.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in sub-section (b), the Trust or any affected
Series shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder with respect thereto and the right,
title and interest of all parties therein shall be canceled and discharged.
FILING OF COPIES, REFERENCES, HEADINGS
Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trustees with the Secretary of the Commonwealth of
Massachusetts and the Boston City Clerk, as well as any other governmental
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office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments to this Declaration of Trust have been made
and as to any matters in connection with the Trust hereunder, and with the same
effect as if it were the original, may rely on a copy certified by an officer or
Trustee of the Trust to be a copy of this instrument or of any such amendments.
In this instrument or in any such amendments, references to this instrument, and
all expressions like "herein," "hereof" and "hereunder," shall be deemed to
refer to this instrument as amended from time to time. The masculine gender
shall include the feminine and neuter genders. Headings are placed herein for
convenience of reference only, and in case of any conflict, the text of this
instrument, rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
APPLICABLE LAW
Section 6. The Trust set forth in this instrument is made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and,
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
AMENDMENTS
Section 7. All rights granted to the Shareholders under this
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not adversely affect the rights of any Shareholder with respect
to which such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940 Act, by
an instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to the vote of a majority of such Trustees).
Except as provided in the first sentence of this Section 7, any amendment to
this Declaration of Trust that adversely affects the rights of Shareholders may
be adopted at any time by an instrument signed in writing by a majority of the
then Trustees (or by an officer of the Trust pursuant to the vote of a majority
of such Trustees) when authorized to do so by Majority Shareholder Vote;
provided, however, that an amendment that shall affect the Shareholders of one
or more Series (or of one or more Classes), but not the Shareholders of all
outstanding Series (or Classes), shall be authorized by a Majority Shareholder
Vote of each Series (or Class, as the case may be) affected, and no vote of a
Series (or Class) not affected shall be required. Subject to the foregoing, any
such amendment shall be effective as provided in the instrument containing the
terms of such amendment or, if there is no provision therein with respect to
effectiveness, upon the execution of such instrument and of a certificate (which
may be a part of such instrument) executed by a Trustee or officer to the effect
that such amendment has been duly adopted. Copies of the amendment to this
Declaration of Trust shall be filed as specified in Section 5 of this Article
XI. A restated Declaration of Trust, integrating into a single instrument all of
the provisions of the Declaration of Trust which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall be effective upon filing as specified in such Section 5.
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FISCAL YEAR
Section 8. The fiscal year of the Trust shall be determined by the
Trustees in accordance with the By-Laws, provided, however, that the Trustees
may, without Shareholder approval, change the fiscal year of the Trust.
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Schedule A
Series of the Trust
PaineWebber Growth Fund
Classes of Shares of Each Series
An unlimited number of shares of beneficial interest have been established by
the Board as Class A shares, Class B shares, Class C shares and Class Y shares
of each of the above Series. Each of the Class A shares, Class B shares, Class C
shares and Class Y shares of a Series represents interests in the assets of only
that Series and has the same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of shares, except as provided in the Trust's
Declaration of Trust and as set forth below with respect to the Class B shares
of each Series:
1. Each Class B share, other than a share purchased through the
reinvestment of a dividend or a distribution with respect to the Class
B share, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares of the
same Series, based on the relative net asset value of each such class
at the time of the calculation of the net asset value of such class of
shares on the date that is the first Business Day (as defined in the
Series' prospectus and/or statement of additional information) of the
month in which the sixth anniversary of the issuance of such Class B
shares occurs (which, for the purpose of calculating the holding
period required for conversion, shall mean (i) the date on which the
issuance of such Class B shares occurred or (ii) for Class B shares
obtained through an exchange, the date on which the issuance of the
Class B shares of an eligible PaineWebber fund occurred, if such
shares were exchanged directly, or through a series of exchanges for
the Series' Class B shares (the "Conversion Date")).
2. Each Class B share purchased through the reinvestment of a dividend or
a distribution with respect to the Class B shares and the dividends
and distributions on such shares shall be segregated in a separate
sub-account on the stock records of the Series for each of the holders
of record thereof. On any Conversion Date, a number of the shares held
in the sub-account of the holder of record of the share or shares
being converted, calculated in accordance with the next following
sentence, shall be converted automatically, and without any action or
choice on the part of the holder thereof, into Class A shares of the
same Series. The number of shares in the holder's sub-account so
converted shall bear the same relation to the total number of shares
maintained in the sub-account on the Conversion Date as the number of
shares of the holder converted on the Conversion Date pursuant to
Paragraph 2(a) hereof bears to the total number of Class B shares of
the holder on the Conversion Date not purchased through the automatic
reinvestment of dividends or distributions with respect to the Class B
shares.
3. The number of Class A shares into which a Class B share is converted
pursuant to paragraphs 1 and 2 hereof shall equal the number
(including for this purpose fractions of a share) obtained by dividing
the net asset value per share of the Class B shares for purposes of
sales and redemptions thereof at the time of the calculation of the
net asset value on the Conversion Date by the net asset value per
share of the Class A
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shares for purposes of sales and redemptions thereof at the time of
the calculation of the net asset value on the Conversion Date.
4. On the Conversion Date, the Class B shares converted into Class A
shares will cease to accrue dividends and will no longer be
outstanding and the rights of the holders thereof will cease (except
the right to receive declared but unpaid dividends to the Conversion
Date).
For purposes of Paragraph 1 above, the term "eligible PaineWebber fund" includes
any and all mutual funds for which PaineWebber Incorporated or Mitchell Hutchins
Asset Management Inc. serves as investment adviser that offer shares with a
contingent deferred sales charge imposed upon certain redemptions of such shares
and that are exchangeable with the Class B shares of the Series.
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IN WITNESS WHEREOF, the undersigned, being the all the Trustees of the
Trust, have executed this Amended and Restated Declaration of Trust as of the
day and year first above written.
/s/ Margo N. Alexander /s/ Meyer Feldberg
- ------------------------------ ----------------------------
Margo N. Alexander Meyer Feldberg
/s/ E. Garrett Bewkes, Jr. /s/ George W. Gowen
- ------------------------------ ----------------------------
E. Garrett Bewkes, Jr. George W. Gowen
/s/ Richard Q. Armstrong /s/ Frederic V. Malek
- ------------------------------ ----------------------------
Richard Q. Armstrong Frederic V. Malek
/s/ Richard R. Burt /s/ Carl W. Schafer
- ------------------------------ ----------------------------
Richard R. Burt Carl W. Schafer
/s/ Mary C. Farrell
- ------------------------------
Mary C. Farrell
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PAINEWEBBER OLYMPUS FUND
A Massachusetts Business Trust
RESTATED BY-LAWS
November 19, 1997
<PAGE>
BY-LAWS OF PAINEWEBBER OLYMPUS FUND
ARTICLE I
DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL
Section 1.01. Declaration of Trust: These By-Laws shall be subject to
the Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of PaineWebber Olympus Fund, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
Section 1.02. Principal Office of the Trust: Resident Agent: The
principal office of the Trust shall be located in the City of New York, New
York. Its resident agent in Massachusetts shall be CT Corporation System, 2
Oliver Street, Boston, Massachusetts, or such other person as the Trustees may
from time to time designate. The Trust may establish and maintain such other
offices and places of business as the Trustees may, from time to time,
determine.
Section 1.03. Seal: The seal of the Trust shall be circular in form and
shall bear the name of the Trust. The form of the seal shall be subject to
alteration by the Trustees and the seal may be used by causing it or a facsimile
to be impressed or affixed or printed or otherwise reproduced. Any officer or
Trustee of the Trust shall have authority to affix the seal of the Trust to any
document, instrument or other paper executed and delivered by or on behalf of
the Trust; however, unless otherwise required by the Trustees, the seal shall
not be necessary to be placed on and its absence shall not impair the validity
of any document, instrument, or other paper executed by or on behalf of the
Trust.
ARTICLE II
SHAREHOLDERS
Section 2.01. Shareholder Meetings: Meetings of the shareholders may be
called at any time by the Trustees or, if the Trustees shall fail to call any
meeting for a period of 30 days after written request of Shareholders owning at
least one-tenth of the outstanding shares entitled to vote, then such
Shareholders may call such meeting. Each call of a meeting shall state the
place, date, hour and purposes of the meeting.
Section 2.02. Place of Meetings: All meetings of the Shareholders shall
be held at the principal office of the Trust, except that the Trustees may
designate a different place of meeting within the United States.
Section 2.03. Notice of Meeting: The secretary or an assistant
secretary or such other officer as may be designated by the Trustees shall cause
notice of the place, date and hour, and purpose or purposes for which the
meeting is called, to be mailed, not less than fifteen days before the date of
the meeting, to each Shareholder entitled to vote at such meeting, at his
address as it appears on the records of the Trust at the time of such mailing.
Notice of any Shareholders' meeting need not be given to any Shareholder if a
written waiver of notice, executed before or after such meeting, is filed with
the records of such meeting, or to any Shareholder who shall attend such meeting
in person or by proxy. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting.
<PAGE>
Section 2.04. Ballots: The vote upon any question shall be by ballot
whenever requested by any person entitled to vote, but, unless such a request is
made, voting may be conducted in any way approved by the meeting.
Section 2.05. Voting; Proxies: Shareholders entitled to vote may vote
either in person or by proxy, provided that such proxy to act is authorized to
act by (1) a written instrument, dated not more than eleven months before the
meeting and executed either by the Shareholder or by his or her duly authorized
attorney in fact (who may be so authorized by a writing or by any non-written
means permitted by the laws of the Commonwealth of Massachusetts) or (2) such
electronic, telephonic, computerized or other alternative means as may be
approved by a resolution adopted by the Trustees. Proxies shall be delivered to
the secretary of the Trust or other person responsible for recording the
proceedings before being voted. A proxy with respect to shares held in the name
of two or more persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Trust receives a specific written notice to
the contrary from any one of them. Unless otherwise specifically limited by
their terms, proxies shall entitle the holder thereof to vote at any adjournment
of a meeting. A proxy purporting to be exercised by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting.
Section 2.06. Action Without a Meeting: Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting.
ARTICLE III
TRUSTEES
Section 3.01. Regular Meetings: Regular meetings of the Trustees may be
held without further call or notice at such places and at such times as the
Trustees may from time to time determine, provided that notice of the first
regular meeting following any such determination shall be given to absent
Trustees. A regular meeting of the Trustees may be held without further call or
notice immediately after and at the same place as any meeting of the
Shareholders.
Section 3.02. Special Meetings: Special meetings of the Trustees may be
held at any time and at any place designated in the call of the meeting, when
called by the chairman of the Trustees or by two or more Trustees, provided that
notice thereof shall being given to each Trustee as set forth in the Declaration
of Trust.
Section 3.03. Committees: The Trustees, by vote of a majority of the
Trustees then in office, may elect from their number an executive committee or
other committees and may delegate thereto some or all of their powers except
those which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its actions to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect. Any such
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committee may act by meeting in person, by unanimous written consent, or by
telephonic meeting provided a quorum of members participates in any such
telephonic meeting.
Section 3.04. Other Committees: The Trustees may appoint other
committees, each consisting of one or more persons, who need not be Trustees.
Each such committee shall have such powers perform such duties and abide by such
procedures as may be determined from time to time by the Trustees, but shall not
exercise any power which may lawfully be exercised only by the Trustees or a
committee of Trustees.
Section 3.05. Compensation: Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
ARTICLE IV
OFFICERS
Section 4.01. General: The officers of the Trust shall be a president,
a treasurer, a secretary and such other officers, if any, as the Trustees from
time to time may in their discretion elect or appoint. The Trust may also have
such agents, if any, as the Trustees from time to time may in their discretion
appoint. Any officer may be but need not be a Trustee or shareholder. Any two or
more offices may be held by the same person.
Section 4.02. Election and Term of Office: The president, the treasurer
and the secretary shall be elected annually by the Trustees at their first
meeting in each calendar year or at such later meeting in such year as the
Trustees shall determine ("Annual Meeting"). Other officers or agents, if any,
may be elected or appointed by the Trustees at said meeting or at any other
time. The president, treasurer and secretary shall hold office until the next
Annual Meeting and until their respective successors are chosen and qualified,
or in each case until he dies, resigns, is removed or become disqualified. Each
other officer shall hold office and each agent shall retain his authority at the
pleasure of the Trustees.
Section 4.03. Powers: Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to his office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
Section 4.04. Chairman of the Board: The chairman of the Board of
Trustees, if one is so appointed, shall be chosen from among the Trustees and
may hold office only so long as he continues to be a Trustee. Unless the
Trustees otherwise provide, the chairman, if any is so appointed, shall preside
at all meetings of the Shareholders and of the Trustees at which he is present;
may be ex officio a member of all committees established by the Trustees; and
shall have such other duties and powers as specified herein and as may be
assigned to him by the Trustees.
Section 4.05. President: The president shall be the chief executive
officer of the Trust and, subject to the supervision of the Trustees, shall have
general charge of the business, affairs and property of the Trust and general
supervision over its officers, employees and agents. He shall exercise such
other powers and perform such other duties as from time to time may be assigned
to him by the Trustees.
Section 4.06. Vice Presidents: The Trustees may from time to time
designate and elect one or more vice presidents who shall have such powers and
perform such duties as from time to time
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may be assigned to them by the Trustees or the president. At the request or in
the absence or disability of the president, the vice president (or, if there are
two or more vice presidents, then the senior of the vice presidents present and
able to act) may perform all the duties of the president and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
president.
Section 4.07. Treasurer and Assistant Treasurers: The treasurer shall
be the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of account of the Trust. Except as
otherwise provided by the Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the custodian of its
duties with respect thereto. He shall render to the Trustees, whenever directed
by the Trustees, an account of the financial condition of the Trust and of all
his transactions as treasurer; and as soon as possible after the close of each
financial year he shall make and submit to the Trustees a like report for such
financial year. He shall perform all the acts incidental to the office of
treasurer, subject to the control of the Trustees.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the Trustees may assign, and, in the absence of the treasurer, (or,
if there are two or more assistant treasurers, then the senior of the assistant
treasurers present and able to act) may perform all the duties of the treasurer,
subject to the control of the Trustees.
Section 4.08. Secretary and Assistant Secretaries: The secretary shall
attend to the giving and serving of all notices of the Trust and shall record
all proceedings of the meetings of the Shareholders and Trustees in books to be
kept for that purpose. He shall keep in safe custody the seal of the Trust, and
shall have charge of the records of the Trust, all of which shall at all
reasonable times be open to inspection by the Trustees. He shall perform such
other duties as appertain to his office or as may be required by the Trustees.
Any assistant secretary may perform such duties of the secretary as the
secretary or the Trustees may assign, and, in the absence of the secretary, (or,
if there are two or more assistant secretaries. then the senior of the assistant
secretaries present and able to act) may perform all the duties of the
secretary.
Section 4.09. Subordinate Officers: The Trustees from time to time may
appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one or more officers or agents the power to appoint any
such subordinate officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
Section 4.10. Remuneration: The salaries or other compensation of the
officers of the Trust shall be fixed from time to time by resolution of the
Trustees, except that the Trustees may by resolution delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
Section 4.09 hereof.
Section 4.11. Surety Bonds: The Trustees may require any officer or
agent of the Trust to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended, ("1940 Act") and the
rules and regulations of the Securities and Exchange Commission ("Commission"))
to the Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of his duties to the Trust
including responsibility for negligence and for the accounting of any of the
Trust's property, funds or securities that may come into his hands.
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Section 4.12. Resignation: Any officer may resign his office at any
time by delivering a written resignation to the Trustees, the president, the
secretary, or any assistant secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 4.13. Removal: Any officer may be removed from office whenever
in the judgment of the Trustees the best interest of the Trust will be served
thereby, by the vote of a majority of the Trustees given at a regular meeting or
any special meeting of the Trustees called for such purpose. In addition, any
officer or agent appointed in accordance with the provision of Section 4.09
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
Section 4.14. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
of the Trustees or, in the case of any office created pursuant to Section 4.09
hereof, by any officer upon whom such power shall have been conferred by the
Trustees.
ARTICLE V
CUSTODIAN
Section 5.01. Employment of Custodian: The Trustees shall at all times
employ one or more banks or trust companies organized under the laws of the U.S.
or one of the states thereof provided that each such bank or trust company has
capital, surplus and undivided profits of at least two million dollars
($2,000,000) as custodian with authority as the Trust's agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and deliver the same
upon written order, or oral order if confirmed in writing, or
order delivered by such electromechanical or electronic devices
as are agreed to by the Trust and the custodian, if such
procedures have been authorized in writing by the Trust;
(2) to receive and give receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct; and
(3) to disburse such moneys upon orders or vouchers;
and the Trust may also enjoy such custodian as its agent:
(1) to keep the books and accounts of the Trust and furnish clerical
and accounting services; and
(2) to compute, if authorized to do so by the Trustees, the Net Asset
Value of any Series or Class (which terms are defined in the
Declaration of Trust) in accordance with the provisions of the
Declaration of Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a vote of a majority of the outstanding
shares of the Trust entitled to vote, the custodian shall deliver and pay over
all property of the Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by
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the Trustees, provided that in every case such sub-custodian shall be a bank or
trust company organized under the laws of the United States or one of the states
thereof and having capital, surplus and undivided profits of at least two
million dollars ($2,000,000) or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act.
Section 5.02. Use of Central Securities Handling System: Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to deposit any or all of the securities owned by the Trust
(1) in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust; or (2) with such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act.
ARTICLE VI
EXECUTION OF PAPERS
Section 6.01. General: Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, transfers, contracts, bonds, notes, checks, drafts, and other
obligations made, accepted, or endorsed by the Trust shall be executed by the
president, any vice president, or the treasurer, or by whomever else shall be
designated for that purpose by the Trustees, and need not bear the seal of the
Trust.
ARTICLE VII
SHARES OF BENEFICIAL INTEREST
Section 7.01. Share Certificates: No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
authorize. In the event that the Trustees authorize the issuance of Share
certificates, subject to the provisions of Section 7.03, each Shareholder shall
be entitled to a certificate stating the number of shares owned by him, in such
form as shall be prescribed from time to time by the Trustees. Such certificate
shall be signed by the president or a vice president and by the treasurer,
assistant treasurer, secretary or assistant secretary. Such signatures may be
facsimiles if the certificate is signed by a transfer or shareholder services
agent or by a registrar, other than a Trustee, officer or employee of the Trust.
In case any officer who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Trust with the same effect as if he were such
officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees, the transfer
agent or shareholder services agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
Section 7.02. Loss of Certificates: In the case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
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Section 7.03. Discontinuance of Issuance of Certificates: The Trustees
may at any time discontinue the issuance of Share certificates and may, by
written notice to each Shareholder, require the surrender of Share certificates
to the Trust for cancellation. Such surrender and cancellation shall not affect
the ownership of Shares in the Trust.
Section 7.04. Equitable Interest Not Recognized: The Trust shall be
entitled to treat the holder of record of any Share or Shares of the Trust as
the holder in fact thereof, and shall not be bound to recognize any equitable or
other claim of interest in such Share or Shares on the part of any other person
except as may be otherwise expressly provided by law.
Section 7.05. Transfer of Shares: The Shares of the Trust shall be
transferable only by transfer recorded on the books of the Trust, in person or
by attorney.
ARTICLE VIII
FISCAL YEAR; ACCOUNTANT
Section 8.01. Fiscal Year: The fiscal year of the Trust shall end on
such date in each year as the Trustees shall from time to time determine.
Section 8.02. Accountant:
(a) The Trust shall employ an independent public accountant or firm of
independent public accountants as its accountant to examine the accounts of the
Trust and to sign and certify the financial statements of the Trust. The
accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders of the Trust.
(b) Any vacancy occurring due to the death or resignation of the
accountant may be filled by a majority vote of the Trustees who are not
interested persons of the Trust.
ARTICLE IX
INSURANCE
Section 9.01. Insurance of Officers, Trustees, and Employees: The Trust
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 and incurred by him in any such capacity or arising out of his status as
such, whether or not the Trust would have the power to indemnify him against
such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he 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 office.
ARTICLE X
AMENDMENTS; REPORTS; MISCELLANEOUS
Section 10.1. Amendments: These By-Laws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at any meeting of
the Trustees, or by one or more writings signed by such majority.
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Section 10.2. Reports: The Trustees shall at least semiannually submit
to the Shareholders a written report of the transactions of the Trust, including
financial statements that shall at least annually be certified by independent
public accountants.
Section 10.3. Gender: As used in these By-Laws, the masculine gender
shall include the feminine and neuter genders.
Section 10.3. Headings: Headings are placed in these bylaws for
convenience of reference only and in case of any conflict, the text of these
By-Laws rather than the headings shall control.
Section 10.4. Inspection of Books: The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders, and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees.
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TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of ___________, 1997 by and between PFPC INC., a
Delaware corporation ("PFPC"), and PaineWebber ___ Fund, a [Maryland
corporation] [Massachusetts business trust](the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions. As Used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other person
duly authorized by the Fund's Board of Directors or Trustees ("Board") to give
Oral Instructions and
<PAGE>
Written Instructions on behalf of the Fund and listed on the Authorized Persons
Appendix attached hereto and made a part hereof or any amendment thereto as may
be received by PFPC. An Authorized Person's scope of authority may be limited by
the Fund by setting forth such limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC from an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and the
CEA.
(h) "Shares" mean the shares of common stock or beneficial interest of any
series or class of the Fund.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the Fund
in accordance with the terms set forth in this Agreement. PFPC accepts such
appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
provide PFPC with the following:
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(a) Certified or authenticated copies of the resolutions of the
Fund's Board approving the appointment of PFPC to provide
services to the Fund and approving this Agreement;
(b) A copy of each executed broker-dealer agreement with respect
to each Fund; and
(c) Copies (certified or authenticated if requested by PFPC) of
any post-effective amendment to the Fund's registration
statement, advisory agreement, distribution agreement,
shareholder servicing agreement and all amendments or
supplements to the foregoing upon request.
4. Compliance with Rules and Regulations. PFPC undertakes to comply with
all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any of
its series or investment portfolios (each, a "Portfolio").
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and Written
Instructions it receives from an Authorized Person pursuant to this Agreement.
PFPC may assume that any Oral Instruction or Written Instruction received
hereunder is not in any way inconsistent with the provisions of organizational
documents or of any vote, resolution or proceeding of the Fund's Board or of the
Fund's shareholders, unless and until PFPC receives
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Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PFPC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such Oral Instructions or Written
Instructions provided that PFPC's actions comply with the other provisions of
this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
pertaining to any action it should or should not take, PFPC may request advice
at its own cost from such counsel of its own choosing (who may be counsel for
the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written
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Instructions PFPC receives from the Fund, and the advice it receives from
counsel, PFPC may rely upon and follow the advice of counsel. In the event PFPC
so relies on the advice of counsel, PFPC remains liable for any action or
omission on the part of PFPC which constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC of any duties, obligations or
responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be construed
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
7. Records; Visits. PFPC shall prepare and maintain in complete and
accurate form all books and records necessary for it
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to serve as transfer agent, registrar, dividend disbursing agent and shareholder
servicing agent to the Fund, including (a) all those records required to be
prepared and maintained by the Fund under the 1940 Act, by other applicable
Securities Laws, rules and regulations and by state laws and (b) such books and
records as are necessary for PFPC to perform all of the services it agrees to
provide in this Agreement and the appendices attached hereto, including but not
limited to the books and records necessary to effect the conversion of Class B
shares, the calculation of any contingent deferred sales charges and the
calculation of front-end sales charges. The books and records pertaining to the
Fund, which are in the possession or under the control of PFPC, shall be the
property of the Fund. The Fund and Authorized Persons shall have access to such
books and records in the possession of PFPC at all times during PFPC's normal
business hours. Upon the reasonable request of the Fund, copies of any such
books and records in the possession of PFPC shall be provided by PFPC to the
Fund or to an Authorized Person, at the Fund's expense. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable visits by the Fund, any agent or person designated by
the Fund or any regulatory agency having authority over the Fund.
8. Confidentiality. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its
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DRAFT
shareholders (past, present and future), its investment adviser and its
principal underwriter, unless the release of such records or information is
otherwise consented to, in writing, by the Fund prior to its release. The Fund
agrees that such consent shall not be unreasonably withheld and may not be
withheld where PFPC may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly constituted
authorities.
9. Coogeration with Accountants. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
periodic backup of computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of equipment
failures, PFPC shall, at no additional expense to the Fund, take reasonable
steps to minimize service interruptions. PFPC shall have no liability with
respect to the loss of data or service interruptions caused by equipment
failure, provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations under
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DRAFT
this Agreement and provided further that PFPC has complied with the provisions
of this paragraph 10.
11. Compensation. As compensation for services rendered by PFPC during the
term of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed
to from time to time in writing by the Fund and PFPC.
12. Indemnification.
(a) The Fund agrees to indemnify and hold harmless PFPC and its affiliates
from all taxes, charges, expenses, assessments, penalties, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from (i) any
action or omission to act which PFPC takes (a) at the request or on the
direction of or in reliance on the advice of the Fund or (b) upon Oral
Instructions or Written Instructions or (ii) the acceptance, processing and/or
negotitation of checks or other methods utilized for the purchase of Shares.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of PFPC's or
its affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement, provided that in
the absence of a finding to the contrary the acceptance, processing and/or
negotiation of a
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DRAFT
fraudulent payment for the purchase of Shares shall be presumed not to have been
the result of PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of such duties and obligations.
(b) PFPC agrees to indemnify and hold harmless the Fund from all taxes,
charges, expenses, assessments, penalties, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including
(without limitation) reasonable attorneys' fees and disbursements arising
directly or indirectly out of PFPC's or its nominee's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's
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DRAFT
prior written consent.
(d) The members of the Board of the Fund and Shareholders of the Fund, or
any Portfolio thereof, shall not be liable for any obligations of the Fund, or
any such Portfolio, under this Agreement, and PFPC agrees that in asserting any
rights or claims under this Agreement, it shall look only to the assets and
property of the Fund or the particular Portfolio in settlement of such rights or
claims and not to such members of the Board or Shareholders. PFPC further agrees
that it will look only to the assets and property of a particular Portfolio of
the Fund, should the Fund have established separate series, in asserting any
rights or claims under this Agreement with respect to services rendered with
respect to that Portfolio and will not seek to obtain settlement of such rights
or claims from the assets of any other Portfolio of the Fund. Notwithstanding
the foregoing, in asserting any rights or claims under this Agreement, PFPC
shall not be prevented from looking to the assets and property of the Fund
sponsor or any other appropriate party(ies) in settlement of such rights or
claims.
13. Insurance. PFPC shall maintain insurance of the types and in the
amounts deemed by it to be appropriate. To the extent that policies of
insurance may provide for coverage of claims for liability or indemnity by the
parties set forth in this Agreement, the contracts of insurance shall take
precedence, and no provision of this Agreement shall be construed to relieve an
insurer of any
10
<PAGE>
DRAFT
obligation to pay claims to the Fund, PFPC or other insured party which would
otherwise be a covered claim in the absence of any provision of this Agreement.
14. Security.
(a) PFPC represents and warrants that, to the best of its knowledge, the
various procedures and systems which PFPC has implemented with regard to the
safeguarding from loss or damage attributable to fire, theft or any other cause
(including provision for twenty-four hours a day restricted access) of the
Fund's blank checks, certificates, records and other data and PFPC's equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate, and that it will make such changes therein from time to
time as in its judgment are required for the secure performance of its
obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have reasonable access to review these systems
and procedures.
(b) Y2K Compliance. PFPC further represents and warrants that any and all
electronic data processing systems and programs that it uses in connection with
the provision of services hereunder and over which PFPC has control prior to
1999 will be year 2000 compliant.
15. Responsibility of PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as
11
<PAGE>
DRAFT
may be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise care and diligence in the performance of its duties hereunder, to act
in good faith and to use its best efforts in performing services provided for
under this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of PFPC's
12
<PAGE>
DRAFT
or its affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC or its
affiliates.
16. Description of Services.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Calculate 12b-1 payments to financial intermediaries and
financial intermediary trail commissions;
(ii) Develop, monitor and maintain, in consultation with the
Fund, all systems necessary to implement and operate the
four-tier distribution system, including Class B
conversion feature, as described in the registration
statement and related documents of the Fund, as they
may be amended from time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Fund shares and deduct such amounts from
redemption proceeds;
(iv) Calculate front-end sales load amounts at time of
purchase of shares;
(v) Determine dates of Class B conversion and effect the
same;
(vi) Establish and maintain proper shareholder registrations;
(vii) Review new applications and correspond with shareholders
to complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with
proxy solicitations;
(x) Prepare and mail to shareholders confirmation of
activity;
13
<PAGE>
DRAFT
(xi) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(xii) Send duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly with PFPC;
(xiii) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the clients as
agreed to by PFPC and the Fund from time to time;
(xiv) Provide detailed data for underwriter/broker
confirmations;
(xv) Prepare periodic mailing of year-end tax and statement
information;
(xvi) Notify on a daily basis the investment adviser,
accounting agent, and custodian of fund activity; and
(xvii) Perform, itself or through a delegate, all of the
services, whether or not included within the scope of
another paragraph of this Paragraph 16(a), specified on
Annex A hereto; and
(xviii) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral Instructions or Written
Instructions.
(i) Accept and post daily Fund and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Cancel certificates.
14
<PAGE>
DRAFT
(c) Purchase of Shares. PFPC shall issue and credit an account of an
investor, in the manner described in the Fund's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account;
and
(iii) Confirmation of receipt or crediting of funds for such
order to the Fund's custodian.
(d) Redemption of Shares. PFPC shall redeem Shares only if that function is
properly authorized by the Fund's organizational documents or resolutions of the
Fund's Board. Shares shall be redeemed and payment therefor shall be made in
accordance with the Fund's or Portfolio's prospectus.
(i) Broker-Dealer Accounts.
When a broker-dealer notifies PFPC of a redemption desired
by a customer, and the Fund's Custodian (the "Custodian")
provides PFPC with funds, PFPC shall prepare and send the
redemption check to the broker-dealer and made payable to
the broker-dealer on behalf of its customer.
(ii) Fund-Only Accounts.
If Shares are received in proper form, at the Fund's request
Shares may be redeemed before the funds are provided to PFPC
from the
15
<PAGE>
DRAFT
Custodian. If the recordholder has not directed that
redemption proceeds be wired, when the Custodian provides
PFPC with funds, the redemption check shall be sent to and
made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed by
the recordholder; or
[(ii) transfer authorizations are signed by the recordholder when
Shares are held in book-entry form.
(e) Dividends and Distributions. Upon receipt of a resolution of the Fund's
Board authorizing the declaration and payment of dividends and distributions,
PFPC shall issue dividends and distributions declared by the Fund in Shares, or,
upon shareholder election, pay such dividends and distributions in cash, if
provided for in the appropriate Fund's or Portfolio's prospectus. Such issuance
or payment, as well as payments upon redemption as described above, shall be
made after deduction and payment of the required amount of funds to be withheld
in accordance with any applicable tax laws or other laws, rules or regulations.
PFPC shall mail to the Fund's shareholders such tax forms and other information,
or permissible substitute notice, relating to dividends and distributions paid
by the Fund as are required to be filed and mailed by applicable law, rule or
regulation. PFPC shall prepare, maintain and file with the IRS and
16
<PAGE>
DRAFT
other appropriate taxing authorities reports relating to all dividends above a
stipulated amount paid by the Fund to its shareholders as required by tax or
other law, rule or regulation.
(f) Shareholder Account Services.
(i) PFPC will arrange, in accordance with the appropriate
Fund's or Portfolio's prospectus, for issuance of Shares
obtained through:
- The transfer of funds from shareholders' accounts at
financial institutions, provided PFPC receives advance
Oral Instruction of such transfer;
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC will arrange, in accordance with the appropriate
Fund's or Portfolio's prospectus, for a shareholder's:
- Exchange of Shares for shares of another fund with which
the Fund has exchange privileges;
- Automatic redemption from an account where that shareholder
participates in a systematic withdrawal plan; and/or
- Redemption of Shares from an account with a checkwriting
privilege.
(g) Communications to Shareholders. Upon timely Written Instructions, PFPC
shall mail all communications by the Fund to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund shares;
17
<PAGE>
DRAFT
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy cards
cards for the meetings of the Fund's shareholders and supply personnel to serve
as inspectors of election.
(h) Records. PFPC shall maintain those records required by the Securities
Laws and any laws, rules and regulations of governmental authorities having
jurisdication with respect to the duties to be performed by PFPC hereunder with
respect to shareholder accounts or by transfer agents generally, including
records of the accounts for each shareholder showing the following information:
(i) Name, address and United States Tax Identification or
Social Security number;
(ii) Number and class of Shares held and number and class of
Shares for which certificates, if any, have been issued,
including certificate numbers and denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid and
the date and price for all transactions on a shareholder's
account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current maintenance of a
shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(i) Lost or or Stolen Certificates. PFPC shall place a
18
<PAGE>
DRAFT
stop notice against any certificate reported to be lost or stolen and comply
with all applicable federal regulatory requirements for reporting such loss or
alleged misappropriation.
(j) Shareholder Inspection of Stock Records. Upon a request from any Fund
shareholder to inspect stock records, PFPC will notify the Fund, and the Fund
will issue instructions granting or denying each such request. Unless PFPC has
acted contrary to the Fund's instructions, the Fund agrees and does hereby,
release PFPC from any liability for refusal of permission for a particular
shareholder to inspect the Fund's shareholder records.
(k) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, PFPC shall cancel outstanding
certificates surrendered by the Fund to reduce the total amount of outstanding
shares by the number of shares surrendered by the Fund.
17. Duration and Termination.
(a) This Agreement shall be effective on the date first written above and
shall continue for a period of three (3) years (the "Initial Term"). Upon the
expiration of the Initital Term, this Agreement shall automatically renew for
successive terms of one (1) year ("Renewal Terms") each provided that it may be
terminated by either party during a Renewal Term upon written notice given at
least ninety (90) days prior to termination. During either the Initial Term or
the Renewal Terms, this Agreement
19
<PAGE>
DRAFT
may also be terminated on an earlier date by either party for cause.
(b) With respect to the Fund, cause includes, but is not limited to, (i)
PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute "cause" under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of the Securities Laws or other applicable laws related to
its business of performing transfer agency services;
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with subparagraphs
(a), (b) and (c) of this Paragraph by the Fund shall be effective thirty (30)
days from the date of any such notice.
20
<PAGE>
DRAFT
Any notice of termination for cause by PFPC shall be effective 90 days from the
date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including, a certified list of the
shareholders of the Fund or any Portfolio thereof with name, address, and if
provided, taxpayer identification or Social Security number, and a complete
record of the account of each shareholder. To the extent that PFPC incurs
expenses related to a transfer of responsibilities to a successor, other than
expenses involved in PFPC's providing the Fund's books and records described in
the preceding sentence to the successors, PFPC shall be entitled to be
reimbursed for such extraordinary expenses, including any out-of-pocket expenses
reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall not affect
the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund or any Portfolio thereof upon the liquidation, merger, or
other dissolution of the Fund or
21
<PAGE>
DRAFT
Portfolio or upon the Fund's ceasing to be a registered investment company.
18. Registration as a Transfer Agent. PFPC represents that it is currently
registered with the appropriate federal agency for the registration of transfer
agents, or is otherwise permitted to lawfully conduct its activities without
such registration and that it will remain so registered or able to so conduct
such activities for the duration of this Agreement. PFPC agrees that it will
promptly notify the Fund in the event of any material change in its status as a
registered transfer agent. Should PFPC fail to be registered with the SEC as a
transfer agent at any time during this Agreement, and such failure to register
does not permit PFPC to lawfully conduct its activities, the Fund may, on
written notice to PFPC, terminate this Agreement upon five days written notice
to PFPC.
19. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at the address
of the Fund or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming telegram,
cable, telex or facsimile sending device during regular business hours, it shall
be deemed to have been
22
<PAGE>
DRAFT
given immediately; if sent at a time other than regular business hours, such
notice shall be deemed to have been given at the opening of the next business
day. If notice is sent by first-class mail, it shall be deemed to have been
given three days after it has been mailed. If notice is sent by messenger, it
shall be deemed to have been given on the day it is delivered. All postage,
cable, telegram, telex and facsimile sending device charges arising from the
sending of a notice hereunder shall be paid by the sender.
20. Amendments. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
21. Additional Series. In the event that the Fund establishes one or more
investment series in addition to and with respect to which it desires to have
PFPC render services as transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent under the terms set forth in this Agreement, it
shall so notify PFPC in writing, and PFPC shall agree in writing to provide such
services, and such investment series shall become a Portfolio hereunder, subject
to such additional terms, fees and conditions as are agreed to by the parties.
22. Delegation; Assignment.
(a) PFPC may, at its own expense, assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days'
23
<PAGE>
DRAFT
prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the
Fund to comply with all relevant provisions of the Securities Laws; and (iii)
PFPC and such delegate (or assignee) promptly provide such information as the
Fund may request, and respond to such questions as the Fund may ask, relative to
the delegation (or assignment), including (without limitation) the capabilities
of the delegate (or assignee). The assignment and delegation of any of PFPC's
duties under this subparagraph (a) shall not relieve PFPC of any of its
responsibilities liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to perform
the services described on Annex A hereto. In addition, PFPC may assign its
rights and delegate its other duties hereunder to PaineWebber Incorporated or
Mitchell Hutchins Asset Management Inc. or an affiliated person of either,
provided that (i) PFPC gives the Fund thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PFPC and the Fund to comply with all
relevant provisions of the 1940 Act; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Fund may request, and respond
to such questions as the Fund may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee). In assigning its rights and delegating its duties under this
paragraph, PFPC may impose such conditions or limitations as it determines
appropriate including the condition that PFPC be
24
<PAGE>
DRAFT
retained as a sub-transfer agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
23. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to services to be performed and fees payable under this Agreement.
(b) Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of conflicts
of law.
25
<PAGE>
DRAFT
(d) Partial Invalidity. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
26
<PAGE>
DRAFT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
---------------------------------
Title:
------------------------------
PAINEWEBBER _____ FUND
By:
---------------------------------
Title:
------------------------------
27
<PAGE>
DRAFT
AUTHORIZED PERSONS APPENDIX
Name (Type) Signature
- ------------------------- ------------------------------
- ------------------------- ------------------------------
- ------------------------- ------------------------------
- ------------------------- ------------------------------
- ------------------------- ------------------------------
- ------------------------- ------------------------------
- ------------------------- ------------------------------
- ------------------------- ------------------------------
28
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Auditors" and to the incorporation by reference of our report
dated October 14, 1997, in this Registration Statement (Form N-1A No. 2-94983)
of PaineWebber Growth Fund (a series of PaineWebber Olympus Fund).
/s/ Ernst & Young LLP
--------------------------------
Ernst & Young LLP
New York, New York
November 21, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> PAINEWEBBER OLYMPUS FUND
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<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
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<RECEIVABLES> 6421
<ASSETS-OTHER> 42
<OTHER-ITEMS-ASSETS> 0
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<SENIOR-EQUITY> 0
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<DIVIDEND-INCOME> 848
<INTEREST-INCOME> 1212
<OTHER-INCOME> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<AVERAGE-NET-ASSETS> 207859
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> PAINEWEBBER OLYMPUS FUND
<SERIES>
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<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
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<INVESTMENTS-AT-VALUE> 125727
<RECEIVABLES> 3677
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 129428
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<TOTAL-LIABILITIES> 13898
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57025
<SHARES-COMMON-STOCK> 4714
<SHARES-COMMON-PRIOR> 6033
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<ACCUMULATED-NET-GAINS> 23438
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 115530
<DIVIDEND-INCOME> 486
<INTEREST-INCOME> 694
<OTHER-INCOME> 0
<EXPENSES-NET> (2630)
<NET-INVESTMENT-INCOME> (1451)
<REALIZED-GAINS-CURRENT> 24582
<APPREC-INCREASE-CURRENT> (5957)
<NET-CHANGE-FROM-OPS> 17175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (12090)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 230
<NUMBER-OF-SHARES-REDEEMED> (2048)
<SHARES-REINVESTED> 499
<NET-CHANGE-IN-ASSETS> (12009)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12805
<OVERDISTRIB-NII-PRIOR> (1236)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 936
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2630
<AVERAGE-NET-ASSETS> 132686
<PER-SHARE-NAV-BEGIN> 23.30
<PER-SHARE-NII> (0.26)
<PER-SHARE-GAIN-APPREC> 3.58
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<PER-SHARE-NAV-END> 24.51
<EXPENSE-RATIO> 2.06
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> PAINEWEBBER OLYMPUS FUND
<SERIES>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 19430
<INVESTMENTS-AT-VALUE> 26946
<RECEIVABLES> 788
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27739
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2979
<TOTAL-LIABILITIES> 2979
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