<PAGE>
As filed with the Securities and Exchange Commission on July 31, 1998
1933 Act Registration No. 33-33231
1940 Act Registration No. 811-4587
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _______ [_]
Post-Effective Amendment No. 17 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
(Check appropriate box or boxes.)
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
DIANNE E. O'DONNELL, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ELINOR W. GAMMON, Esq.
BENJAMIN J. HASKIN, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.; 2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: Effective Date of this Post-
Effective Amendment.
It is proposed that this filing will become effective:
[_] Immediately upon filing pursuant to Rule 485(b)
[X] On August 1, 1998 pursuant to Rule 485(b)
[_] 60 days after filing pursuant to Rule 485(a)(1)
[_] On _________ pursuant to Rule 485(a)(1)
[_] 75 days after filing pursuant to Rule 485(a)(2)
[_] On _________ pursuant to Rule 485(a)(2)
Title of Securities Being Registered: Shares of Common Stock.
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No. and Caption Prospectus Caption
- --------------------------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis The Funds at a Glance; Expense Table
3. Condensed Financial Information Financial Highlights; Performance
4. General Description of Registrant The Funds at a Glance; Investment Objectives and
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; Flexible Pricing /SM/; Dividends &
Taxes; General Information
7. Purchase of Securities Being Offered Flexible Pricing; 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 Additional Information Caption
- --------------------------- -------------------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Other Information
13. Investment Objective and Policies Investment Policies and Restrictions; Hedging and
Other Strategies Using Derivative Instruments;
Portfolio Transactions
14. Management of the Fund Trustees, Directors and Officers; Principal
Holders of Securities
15. Control Persons and Principal Holders of Securities Trustees, Directors and Officers; Principal
Holders of Securities
16. Investment Advisory and Other Services Investment Advisory and Distribution Arrangements
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Conversion of Class B Shares; Other Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Item No. and Caption Statement of Additional Information Caption
- --------------------------- -------------------------------------------
<S> <C>
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
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
------------------
PaineWebber Financial Services Growth Fund Inc.
PaineWebber Utility Income Fund
1285 Avenue of the Americas, New York, NY 10019
Prospectus -- August 1, 1998
- --------------------------------------------------------------------------------
These PaineWebber Stock Funds are designed for investors generally seeking
capital appreciation by investing principally in equity securities. Financial
Services Growth Fund invests primarily in equity securities of companies in the
financial services industries. Utility Income Fund also seeks to provide
current income and invests primarily in income-producing equity securities and
bonds of companies in the utility industries.
This Prospectus concisely sets forth information that a prospective 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 August 1, 1998 has been filed with
the Securities and Exchange Commission ("SEC" or "Commission") and is legally
part of this Prospectus. The Statement of Additional Information can be
obtained without charge, and further inquiries can be made, by contacting an
individual Fund, your investment executive at PaineWebber or one of its
correspondent firms or by calling toll-free 1-800-647-1568. In addition, the
Commission maintains a website (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the Commission.
- --------------------------------------------------------------------------------
THE PAINEWEBBER FAMILY OF MUTUAL FUNDS
The PaineWebber Family of Mutual Funds consists of seven broad categories,
which are presented here. Generally, investors seeking to maximize return must
assume greater risk. The Funds offered by this Prospectus are in the STOCK
FUNDS category.
. Global Funds for long-term growth by investing
. Asset Allocation Funds mainly in foreign stocks or high current income
for high total return by by investing mainly in global debt instruments.
investing in stocks and
bonds.
. Money Market Fund for income and stability by
investing in high-quality, short-term
investments.
. Stock Funds for long-term
growth by investing
mainly in equity
securities.
. Funds of Funds for either long-term growth of
capital; total return; or income and,
secondarily, growth of capital by investing in
other PaineWebber mutual funds.
. Bond Funds for income by
investing mainly in
bonds.
. Tax-Free Bond Funds for
income exempt from
federal income tax and,
in some cases, state and
local income taxes, by
investing in municipal
bonds.
A complete listing of the PaineWebber Family of Mutual Funds is found on the
back cover of this Prospectus.
- --------------------------------------------------------------------------------
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERRED TO IN THIS
PROSPECTUS. THE FUNDS AND THEIR DISTRIBUTOR HAVE NOT AUTHORIZED ANYONE TO PRO-
VIDE INVESTORS WITH INFORMATION THAT IS DIFFERENT. THE PROSPECTUS IS NOT AN OF-
FER 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 Financial Services Growth Fund Utility Income Fund
-------------------
Table of Contents
- --------------------------------------------------------------------------------
----------
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Funds at a Glance...................................................... 3
Expense Table.............................................................. 5
Financial Highlights....................................................... 8
Investment Objectives & Policies........................................... 12
Investment Philosophy & Process............................................ 13
Performance................................................................ 14
The Funds' Investments..................................................... 16
Flexible Pricing SM........................................................ 20
How to Buy Shares.......................................................... 23
How to Sell Shares......................................................... 24
Other Services............................................................. 25
Management................................................................. 26
Determining the Shares' Net Asset Value.................................... 27
Dividends & Taxes.......................................................... 28
General Information........................................................ 30
</TABLE>
Prospectus Page 2
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
The Funds at a Glance
- -------------------------------------------------------------------------------
----------
The Funds offered by this Prospectus are not intended to provide a complete or
balanced 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.
MANAGEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
asset management subsidiary of PaineWebber Incorporated ("PaineWebber"), is
the investment adviser and administrator of each Fund.
FINANCIAL SERVICES GROWTH FUND
GOAL: To increase the value of your investment by investing primarily in the
equity securities of domestic and foreign financial services 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's concentration in the banking, thrift, insurance and other
financial services industries makes it subject to greater risk and volatility
than equity funds that are more diversified, and the value of the Fund's
shares will be affected by economic, competitive and regulatory developments
affecting the financial services industries. The Fund may invest in the
securities of foreign companies, which may involve more risk than the
securities of U.S. companies. The Fund may use derivatives, such as options,
futures and foreign currency contracts, which may involve additional risks.
Investors may lose money by investing in the Fund; the investment is not
guaranteed.
SIZE: On June 30, 1998, the Fund had over $550 million in assets.
UTILITY INCOME FUND
GOAL: To increase the value of your investment and provide current income by
investing primarily in income-producing equity securities and bonds of
domestic and foreign companies engaged in the ownership or operation of
facilities used in the generation, transmission or distribution of
electricity, telecommunications, gas or water.
INVESTMENT OBJECTIVE: Current income and 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's concentration in the utility industries makes it subject
to greater risk and volatility than funds that are more diversified, and the
value of the Fund's shares will be affected by economic, competitive and
regulatory developments in the utility industries. The Fund may invest in the
securities of foreign companies, which may involve more risk than the
securities of U.S. companies. The Fund may use derivatives, such as options,
futures and foreign currency contracts, which may involve additional risks.
Investors may lose money by investing in the Fund; the investment is not
guaranteed.
SIZE: On June 30, 1998, the Fund had over $35 million in assets.
MINIMUM INVESTMENT
To open an account, investors need $1,000; to add to an account, investors
need only $100.
WHO SHOULD INVEST
FINANCIAL SERVICES GROWTH FUND is for investors who want long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily
in the equity securities of domestic and foreign financial services companies,
including banks, thrift institutions ("thrifts"), insurance companies,
commercial finance companies, consumer finance companies, brokerage companies,
investment management companies,
Prospectus Page 3
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
The Funds at a Glance
(Continued)
- -------------------------------------------------------------------------------
----------
companies that provide specialized services closely allied to financial
services (such as transaction processing and financial printing) and their
holding companies. Accordingly, Financial Services Growth Fund is designed for
investors who are seeking long-term growth for a portion of their investments
and who can assume the risks of greater fluctuation of market value resulting
from a portfolio concentrated in the financial services industries.
UTILITY INCOME FUND is for investors who are seeking both current income and
capital appreciation. The Fund seeks to achieve its objective by investing in
equity securities and bonds in domestic and foreign electric,
telecommunications, gas and water industries. Accordingly, Utility Income Fund
is designed for conservative investors who are seeking income as well as
capital growth through utility stocks and bonds, which are traditionally
viewed as conservative investments.
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 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 sales
charge is called a "contingent deferred sales charge" and applies when
investors sell their Class B shares within six years after purchase. After six
years, Class B shares convert to Class A shares, which have lower ongoing
expenses and no contingent deferred sales charge.
CLASS C SHARES
The price is the net asset value. Investors do not pay an initial sales charge
when they buy Class C shares. As a result, 100% of their purchase is
immediately invested. However, Class C shares have higher ongoing expenses
than Class A shares. A contingent deferred sales charge of 1% is charged on
shares sold within one year of purchase. Class C shares never convert to any
other class of shares.
CLASS Y SHARES
Class Y shares are offered for sale 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
share when they sell Class Y shares. Class Y shares have lower ongoing
expenses than any other class of shares.
Prospectus Page 4
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Expense Table
- -------------------------------------------------------------------------------
----------
Prospectus Page 5
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 are based on those incurred for the most recent fiscal
year, except that "Other Expenses" and "Total Operating Expenses" for Class Y
shares has been estimated because no Class Y shares were outstanding or were
outstanding for only two days. All expenses for Utility Income Fund are those
that would have been incurred by that Fund had Mitchell Hutchins and
PaineWebber not voluntarily waived a portion of their fees.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
SHAREHOLDER TRANSACTION EXPENSES ------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases of Shares
(as a % of offering price)................... 4.50% 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 net asset value at the time of purchase
or sale, whichever is less) ................. None 5% 1% None
Exchange Fee.................................. None None None None
ANNUAL FUND OPERATING EXPENSES (as a % of
average net assets)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
FINANCIAL SERVICES GROWTH FUND
Management Fees......................................... 0.70% 0.70% 0.70% 0.70%
12b-1 Fees.............................................. 0.25 1.00 1.00 None
Other Expenses ......................................... 0.22 0.22 0.22 0.22%
---- ---- ---- ----
Total Operating Expenses................................ 1.17% 1.92% 1.92% .92%
==== ==== ==== ====
UTILITY INCOME FUND
Management Fees......................................... 0.70% 0.70% 0.70% 0.70%
12b-1 Fees.............................................. 0.25 1.00 1.00 None
Other Expenses ......................................... 0.97 0.98 0.98 0.97%
---- ---- ---- ----
Total Operating Expenses................................ 1.92% 2.68% 2.68% 1.67%
==== ==== ==== ====
</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 by the shareholder, whichever is less, is imposed.
CLASS B SHARES: Sales charge waivers are available. The maximum 5%
contingent deferred sales charge applies to sales of shares during the
first year after purchase. The charge generally declines by 1% annually,
reaching zero after six years.
CLASS C SHARES: If 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 the sale by the
shareholder, whichever is less, is imposed.
CLASS Y SHARES: No initial or contingent deferred sales charge is
imposed, nor are Class Y shares subject to 12b-1 distribution or service
fees. Class Y shares may be purchased by participants in certain
investment programs that are sponsored by PaineWebber and that may
invest in PaineWebber mutual funds ("PW Programs"), when Class Y shares
are purchased through that PW Program. Participation in a PW Program is
subject to an advisory fee at an effective annual rate of no more than
1.5% of assets held through that PW Program. This account charge is not
included in the table because investors who are not PW Program
participants also are permitted to purchase Class Y shares.
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income 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>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
12b-1 service fees.............................. 0.25% 0.25% 0.25% 0.00%
12b-1 distribution fees......................... 0.00 0.75 0.75 0.00
</TABLE>
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 they would incur as shareholders of a Fund. The assumed 5% annual
return shown in the examples is required by regulations of the SEC applicable
to all mutual funds. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF A FUND MAY BE MORE OR LESS THAN
THOSE SHOWN.
An investor would pay the following expenses, directly or indirectly, on a
$1,000 investment in each Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $56 $ 80 $106 $181
Class B (Assuming sale of all shares at end of
period)....................................... $70 $ 90 $124 $187
Class B (Assuming no sale of shares)........... $20 $ 60 $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 $ 29 $ 51 $113
<CAPTION>
UTILITY INCOME FUND
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A........................................ $64 $103 $144 $260
Class B (Assuming sale of all shares at end of
period)....................................... $77 $113 $162 $266
Class B (Assuming no sale of shares)........... $27 $ 83 $142 $266
Class C (Assuming sale of all shares at end of
period)....................................... $37 $ 83 $142 $301
Class C (Assuming no sale of shares)........... $27 $ 83 $142 $301
Class Y........................................ $17 $ 53 $ 91 $198
</TABLE>
Prospectus Page 6
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
-----------
ASSUMPTIONS MADE IN THE EXAMPLES
. ALL CLASSES: Reinvestment of all dividends and other distributions; per-
centage amounts listed under "Annual Fund Operating Expenses" remain the
same for the years shown.
. CLASS A SHARES: Deduction of the maximum 4.5% initial sales charge at
the time of purchase.
. CLASS B SHARES: Deduction of the maximum applicable contingent deferred
sales charge at the time of sale, which declines over a period of six
years. Ten-year figures assume that Class B shares convert to Class A
shares at the end of the sixth year.
. CLASS C SHARES: Deduction of a 1% contingent deferred sales charge for
sales of shares within one year of purchase.
Prospectus Page 7
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
- -------------------------------------------------------------------------------
----------
FINANCIAL SERVICES GROWTH 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 infor-
mation 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 March 31, 1998 and are
incorporated by reference into the Statement of Additional Information. The
financial state-
ments and notes, as well as the financial information in the table below re-
lating to each of the five years in the period ended March 31, 1998, have been
audited by Ernst & Young 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. Information shown below for periods
prior to the year ended March 31, 1994, has also been audited by Ernst & Young
LLP, whose reports thereon were unqualified.
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
-----------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 23.41 $ 21.16 $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63 $ 8.31 $ 7.53
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income... 0.20 0.18 0.30 0.25 0.15 0.10 0.15 0.25 0.24 0.25
Net realized and
unrealized gains
(losses)
from investment
transactions........... 11.75 5.69 6.25 1.34 (0.76) 6.01 3.92 0.86 0.37 0.77
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 11.95 5.87 6.55 1.59 (0.61) 6.11 4.07 1.11 0.61 1.02
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.21) (0.23) (0.29) (0.13) (0.08) (0.02) (0.21) (0.24) (0.29) (0.24)
Distributions from net
realized gains from
investment
transactions........... (1.59) (3.39) (2.21) (1.27) (1.84) -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
other distributions to
shareholders........... (1.80) (3.62) (2.50) (1.40) (1.92) (0.02) (0.21) (0.24) (0.29) (0.24)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 33.56 $ 23.41 $ 21.16 $ 17.11 $ 16.92 $ 19.45 $ 13.36 $ 9.50 $ 8.63 $ 8.31
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Total investment return
(1).................... 51.92% 28.72% 39.02% 10.22% (3.14)% 46.79% 42.23% 13.33% 7.16% 13.76%
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $209,818 $85,661 $64,003 $49,295 $48,032 $61,645 $44,867 $43,131 $95,081 $90,322
Expenses to average net
assets................. 1.17% 1.52% 1.37% 1.45% 1.44% 1.87% 1.72% 1.67% 1.33% 1.16%
Net investment income
(loss) to average
net assets............. 1.12% 0.90% 1.50% 1.40% 0.76% 0.60% 1.32% 2.56% 2.60% 3.20%
Portfolio turnover...... 23% 40% 53% 14% 22% 28% 31% 19% 29% 55%
Average Commission Rate
Paid (2)............... $ 0.0595 $0.0600 -- -- -- -- -- -- -- --
</TABLE>
- -------
* 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. The figures do not
include sales charges; results for each class would be lower if sales
charges were included. Total investment returns for periods of less than
one year have 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.
Prospectus Page 8
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
(Continued)
- --------------------------------------------------------------------------------
-----------
<TABLE>
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ------------------------------------------------------------------ ----------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
JULY 1, JULY 2,
FOR THE YEARS ENDED MARCH 31, 1991+ TO FOR THE YEARS ENDED MARCH 31, 1992+ TO
- ------------------------------------------------------ MARCH 31, ---------------------------------------- MARCH 31,
1998 1997 1996 1995 1994 1993 1992 1998 1997 1996 1995 1994 1993
- -------- ------- ------- ------- ------- ------- --------- ------- ------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22.87 $ 20.75 $ 16.85 $ 16.71 $ 19.34 $ 13.36 $10.24 $ 22.84 $ 20.75 $16.86 $16.71 $19.34 $14.61
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
0.09 0.04 0.13 0.11 0.02 (0.01) -- 0.12 0.06 0.12 0.11 0.01 --
11.34 5.53 6.16 1.33 (0.75) 5.99 3.18 11.28 5.51 6.16 1.33 (0.73) 4.77
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
11.43 5.57 6.29 1.44 (0.73) 5.98 3.18 11.40 5.57 6.28 1.44 (0.72) 4.77
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
(0.09) (0.06) (0.18) (0.03) (0.06) -- (0.06) (0.09) (0.09) (0.18) (0.02) (0.07) (0.04)
(1.59) (3.39) (2.21) (1.27) (1.84) -- -- (1.59) (3.39) (2.21) (1.27) (1.84) --
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
(1.68) (3.45) (2.39) (1.30) (1.90) -- (0.06) (1.68) (3.48) (2.39) (1.29) (1.91) (0.04)
- -------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ------ ------ ------
$ 32.62 $ 22.87 $ 20.75 $ 16.85 $ 16.71 $ 19.34 $13.36 $ 32.56 $ 22.84 $20.75 $16.86 $16.71 $19.34
======== ======= ======= ======= ======= ======= ====== ======= ======= ====== ====== ====== ======
50.80% 27.74% 37.97% 9.37% (3.83)% 44.76% 31.16% 50.76% 27.74% 37.92% 9.34% (3.76)% 32.66%
======== ======= ======= ======= ======= ======= ====== ======= ======= ====== ====== ====== ======
$198,473 $41,579 $28,147 $16,368 $11,517 $10,364 $ 765 $63,809 $12,357 $6,989 $4,160 $4,370 $4,636
1.92% 2.27% 2.12% 2.22% 2.16% 2.45% 2.72%* 1.92% 2.28% 2.14% 2.23% 2.17% 2.36%*
0.37% 0.15% 0.74% 0.67% 0.05% (0.03)% 0.14%* 0.36% 0.15% 0.72% 0.61% 0.03% 0.01%*
23% 40% 53% 14% 22% 28% 31% 23% 40% 53% 14% 22% 28%
$ 0.0595 $0.0600 -- -- -- -- -- $0.0595 $0.0600 -- -- -- --
<CAPTION>
FINANCIAL SERVICES GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
CLASS Y
- ---------
FOR THE
PERIOD
MARCH 30,
1997+ TO
MARCH 31,
1998
- ----------
<C>
$ 33.22
- ----------
0.00
0.34
- ----------
0.34
- ----------
0.00
0.00
- ----------
0.00
- ----------
$ 33.56
==========
1.02%
==========
$ 2
0.80%*
0.00%*
23%
$0.0595
</TABLE>
Prospectus Page 9
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
Financial Highlights
(Continued)
- -------------------------------------------------------------------------------
UTILITY INCOME FUND
The following tables provide investors with data and ratios for one Class A,
Class B and Class C 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 Re-
port to Shareholders for the fiscal year ended March 31, 1998 and are incorpo-
rated by reference into the Statement of Additional Information. The financial
statements and notes, as well as the financial information in the table below,
have been audited by Ernst & Young 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>
UTILITY INCOME FUND
------------------------------------------------------------
CLASS A
------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR FOUR FOR THE YEARS PERIOD
ENDED MONTHS ENDED JULY 2,
MARCH 31, ENDED NOVEMBER 30, 1993+ TO
---------------- MARCH 31, ---------------- NOVEMBER 30,
1998 1997 1996 1995 1994 1993
------- ------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66 $ 10.00
------- ------- ------- ------- ------- -------
Net investment income... 0.33 0.34 0.15 0.47 0.48 0.20
Net realized and
unrealized gains
(losses) from
investment
transactions........... 3.61 0.41 -- 1.44 (1.31) (0.39)
------- ------- ------- ------- ------- -------
Net increase (decrease)
from investment
operations............. 3.94 0.75 0.15 1.91 (0.83) (0.19)
------- ------- ------- ------- ------- -------
Dividends from net
investment income...... (0.35) (0.31) (0.16) (0.45) (0.52) (0.15)
------- ------- ------- ------- ------- -------
Net asset value, end of
period................. $ 13.79 $ 10.20 $ 9.76 $ 9.77 $ 8.31 $ 9.66
======= ======= ======= ======= ======= =======
Total investment return
(1).................... 39.15% 7.83% 1.46% 23.64% (8.76)% (1.95)%
======= ======= ======= ======= ======= =======
Ratios/Supplemental
Data:
Net assets, end of
period (000's)......... $ 7,856 $ 6,039 $ 9,416 $10,750 $12,532 $16,224
Expenses to average net
assets, net of waivers
from adviser .......... 1.92% 1.93% 1.09%* 1.49% 1.58% 1.55%*
Expenses to average net
assets, before waivers
from adviser .......... 1.92% 2.00% 1.44%* 1.49% 1.58% 1.55%*
Net investment income,
net of waivers from
adviser, to average net
assets................. 2.77% 3.27% 4.26%* 5.13% 5.49% 5.38%*
Net investment income,
before waivers from
adviser, to average net
assets................. 2.77% 3.20% 3.91%* 5.13% 5.49% 5.38%*
Portfolio turnover...... 10% 41% 21% 30% 92% 13%
Average commission rate
paid (2)............... $0.0589 $0.0600 $0.0600 -- -- --
</TABLE>
- -------
*Annualized.
+Commencement of operations.
(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 would be lower if sales
charges were included. Total investment returns for periods of less than
one year have 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.
Prospectus Page 10
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Financial Highlights
(Concluded)
- --------------------------------------------------------------------------------
-----------
<TABLE>
<CAPTION>
UTILITY INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ----------------------------------------------------------- ----------------------------------------------------------------
FOR THE
FOR THE FOUR FOR THE FOR THE FOR THE FOR THE
YEAR MONTHS FOR THE YEARS PERIOD YEAR FOUR PERIOD
ENDED ENDED ENDED JULY 2, ENDED MONTHS FOR THE YEARS ENDED JULY 2,
MARCH 31, MARCH 31, NOVEMBER 30, 1993+ TO MARCH 31, ENDED NOVEMBER 30, 1993+ TO
- ---------------- --------- ---------------- NOVEMBER 30, ---------------- MARCH 31, -------------------- NOVEMBER 30,
1998 1997 1996 1995 1994 1993 1998 1997 1996 1995 1994 1993
- ------- ------- --------- ------- ------- ------------ ------- ------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 10.00 $ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 10.00
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
0.25 0.26 0.12 0.40 0.42 0.17 0.23 0.25 0.12 0.40 0.42 0.16
3.60 0.42 (0.01) 1.45 (1.31) (0.39) 3.61 0.43 (0.01) 1.45 (1.31) (0.38)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
3.85 0.68 0.11 1.85 (0.89) (0.22) 3.84 0.68 0.11 1.85 (0.89) (0.22)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
(0.26) (0.23) (0.13) (0.39) (0.45) (0.13) (0.26) (0.23) (0.13) (0.39) (0.45) (0.13)
- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- --------- -------
$ 13.79 $ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65 $ 13.78 $ 10.20 $ 9.75 $ 9.77 $ 8.31 $ 9.65
======= ======= ======= ======= ======= ======= ======= ======= ======= ========= ========= =======
38.13% 7.05% 1.10% 22.73% (9.35)% (2.29)% 38.09% 7.06% 1.10% 22.71% (9.36)% (2.28)%
======= ======= ======= ======= ======= ======= ======= ======= ======= ========= ========= =======
$21,562 $21,071 $34,765 $37,554 $37,156 $45,382 $ 7,736 $ 6,909 $11,072 $ 12,222 $ 13,922 $17,866
2.68% 2.69% 1.85%* 2.23% 2.33% 2.29%* 2.68% 2.70% 1.85%* 2.24% 2.32% 2.29%*
2.68% 2.76% 2.20%* 2.23% 2.33% 2.29%* 2.68% 2.76% 2.20%* 2.24% 2.32% 2.29%*
2.05% 2.51% 3.51%* 4.37% 4.72% 4.67%* 1.99% 2.51% 3.50%* 4.37% 4.69% 4.67%*
2.05% 2.44% 3.16%* 4.37% 4.72% 4.67%* 1.99% 2.44% 3.15%* 4.37% 4.69% 4.67%*
10% 41% 21% 30% 92% 13% 10% 41% 21% 30% 92% 13%
$0.0589 $0.0600 $0.0600 -- -- -- $0.0589 $0.0600 $0.0600 -- -- --
</TABLE>
Prospectus Page 11
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income 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.
FINANCIAL SERVICES GROWTH FUND
Financial Services Growth Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective by primarily investing
in equity securities of companies in the financial services industries. These
companies include banks, thrifts, insurance companies, commercial finance
companies, consumer finance companies, brokerage companies, investment
management companies, companies that provide specialized services closely
allied to financial services (such as transaction processing and financial
printing) and their holding companies.
The Fund seeks to invest in companies that are benefiting from the ongoing
changes in the financial services industries, including consolidation of banks
and thrifts and the growth of the non-bank portion of the financial services
industry. However, this concentration subjects the Fund to more volatility
than would be experienced by a fund whose portfolio is more diversified.
The Fund normally invests at least 65% of its total assets in equity
securities of financial services companies. To be considered a financial
services company, a company must:
. derive at least 50% of either its revenues or earnings from financial
services activities or devote at least 50% of its assets to these
activities; or
. be engaged in "securities-related businesses," meaning it derives more than
15% of its gross revenues from securities brokerage or investment management
activities.
The Fund may invest up to 35% of its total assets in equity securities of
companies outside the financial services industries and in bonds of all
issuers. The Fund may also invest up to 20% of its total assets in equity
securities and bonds of foreign issuers. The Fund may invest in securities
other than equity securities when, in the opinion of Mitchell Hutchins, their
potential for capital appreciation is equal to or greater than that of equity
securities or when such holdings might reduce volatility in the Fund.
The Fund may not invest more than 5% of its total assets in the equity
securities of any one company engaged in securities-related businesses. The
Fund may invest in banks and thrifts (and their holding companies) only if
their deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"). However, neither the securities of these companies nor the Fund's
shares are insured by the FDIC or any other federal or governmental agency.
UTILITY INCOME FUND
Utility Income Fund's investment objective is current income and capital
appreciation. The Fund attempts to achieve its objective by investing at least
65% of its total assets in income-producing equity securities and bonds issued
by domestic and foreign companies that are primarily engaged in the ownership
or operation of facilities used in the generation, transmission or
distribution of electricity, telecommunications, gas or water.
"Primarily engaged" means that:
. more than 50% of the company's assets are devoted to the ownership or
operation of one or more such facilities; or
. more than 50% of the company's operating revenues are derived from such
businesses.
The Fund may invest in the equity securities and bonds of foreign companies.
The Fund may invest up to 35% of its total assets in equity securities and
bonds of companies that are outside the utility industries and in high quality
money market instruments. The Fund may invest up to 5% of its net assets in
bonds and convertible securities that are rated lower than investment grade.
The Fund seeks to invest in companies that should benefit from a dramatically
changing operating environment, spurred by a long-term, secular trend toward
deregulation. Some of these changes include:
Prospectus Page 12
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
. local telecommunications providers' shift from rate of return to price cap
regulation;
. more liberal legislation, which is gradually eliminating entry barriers that
historically prohibited telephone companies from entering new businesses;
and
. a more open market in the electric utility industry, which should lead to
consolidation within the industry.
However, the Fund's concentration in these industries subjects it to more
volatility than would be experienced by a fund whose portfolio is more
diversified.
* * * *
As with any mutual fund, there is no assurance that any Fund 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
- -------------------------------------------------------------------------------
FINANCIAL SERVICES GROWTH FUND
In seeking long-term capital appreciation, the Fund invests in equity
securities of institutions considered to represent strong fundamental
investment value. Mitchell Hutchins bases the stock selection process on
issuer-specific factors affecting the potential for capital appreciation.
These factors include the issuer's current and anticipated revenues, earnings,
cash flow and assets. Mitchell Hutchins also considers general market
conditions in the financial services industries.
Mitchell Hutchins places much emphasis on:
. searching for companies with better-than-average earnings growth that are
not yet recognized by the market;
. analyzing the practices of company management; and
. finding companies with niche products.
The Mitchell Hutchins Equity Team meets with the executives at most of the
companies in which the Fund invests. Mitchell Hutchins prefers to invest in
companies that are headquartered or doing business in growing regions and that
obtain their earnings growth in a secular, sustainable way, as opposed to
companies that generate their earnings through cyclical factors.
UTILITY INCOME FUND
Utilities represent a relatively conservative way to realize dividend income
and long-term capital appreciation opportunities. In determining the ratio of
the Fund's equity holdings to its bond holdings, Mitchell Hutchins considers
which proportions would best meet the Fund's investment objective of income
and growth. This will vary from time to time based primarily on the overall
economic environment.
Once Mitchell Hutchins determines the weighting that would best achieve a
balance between income and capital appreciation, it evaluates individual
issuers. Factors considered include the issuer's business and regulatory
environment, its ability to maintain low production costs, management,
financial condition, anticipated earnings and dividends, economic health of
the area it serves and other related measures of value.
Prospectus Page 13
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Performance
- -------------------------------------------------------------------------------
----------
These charts show the total returns for each calendar year 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. Average annual
total returns both before and after deducting the maximum sales charges are
shown below in the tables that follow the performance charts. Past results are
not a guarantee of future results. Utility Income Fund had no Class Y shares
outstanding during the periods shown, and Financial Services Growth Fund had
no Class Y shares outstanding during any year shown.
FINANCIAL SERVICES GROWTH FUND
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A -11.05% 15.38% 21.71% -12.33% 65.37% 38.68% 10.32% -0.75% 47.46% 28.96% 45.20%
Class B 23.30% 37.82% 9.57% -1.53% 46.36% 28.00% 44.10%
Class C 18.80% 9.52% -1.50% 46.30% 27.99% 44.09%
</TABLE>
The 1991 returns for Class B shares represent the period from inception on
July 1, 1991 to December 31, 1991. The 1992 returns for Class C shares
represent the period from inception on July 2, 1992 to December 31, 1992.
AVERAGE ANNUAL TOTAL RETURNS
As of March 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Inception Date............................... 5/22/86 7/1/91 7/2/92 3/30/98
ONE YEAR
Before deducting maximum sales charges...... 51.92% 50.80% 50.76% N/A
After deducting maximum sales charges....... 45.10% 45.80% 49.76% N/A
FIVE YEARS
Before deducting maximum sales charges...... 23.75% 22.83% 22.82% N/A
After deducting maximum sales charges....... 22.61% 22.65% 22.82% N/A
TEN YEARS OR LIFE OF CLASS
Before deducting maximum sales charges...... 23.69% 28.12 25.59 1.02%
After deducting maximum sales charges....... 23.12% 28.12 25.59 1.02%
</TABLE>
Prospectus Page 14
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
UTILITY INCOME FUND
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class A -0.70% -9.71% 28.82% 7.90% 25.75%
Class B -1.02% -10.40% 27.87% 7.06% 24.78%
Class C -1.01% -10.41% 27.86% 7.07% 24.72%
</TABLE>
The 1993 returns represent the period from the Fund's inception on July 2,
1993 to December 31, 1993.
AVERAGE ANNUAL TOTAL RETURNS
As of March 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Inception Date....................................... 7/2/93 7/2/93 7/2/93
ONE YEAR
Before deducting maximum sales charges.............. 39.15% 38.13% 38.09%
After deducting maximum sales charges............... 32.90% 33.13% 37.09%
THREE YEARS
Before deducting maximum sales charges.............. 21.12% 20.24% 20.23%
After deducting maximum sales charges............... 19.26% 19.54% 20.23%
LIFE
Before deducting maximum sales charges.............. 11.59% 10.76% 10.75%
After deducting maximum sales charges............... 10.52% 10.47% 10.75%
</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 return for Class A
shares of the Funds reflects deduction of the Funds' maximum initial sales
charge of 4.5% at the time of purchase, and standardized return for the Class
B and Class C shares of the Funds reflects 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 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
Prospectus Page 15
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
- -------------------------------------------------------------------------------
----------
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 these 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
in 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 the
securities of foreign companies. 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. Foreign securities markets may be less liquid and subject to less
regulation than the U.S. securities markets. The costs of investing outside
the United States frequently are higher than those in the United States. These
costs include relatively higher brokerage commissions and foreign custody
expenses.
INVESTING IN DEVELOPING COUNTRIES. Investing in securities issued by companies
located in developing countries involves additional risks. These countries
typically have economic and political systems that are relatively less mature,
and can be expected to be less stable, than those of developed countries.
Developing countries may have policies that restrict investment by foreigners
in those countries, and there is a risk of government expropriation or
nationalization of private property. The possibility of low or nonexistent
trading volume in the securities of companies in developing countries may also
result in a lack of liquidity and in price volatility.
BONDS. Bonds are subject to interest rate risk and credit risk. Interest rate
risk is the risk that interest rates will rise and bond prices will fall,
lowering the value of a fund's investments. Long-term bonds generally are 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. This can be affected by many factors, including adverse
changes in the issuer's own financial condition or in economic conditions.
Prospectus Page 16
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
A bond's credit risk may be rated Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's").
Generally, the bonds and convertible securities that the Funds may buy must be
rated investment grade. In addition, Utility Income Fund may invest up to 5%
of its net assets in bonds and convertible securities that are rated below
investment grade. The Funds also may invest in securities that are comparably
rated by another nationally recognized rating agency and in unrated securities
if they are deemed to be of comparable quality.
Investment grade bonds are those rated within the four highest categories by
S&P or Moody's. Moody's fourth highest category (Baa) includes securities
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.
Bonds rated below investment grade, that is, rated lower than BBB by S&P or
Baa by Moody's, are considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. These bonds are commonly referred to 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 a Fund's ability to sell such bonds at a fair value in response to
changes in the economy or financial markets.
Credit ratings attempt to evaluate the safety of principal and interest
payments; they do not guarantee the performance of the issuer and they do not
attempt to evaluate the volatility of the bond's value or its liquidity. The
rating agencies may fail to make timely changes in credit ratings in response
to subsequent events, so that an issuer's current financial condition may be
better or worse than the rating indicates. There is a risk that the rating
agencies will downgrade bonds.
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, forward currency contracts,
swaps and similar instruments that may be used in hedging and related
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 take 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 with which a Fund enters into a transaction, such
as a repurchase agreement or a derivative contract. Subject to board
supervision, Mitchell Hutchins monitors and evaluates the creditworthiness of
these counterparties to help minimize those risks.
YEAR 2000 RISK. Like other mutual funds and other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by Mitchell Hutchins, other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is
taking steps that it believes are reasonably designed to address the Year 2000
Issue with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Fund's other major service providers. However, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Fund.
The companies in which the Funds invest also could be adversely affected by
the Year 2000 Issue. Financial Services Growth Fund primarily invests in
securities of companies in the financial services industries, which, are
especially dependent on computer systems to properly process and calculate
date-related information and transactions. While many companies in the
financial services industries are taking steps to address the Year 2000 Issue,
there can be no assurance these steps will be sufficient to avoid an adverse
impact.
* * *
In addition to these general risks, investments in each Fund are subject to
special sector risk considerations:
Prospectus Page 17
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
FINANCIAL SERVICES GROWTH FUND
INVESTMENTS IN FINANCIAL SERVICES INDUSTRIES. Because investments made by
Financial Services Growth Fund are concentrated in the financial services
industries, its shares are subject to greater risk than the shares of a fund
whose portfolio is not so concentrated, and it will be particularly affected
by economic, competitive and regulatory developments affecting those
industries.
Financial services companies are subject to extensive governmental regulation.
This regulation may limit both the amounts and types of loans and other
financial commitments these companies can make, as well as the interest rates
and fees they can charge. Profitability of these companies is largely
dependent on the availability and cost of capital funds, and can fluctuate
significantly when interest rates change. Credit losses resulting from
financial difficulties of borrowers can negatively affect the industry.
Companies in the financial services industries may be subject to severe price
competition. Also, the industry and the Fund may be significantly affected if
the legislation that is currently being considered, to reduce the separation
between commercial and investment banking businesses, is enacted.
UTILITY INCOME FUND
INVESTMENTS IN UTILITY INDUSTRIES. Because investments made by Utility Income
Fund are concentrated in the utility industries, its shares will be
particularly affected by economic and regulatory developments in or related to
those industries and are subject to greater risk than the shares of a Fund
whose portfolio is not so concentrated. Interest rate changes may affect the
value of the Fund's assets. When interest rates decline, prices of utility
equity securities and bonds tend to increase. When interest rates rise, these
prices tend to decrease.
The regulation of utility industries is evolving in the United States and in
foreign countries. As a result, certain companies may be forced to defend
their core businesses against outside companies and may become less
profitable. Electric utility companies have historically been subject to the
risks associated with increases in fuel and other operating costs, high
interest costs on borrowing, costs associated with compliance in regard to
environmental, nuclear facility and other safety regulations, and changes in
the regulatory climate. Increasing competition due to past regulatory changes
in the telephone communications industry continues and, although certain
companies have benefitted, many companies may be adversely affected in the
future.
Gas transmission companies and gas distribution companies continue to undergo
significant changes as well. Water supply utilities are in an industry that is
highly fragmented due to local ownership and generally the companies are more
mature and are experiencing little or no per capita volume growth. There is no
assurance that utility industries, as a whole, will experience favorable
developments or that business opportunities will continue to undergo
significant changes or growth.
INVESTMENT TECHNIQUES AND STRATEGIES
STRATEGIES USING DERIVATIVE CONTRACTS. Each Fund may use certain investments
and strategies designed to adjust the overall risk of its investment
portfolio. These "hedging" strategies involve derivative contracts, including
options (on securities, futures and stock indexes) and futures contracts (on
stock indexes and interest rates). Financial Services Growth Fund and Utility
Income Fund also may use derivative contracts involving foreign currencies,
including options and futures contracts on foreign currencies and (for Utility
Income Fund) forward currency contracts. In addition, Utility Income Fund may
use these strategies to attempt to enhance income; the use of such strategies
solely to enhance income may be considered a form of speculation. Utility
Income Fund may also enter into certain interest rate protection transactions
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against an increase in the price of securities the
Fund anticipates purchasing at a later date. 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
derivative contracts and related hedging strategies.
The Funds might not use any derivative contract or related strategy, and there
can be no assurance that any strategy 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
Prospectus Page 18
<PAGE>
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PaineWebber Financial Services Growth Fund Utility Income Fund
----------
investment. Each strategy involves certain risks, which include:
. the fact that the skills needed to implement a strategy using derivative
instruments are different from those needed to select securities for the
Funds;
. the possibility of imperfect correlation, or even no correlation, between
price movements of derivative instruments used in hedging strategies and
price movements of the securities or currencies being hedged;
. possible constraints placed on 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
. the possibility that a 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. Lending securities enables a Fund to earn additional
income, but could result in a loss or delay in recovering these securities.
TEMPORARY AND DEFENSIVE POSITIONS. When Mitchell Hutchins believes that
unusual circumstances warrant a defensive posture, each Fund may temporarily
commit all or any portion of its assets to cash or investment grade money
market instruments, including repurchase agreements. Each Fund also may commit
up to 35% of its total assets to cash or investment grade money market
instruments, including repurchase agreements, for liquidity purposes or
pending investment in other securities. 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. Each Fund may invest up to 10% 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.
OTHER INFORMATION. Each Fund may also 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 borrow money
for temporary or emergency purposes, but not in excess of 10% of its total
assets, including reverse repurchase agreements involving up to 5% of its net
assets. Each Fund may sell securities short "against the box". When a security
is sold against the box, the seller retains ownership of the security.
Prospectus Page 19
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PaineWebber Financial Services Growth Fund Utility Income Fund
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Flexible PricingSM
- -------------------------------------------------------------------------------
Each Fund offers through this prospectus four classes of shares that differ in
terms of sales charges and expenses. An eligible 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 the ongoing expenses of
Class B and Class C shares. Class A shares sales charges are calculated as
follows:
<TABLE>
<CAPTION>
DISCOUNT TO SELECTED
SALES CHARGE AS A PERCENTAGE OF: DEALERS AS PERCENTAGE
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED OF OFFERING PRICE
- -------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.25%
$50,000 to $99,999...... 4.00 4.17 3.75
$100,000 to $249,999.... 3.50 3.63 3.25
$250,000 to $499,999.... 2.50 2.56 2.25
$500,000 to $999,999.... 1.75 1.78 1.50
$1,000,000 and
over(/1/).............. None None 1.00(/2/)
</TABLE>
- -------
(/1/A)contingent deferred sales charge of 1% of the shares' offering price or
net asset value at the time of sale by the shareholder, whichever is less,
is charged on sales of shares made within one year of the purchase date.
Class A shares representing reinvestment of any dividends or other
distributions are not subject to the 1% charge. Withdrawals under the
Systematic Withdrawal Plan are not subject to this charge. However,
investors may not withdraw more than 12% of the value of the Fund account
under the Plan in the first year after purchase.
(/2/Mitchell)Hutchins pays 1% to PaineWebber.
SALES CHARGE REDUCTIONS AND WAIVERS
Investors who are purchasing Class A shares in more than one PaineWebber
mutual fund may combine those purchases to get a reduced sales charge.
Investors who already own Class A shares in one or more PaineWebber mutual
funds may combine the amount they are currently purchasing with the value of
such previously owned shares to qualify for a reduced sales charge. To
determine the sales charge reduction in either case, please refer to the chart
above.
Investors may also qualify for a lower sales charge when they combine their
purchases with those of:
. their spouses, parents or children under age 21;
. their Individual Retirement Accounts (IRAs);
. certain employee benefit plans, including 401(k) plans;
. any company controlled by the investor;
. trusts created by the investor;
. Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts created
by the investor or group of individuals for the benefit of the investors'
children; or
. accounts with the same adviser.
Employers who own Class A shares for one or more of their qualified retirement
plans may also qualify for the reduced sales charge.
The sales charge will not apply when the investor:
. is an employee, director, trustee or officer of PaineWebber, its affiliates
or any PaineWebber mutual fund;
. is the spouse, parent or child of any of the above;
. 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
Prospectus Page 20
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PaineWebber Financial Services Growth Fund Utility Income Fund
----------
. the investor was the investment executive's client at the competing
brokerage firm;
. 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
. the amount that the investor purchases does not exceed the total amount of
money the investor received from the sale of the other mutual fund;
. is a certificate holder of unit investment trusts sponsored by PaineWebber
and has elected to have dividends and other distributions from that
investment automatically invested in Class A shares;
. is an employer establishing an employee benefit plan qualified under section
401, including a salary reduction plan qualified under section 401(k), or
section 403(b) of the Internal Revenue Code ("Code") (each a "qualified
plan"). (This waiver is subject to minimum requirements, with respect to the
number of employees and amount of plan assets, established by Mitchell
Hutchins. Currently, a plan must have 50 or more eligible employees and at
least $1 million in plan assets.) For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested;
. is a participant in the PaineWebber Members Only Program(TM). For
investments made pursuant to this waiver, Mitchell Hutchins may make
payments out of its own resources to PaineWebber and to participating
membership organizations in a total amount not to exceed 1% of the amount
invested;
. is a variable annuity offered only to qualified plans. For investments made
pursuant to this waiver, Mitchell Hutchins may make payments out of its own
resources to PaineWebber and to the variable annuity's sponsor, adviser or
distributor in a total amount not to exceed 1% of the amount invested;
. acquires Class A shares through an investment program that is not sponsored
by PaineWebber or its affiliates and that charges participants a fee for
program services, provided that the program sponsor has entered into a
written agreement with PaineWebber permitting the sale of Class A shares at
net asset value to that program. For investments made pursuant to this
waiver, Mitchell Hutchins may make a payment to PaineWebber out of its own
resources in an amount not to exceed 1% of the amount invested. For
subsequent investments or exchanges made to implement a rebalancing feature
of such an investment program, the minimum subsequent investment requirement
is waived; or
. acquires Class A shares in connection with a reorganization pursuant to
which a Fund acquires substantially all of the assets and liabilities of
another investment company in exchange solely for shares of the Fund.
. acquires Class A shares in connection with the disposition of proceeds from
the sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that fund's initial public offering of shares and that meet certain
other conditions described in its prospectus.
For more information on how to get any reduced sales charge, investors should
contact their investment executive at PaineWebber or one of its correspondent
firms or call 1-800-647-1568. Investors must provide satisfactory information
to PaineWebber or the Fund if they seek any of these sales charge reductions
or waivers.
CLASS B SHARES
HOW PRICE IS CALCULATED: The price is the net asset value next calculated
after PaineWebber's New York City headquarters or the Transfer Agent receives
the purchase order. The ongoing expenses investors pay for Class B shares are
higher than those of Class A shares. Because investors do not pay an initial
sales charge when they buy Class B shares, 100% of their purchase is
immediately invested.
Depending on how long they own their Fund investment, investors may have to
pay a sales charge when they sell their Fund shares. This sales charge is
called a "contingent deferred sales charge." The amount of the charge depends
on how long the investor has owned the shares. The sales charge is calculated
by multiplying the net asset value of the shares at the time of sale or
purchase, whichever is less, by the percentage shown on the following table.
Investors who own shares for more than six years do not have to pay a sales
charge when selling those shares.
Prospectus Page 21
<PAGE>
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PaineWebber Financial Services Growth Fund Utility Income Fund
----------
<TABLE>
<CAPTION>
IF THE INVESTOR PERCENTAGE BY WHICH THE SHARES'
SELLS SHARES WITHIN: NET ASSET VALUE IS MULTIPLIED:
- ----------------------- -------------------------------
<S> <C>
1st year since purchase 5%
2nd year since purchase 4
3rd year since purchase 3
4th year since purchase 2
5th year since purchase 2
6th year since purchase 1
7th year since purchase None
</TABLE>
CONVERSION OF CLASS B SHARES
Class B shares automatically convert to the appropriate number of Class A
shares of equal dollar value after the investor has owned them for six years.
Dividends and other distributions paid to the investor by the Fund in the form
of additional Class B shares will also convert to Class A shares on a pro-rata
basis. This benefits shareholders because Class A shares have lower ongoing
expenses than Class B shares. If the investor has exchanged Class B shares
between PaineWebber funds, the Fund uses the purchase date at which the
initial investment was made to determine the conversion date.
MINIMIZING THE CONTINGENT DEFERRED SALES CHARGE
When investors sell Class B shares they have owned for less than six years,
the Fund automatically will minimize the sales charge by assuming the
investors are selling:
. First, Class B shares owned through reinvested dividends and capital gain
distributions; and
. Second, Class B shares held in the portfolio the longest.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will not apply to:
. sales of shares under the Fund's "Systematic Withdrawal Plan" (investors may
withdraw annually no more than 12% of the value of the Fund account under
the Plan);
. a distribution from an IRA, a self-employed individual retirement plan
("Keogh Plan") or a custodial account under section 403(b) of the Code after
the investor reaches age 59 1/2;
. a tax-free return of an excess IRA contribution;
. a tax-qualified retirement plan distribution following retirement; or
. Class B shares sold within one year of an investor's death if the investor
owned the shares at the time of death either as the sole shareholder or with
his or her spouse as a joint tenant with the right of survivorship.
Investors must provide satisfactory information to PaineWebber or the Fund 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. Investors do not pay an initial sales
charge when they buy Class C shares, but the ongoing expenses of Class C
shares are higher than those of Class A shares. Class C shares never convert
to any other class of shares.
A contingent deferred sales charge of 1% of the offering price (the net asset
value at the time of purchase) or the net asset value of the shares at the
time of sale by the shareholders, whichever is less, is charged on sales of
shares made within one year of the purchase date. Other PaineWebber mutual
funds may impose a different contingent deferred sales charge on Class C
shares sold within one year of the purchase date. A sale of Class C shares
acquired through an exchange and held less than one year will be subject to
the same contingent deferred sales charge that would have been imposed on
Class C shares of the PaineWebber mutual fund originally purchased. Class C
shares representing reinvestment of any dividends or other distributions will
not be subject to the 1% charge. Withdrawals under the Systematic Withdrawal
Plan also will not be subject to this charge. However, investors may withdraw
no more than 12% of the value of the Fund account under the Plan in the first
year after purchase.
CLASS Y SHARES
HOW PRICE IS CALCULATED
Eligible investors may purchase Class Y shares at the net asset value next
calculated after the purchase order is received at 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 rule 12b-1
distribution fees or service fees.
LIMITED GROUPS OF INVESTORS. Only the following investors are eligible to buy
Class Y shares:
. a participant in one of the PW Programs listed below when Class Y shares are
purchased through that PW Program;
Prospectus Page 22
<PAGE>
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PaineWebber Financial Services Growth Fund Utility Income Fund
----------
. an investor who buys $10 million or more at any one time in any combination
of PaineWebber mutual funds in the Flexible Pricing SM System;
. a qualified plan that has either 5,000 or more eligible employees or $50
million or more in assets; and
. an investment company advised by PaineWebber or an affiliate of PaineWebber.
PACE MULTI-ADVISOR PROGRAM: An investor who participates in the PACE Multi-
Advisor Program is eligible to purchase Class Y shares. The PACE Multi-Advisor
Program is an advisory program sponsored by PaineWebber that provides
comprehensive investment services, including investor profiling, a
personalized asset allocation strategy using an appropriate combination of
funds, and a quarterly investment performance review. Participation in the
PACE Multi-Advisor Program is subject to payment of an advisory fee at the
maximum annual rate of 1.5% of assets. Employees of PaineWebber and its
affiliates are entitled to a waiver of this fee.
Please contact your PaineWebber investment executive or PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE Multi-Advisor Program.
- -------------------------------------------------------------------------------
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 the Funds that they are eligible to purchase Class Y shares.
PAINEWEBBER CLIENTS
Investors who are PaineWebber clients may buy shares through PaineWebber
investment executives or its correspondent firms. Investors may buy shares in
person, by mail, by telephone or by wire (the minimum wire purchase is $1
million). PaineWebber investment executives and correspondent firms are
responsible for promptly sending investors' purchase orders to PaineWebber's
New York City headquarters.
Investors may pay for their purchases with checks drawn on U.S. banks or with
funds they have in their brokerage accounts at PaineWebber or its
correspondent firms.
OTHER INVESTORS
Investors who are not PaineWebber clients may purchase Fund shares and set up
an account through the Transfer Agent (PFPC Inc.) by completing an account
application, which you may obtain by calling 1-800-647-1568. The application
and check must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.
Investors who are new to PaineWebber may complete and sign an account
application and mail it along with a check. Investors also may open an account
in person.
Investors who already have money invested in a PaineWebber mutual fund, and
want to invest in another PaineWebber mutual fund, can:
. mail an application with a check; or
. open an account by exchanging from another PaineWebber mutual fund.
Investors do not have to send an application when making additional
investments in the Fund.
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open an account:............ $1,000
To add to an account:.......... $ 100
</TABLE>
A Fund may waive or reduce these minimums for:
. employees of PaineWebber or its affiliates; or
. participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Fund's automatic investment plan; or
Prospectus Page 23
<PAGE>
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PaineWebber Financial Services Growth Fund Utility Income Fund
----------
. transactions in Class A and Class Y shares made in certain investment
programs.
HOW TO EXCHANGE SHARES
As shareholders, investors have the privilege of exchanging Class A, B and C
shares for the same class of shares of most other PaineWebber mutual funds.
Class Y shares are not exchangeable. For classes of shares where no initial
sales charge is imposed, a contingent deferred sales charge may apply if the
investor sells the shares acquired through the exchange.
Exchanges may be subject to minimum investment requirements of the fund into
which exchanges are made.
. Investors who purchased their shares through an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
contacting their investment executive in person or by telephone, mail or
wire.
. Investors who do not have an account with an investment executive at
PaineWebber or one of its correspondent firms may exchange their shares by
writing a "letter of instruction" to the Transfer Agent. The letter of
instruction must include:
. the investor's name and address;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be sold; and
. a guarantee of each registered owner's signature. A signature guarantee may
be obtained from a domestic bank or trust company, broker, dealer, clearing
agency or savings association which is a participant in a medallion program
recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange Medallion Signature Program (MSP). Signature guarantees which are
not a part of these programs will not be accepted.
The letter must be mailed to PFPC Inc., Attn: PaineWebber Mutual Funds, P.O.
Box 8950, Wilmington, DE 19899.
No contingent deferred sales charge is imposed when shares are exchanged for
the corresponding class of 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 shares are sold. Fund shares may
be exchanged only after the settlement date has passed and payment for the
shares has been made. The exchange privilege is available only in those
jurisdictions where the sale of the Fund shares to be acquired is authorized.
This exchange privilege may be modified or terminated at any time and, when
required by SEC rules, upon 60 days' notice. See the back cover of this
Prospectus for a listing of other PaineWebber mutual funds. PaineWebber S&P
500 Index Fund does not currently participate in the Flexible Pricing
System(TM) and is not available for exchanges.
- -------------------------------------------------------------------------------
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 (less any applicable contingent
deferred sales charge) after the order is received. 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 Fund's Transfer Agent, may sell shares by writing a
"letter of instruction," as detailed in "How to Exchange Shares."
Prospectus Page 24
<PAGE>
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PaineWebber Financial Services Growth Fund Utility Income Fund
----------
Because the Funds incur certain fixed costs in maintaining shareholder
accounts, each Fund reserves the right to purchase back all Fund shares in any
shareholder account with a net asset value of less than $500.
If the Fund elects to do so, it will notify the shareholder of the opportunity
to increase the amount invested to $500 or more within 60 days of the notice.
The Fund will not purchase back accounts that fall below $500 solely due to a
reduction in net asset value per share.
REINSTATEMENT PRIVILEGE
Shareholders who sell their Class A shares may reinstate their Fund account
without a sales charge up to the dollar amount sold by purchasing the Fund's
Class A shares within 365 days after the sale. To take advantage of this
reinstatement privilege, shareholders must notify their investment executive
at PaineWebber or one of its correspondent firms at the time of purchase.
- -------------------------------------------------------------------------------
Other Services
- -------------------------------------------------------------------------------
Investors should consult their investment executives at PaineWebber or one of
its correspondent firms to learn more about the following services available
with respect to the Fund's Class A, B and C shares.
AUTOMATIC INVESTMENT PLAN
Investing on a regular basis helps investors meet their financial goals.
PaineWebber offers an Automatic Investment Plan with a minimum initial
investment of $1,000 through which a Fund will deduct $50 or more monthly,
quarterly, semi annually or annually from the investor's bank account to
invest directly in the Fund. In addition to providing a convenient and
disciplined manner of investing, participation in the Automatic Investment
Plan enables the investor to use the technique of "dollar cost averaging."
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows investors to set up monthly, quarterly
(March, June, September and December), semiannual (June and December) or
annual (December) withdrawals from their PaineWebber Mutual Fund accounts.
Minimum balances and withdrawals vary according to the class of shares:
. CLASS A AND CLASS C SHARES. Minimum value of Fund shares is $5,000; minimum
withdrawals of $100.
. CLASS B SHARES. Minimum value of Fund shares is $20,000; minimum monthly,
quarterly, semiannual 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. An investor may withdraw no more than 12% of
the value of the Fund account when the investor signed up for the Plan
(annually for Class B shares; during the first year under the Plan for Class A
and C shares). Shareholders who elect to receive dividends or other
distributions in cash may not participate in this Plan.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed IRAs are available through PaineWebber in which purchases of
PaineWebber mutual funds and other investments may be made. Investors
considering establishing an IRA should review applicable tax laws and should
consult their tax advisers.
TRANSFER OF ACCOUNTS
If investors holding shares of 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.
Prospectus Page 25
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Management
- -------------------------------------------------------------------------------
----------
FINANCIAL SERVICES GROWTH FUND
The Fund is governed by a board of directors, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority
of the board). Karen L. Finkel is primarily responsible for the day-to-day
portfolio management of the Fund. Mrs. Finkel is a senior vice president of
Mitchell Hutchins. She has held her Fund responsibilities since January 1988
and has been employed by Mitchell Hutchins as a portfolio manager for the last
ten years.
UTILITY INCOME FUND
The Fund is governed by a board of trustees, which oversees the Fund's
operations. It has appointed Mitchell Hutchins as investment adviser and
administrator responsible for the Fund's operations (subject to the authority
of the board). Karen L. Finkel is primarily responsible for the day-to-day
management of the Fund's stock portfolio and determines the allocation of Fund
assets between stocks and bonds. James F. Keegan and Julieanna Berry are
primarily responsible for day-to-day management of the Fund's bond portfolio.
Mrs. Finkel is a senior vice president of Mitchell Hutchins and has been a
portfolio manager of the Fund since February 1995. She has been employed by
Mitchell Hutchins as a portfolio manager for the last ten years. Mrs. Berry
has held her Fund responsibilities since March 1996 and was joined by Mr.
Keegan in April 1996. Mrs. Berry is a first vice president of Mitchell
Hutchins and has been employed by Mitchell Hutchins as a portfolio manager
since 1989. Mr. Keegan is a senior vice president of Mitchell Hutchins and
oversees all corporate bond investments. Prior to joining Mitchell Hutchins,
Mr. Keegan was the director of fixed income strategy and research at the
Merrion Group, L.P. from 1994 to 1995. From 1987 to 1994, he was vice
president of global investment management of Bankers Trust Company.
* * * *
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. Mitchell Hutchins personnel may engage
in securities transactions for their own accounts pursuant to each firm's code
of ethics that establishes procedures for personal investing and restricts
certain transactions.
ABOUT THE INVESTMENT ADVISER
Mitchell Hutchins, located at 1285 Avenue of the Americas, New York, New York,
10019, is a wholly owned asset management subsidiary of PaineWebber, which is
wholly owned by Paine Webber Group Inc., a publicly owned financial services
holding company. On June 30, 1998, Mitchell Hutchins was adviser or sub-
adviser of 31 investment companies with 69 separate portfolios and aggregate
assets of over $40.3 billion.
MANAGEMENT FEES & OTHER EXPENSES
Each Fund pays Mitchell Hutchins a monthly fee for its services. For the
fiscal year ended March 31, 1998, each Fund paid advisory fees to Mitchell
Hutchins at the annual rate of 0.70% of its average daily net assets.
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"), each Fund pays
Mitchell Hutchins:
. Monthly service fees at the annual rate of 0.25% of the average daily net
assets of each class of shares.
. Monthly distribution fees at the annual rate of 0.75% of the average daily
net assets of Class B and Class C shares.
Under the Plans, Mitchell Hutchins primarily uses the service fees for Class
A, B and C shares to pay PaineWebber for shareholder servicing, currently at
the annual rate of 0.25% of the aggregate investment
Prospectus Page 26
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
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:
. Offset the commissions it pays to PaineWebber for selling each Fund's Class
B and Class C shares, respectively.
. 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 Class A, Class B, and
Class C 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 each Fund reviews the Plans and Mitchell Hutchins' corresponding expenses
for each class separately from the Plans and expenses of the other classes.
- -------------------------------------------------------------------------------
Determining the Shares' Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of each 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 that value is not readily available,
assets are valued at fair value as determined in good faith by or under the
direction of its board. The amortized cost method of valuation generally is
used to value debt obligations with 60 days or less remaining to maturity,
unless the board determines that this does not represent fair value.
Investments denominated in foreign currencies are valued daily in U.S. dollars
based on the then-prevailing exchange rates. It should be rec- ognized that
judgment plays a greater role in valuing below investment grade securities in
which Utility Income Fund may invest because there is less reliable, objective
data available.
Prospectus Page 27
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
Dividends & Taxes
- -------------------------------------------------------------------------------
----------
DIVIDENDS
Financial Services Growth Fund pays an annual dividend from its net investment
income and net short-term capital gain, if any. Utility Income Fund pays
quarterly dividends from its net investment income. Each Fund also distributes
annually any net gains from foreign currency transactions, any short-term
capital gain and substantially all of its net capital gain (the excess of net
long-term capital gain over net short-term capital loss, if any). The Funds
may make additional distributions, if necessary, to avoid a 4% excise tax on
certain undistributed income and capital gain.
Dividends and other distributions paid on each class of a Fund's shares 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 also 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 the shareholder by check or credited
to the shareholder's PaineWebber account, 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 the part of its investment company taxable income (generally
consisting of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) 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, as modified by recent legislation, the
maximum tax rate applicable to a non-corporate taxpayer's net capital gain
recognized on capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket). In the case of a regulated
investment company such as a Fund, the relevant holding period is determined
by how long the Fund has held the portfolio securities on which the gain was
realized, not by how long the shareholders have held their Fund shares.
Shareholders 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 dividends and capital gain distributions paid (or deemed paid), their
share of any foreign taxes paid by the Fund that year and any portion of those
dividends that qualifies for special treatment.
Prospectus Page 28
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
----------
BACKUP WITHHOLDING
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to such shareholders who
otherwise are subject to backup withholding.
TAX ON THE SALE OR EXCHANGE
OF FUND SHARES
A shareholder's sale (redemption) of shares may result in a taxable gain or
loss. This depends on whether the shareholder receives more or less than the
adjusted basis for the shares (which normally includes any initial sales
charge paid on Class A shares). An exchange of a 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 the Fund (regardless of class) at a loss, all or a
portion of that loss will not be deductible and will increase the basis of the
newly purchased shares.
SPECIAL TAX RULES
FOR CLASS A SHAREHOLDERS
Special tax rules apply when a shareholder sells or exchanges Class A shares
within 90 days of purchase and subsequently acquires Class A shares of 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 will increase the basis of
the PaineWebber mutual fund shares subsequently acquired.
* * * *
The foregoing only summarizes some of the important tax considerations
affecting the Funds and their shareholders. Please see the further discussion
in the Statement of Additional Information. Prospective shareholders are urged
to consult their tax advisers.
Prospectus Page 29
<PAGE>
-------------------
PaineWebber Financial Services Growth Fund Utility Income Fund
General Information
- -------------------------------------------------------------------------------
----------
ORGANIZATION
FINANCIAL SERVICES GROWTH FUND
Financial Services Growth Fund is a diversified, open-end management
investment company that was incorporated in Maryland on February 13, 1986. The
Fund has authority to issue 300 million shares of common stock of separate
series, par value $0.001 per share.
UTILITY INCOME FUND
Utility Income Fund is a diversified series of PaineWebber Managed Investments
Trust ("Trust"), an open-end management investment company that was formed on
November 21, 1986, as a business trust under the laws of the Commonwealth of
Massachusetts. The trustees have authority to issue an unlimited number of
shares of beneficial interest of separate series, par value $0.001 per share.
Shares of seven 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 a Fund 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 misstatements in the Prospectus about another Fund.
The board of each Fund considered this factor in approving the use of a
single, 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
a Fund (or the Trust, which has more than one series) may elect all of the
board members of that Fund or Trust. The shares of 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 a class. The shares of all series of the Trust will be voted
separately, except when an aggregate vote of all the series is required by
law.
SHAREHOLDER MEETINGS
The Funds do not intend to hold annual meetings.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust or Fund (as applicable) may remove a board member through a
declaration in writing or by vote cast in person or by proxy at a meeting
called for that purpose. A meeting will be called to vote on the removal of a
board member at the written request of holders of 10% of the outstanding
shares of the Trust or Fund, as applicable.
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
the Fund as of the end of the period covered by the report. The Statement of
Additional Information is available to shareholders upon request.
CUSTODIAN & RECORDKEEPING AGENT; TRANSFER & DIVIDEND AGENT
State Street Bank and Trust Company, located at One Heritage Drive, North
Quincy, Massachusetts 02171, serves as each Fund's custodian and recordkeeping
agent and employs foreign sub-custodians to provide custody of any foreign
assets of Funds. 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.
Prospectus Page 30
<PAGE>
------------------
---------
- --------------------------------------------------------------------------------
PaineWebber Financial Services Growth FundPaineWebber Utility Income Fund
Prospectus -- August 1, 1998
- --------------------------------------------------------------------------------
-PAINEWEBBER BOND FUNDS -PAINEWEBBER STOCK FUNDS
High Income Fund Financial Services Growth Fund
Investment Grade Income Growth Fund
Fund Growth and Income Fund
Low Duration U.S. Mid Cap Fund
Government Income Fund Small Cap Fund
Strategic Income Fund Utility Income Fund
U.S. Government Income
Fund
-PAINEWEBBER TAX-FREE BOND -PAINEWEBBER GLOBAL FUNDS
FUNDS
Asia Pacific Growth Fund
California Tax-Free Emerging Markets Equity Fund
Income Fund Global Equity Fund
Municipal High Income Global Income Fund
Fund
National Tax-Free
Income Fund
New York Tax-Free
Income Fund
-PAINEWEBBER ASSET -PAINEWEBBER MONEY MARKET
ALLOCATION FUNDS FUND
-PAINEWEBBER FUNDS OF FUNDS
Balanced Fund
Tactical Allocation
Fund Mitchell Hutchins Aggressive Portfolio
Mitchell Hutchins Moderate Portfolio
Mitchell Hutchins Conservative Portfolio
A prospectus containing more complete information for any of these funds,
including charges and expenses, can be obtained from a PaineWebber invest-
ment executive or correspondent firm. Please read it carefully before in-
vesting. It is important you have all the information you need to make a
sound investment decision.
(C) 1998 PaineWebber Incorporated
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND
PAINEWEBBER UTILITY INCOME FUND
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
Each Fund named above is, or is series of, a professionally managed, open-
end management investment company. The Funds are designed for investors
generally seeking capital appreciation by investing principally in equity
securities. PaineWebber Financial Services Growth Fund Inc. ("Financial
Services Growth Fund" or "Corporation"), a Maryland corporation, invests
primarily in equity securities of companies in the financial services
industries. PaineWebber Utility Income Fund ("Utility Income Fund"), a
diversified series of PaineWebber Managed Investments Trust ("Trust"), a
Massachusetts business trust, also seeks to provide current income and invests
primarily in equity securities and bonds of companies in the utility
industries.
The investment adviser, administrator and distributor for each Fund is
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). As distributor for the
Funds, Mitchell Hutchins has appointed PaineWebber to serve 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 August 1,
1998. A copy of the Prospectus may be obtained by calling any PaineWebber
investment executive or correspondent firm or by calling toll-free 1-800-647-
1568. This Statement of Additional Information is dated August 1, 1998.
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. Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), and
other nationally recognized statistical rating organizations ("NRSROs") are
private services that provide ratings of the credit quality of debt
obligations (bonds) and certain other securities. A description of the ratings
assigned to corporate debt obligations by S&P and Moody's 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.
Utility Income Fund is authorized to invest up to 5% of its net assets in
non-investment grade bonds and convertible debt securities--"non-investment
grade" means that the securities are not rated at the time of purchase within
one of the four highest grades assigned by S&P or Moody's, comparably rated by
another
<PAGE>
NRSRO or determined by Mitchell Hutchins to be of comparable quality. These
securities are also commonly referred to as "junk bonds." Lower rated debt
securities generally offer a higher current yield than that available for
investment grade issues; however, they involve higher risks. Lower rated
securities may be less sensitive to interest rate changes than higher rated
investments, but are more sensitive to adverse market conditions. During an
economic downturn or period of rising interest rates, their issuers may
experience financial stress that adversely affects their ability to pay
interest and repay principal and may 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.
Lower rated bonds are frequently unsecured by collateral and will not receive
payment until more senior claims are paid in full. The prices for lower rated
securities often are more volatile than those of higher rated securities in
response to market conditions. The market for these securities is thinner and
less active, which may limit the Fund's ability to sell them 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.
The market for lower rated bonds has expanded rapidly in recent years, and
its growth paralleled a long economic expansion. In the past, the prices of
many lower rated bonds declined substantially, reflecting an expectation that
many issuers of such securities might experience financial difficulties. As a
result, the yields on lower rated bonds 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 default. There can be no assurance that such
declines will not recur.
RISK CONSIDERATIONS RELATING TO FOREIGN SECURITIES. The Funds may hold
securities of foreign issuers that are not registered with the Securities and
Exchange Commission ("SEC"), and foreign issuers may not be subject to SEC
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"). The Funds also may purchase securities of foreign issuers
in foreign markets and purchase European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") or other securities convertible into securities
of issuers based in foreign countries. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets, EDRs are
similar to ADRs but generally are in bearer form, may be denominated in other
currencies and are designed for use in European securities markets. GDRs are
similar to EDRs and are designed for use in several international 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, EDRs and GDRs are deemed to have the same classification as
the underlying securities they represent. Thus, an ADR, EDR or GDR
representing ownership of common stock will be treated as common stock.
The Funds anticipate that their brokerage transactions involving foreign
securities of companies headquartered in countries other than the United
States will be conducted primarily on the principal exchanges of such
countries. Transactions on foreign exchanges are usually subject to fixed
commissions that are generally higher than negotiated commissions on U.S.
transactions, although each Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries than
in the United States.
2
<PAGE>
Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Funds may have limited
legal recourse in the event of default. Foreign government debt securities
differ from debt obligations issued by private entities in that, generally,
remedies for defaults must be pursued in the courts of the defaulting party.
Legal recourse is, therefore, somewhat limited. Political conditions,
especially a sovereign entity's willingness to meet the terms of its debt
obligations, are of considerable significance. Also, there can be no assurance
that the holders of commercial bank loans to the same sovereign entity may not
contest payments to the holders of foreign government debt securities in the
event of default under commercial bank loan agreements.
Investment income on certain foreign securities in which The 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 these Funds would be subject.
FOREIGN CURRENCY TRANSACTIONS. Although the Funds value their assets daily
in U.S. dollars, they do not intend to convert their holdings of foreign
currencies to U.S. dollars on a daily basis. The Funds' foreign currencies
generally will be held as "foreign currency call accounts" at foreign branches
of foreign or domestic banks. These accounts bear interest at negotiated rates
and are payable upon relatively short demand periods. If a bank became
insolvent, the Funds could suffer a loss of some or all of the amounts
deposited. The Funds may convert foreign currency to U.S. dollars from time to
time. Although foreign exchange dealers generally do not charge a stated
commission or fee for conversion, the prices posted generally include a
"spread," which is the difference between the prices at which the dealers are
buying and selling foreign currencies.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which a Fund has valued the
securities and includes, among other things, purchased over-the-counter
("OTC") options, repurchase agreements maturing in more than seven days and
restricted securities other than those Mitchell Hutchins has determined are
liquid pursuant to guidelines established by each Fund's board of trustees or
board of directors ("board"). The assets used as cover for OTC options written
by the Funds will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Funds may repurchase any OTC options they
write at a maximum price to be calculated by a formula set forth in the option
agreements. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
Restricted securities are not registered under the Securities Act of 1933
("1933 Act") and may be sold only in privately negotiated or other exempted
transactions or after a 1933 Act registration statement has become effective.
Where registration is required, 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 a 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.
However not all restricted securities are illiquid. To the extent that
foreign securities are freely tradeable in the country in which they are
principally traded, they are not considered illiquid, even if they are
restricted
3
<PAGE>
in the United States. A large institutional market has developed for many U.S.
and foreign securities certain securities that are not registered under the
1933 Act. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.
Institutional markets for restricted securities also have developed as a
result of Rule 144A, which establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held
by a Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
Each board has delegated the function of making day-to-day determinations of
liquidity to Mitchell Hutchins or, 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 applicable board.
MONEY MARKET INSTRUMENTS. Each Fund may invest in money market instruments,
including U.S. Treasury bills and other obligations issued or guaranteed as to
interest and principal by the U.S. government or one of its agencies or
instrumentalities; obligations of banks, savings associations, insurance
companies and mortgage bankers; investment grade commercial paper and other
short-term obligations of U.S. or foreign issuers, including variable and
floating rate securities issued by foreign governments and their political
subdivisions, agencies or instrumentalities; other investment companies that
invest exclusively in money market instruments and repurchase agreements. In
addition, each Fund may hold cash and may invest in participation interests in
money market instruments.
REPURCHASE AGREEMENTS. A Repurchase agreement is a transaction 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 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 a Fund if the other party to a repurchase agreement becomes insolvent.
4
<PAGE>
The Funds intend to enter into repurchase agreements only with banks and
dealers in transactions believed by Mitchell Hutchins 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. Each Fund may enter into reverse repurchase
agreements with banks and securities dealers up to an aggregate value of not
more than 5% of the Fund's net assets. Such agreements involve the sale of
securities held by a Fund subject to that Fund's agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest. Such agreements are considered to be borrowings and
may be entered into only for temporary or emergency purposes. While a reverse
repurchase agreement is outstanding, the Fund's custodian segregates assets to
cover the Fund's obligations under the reverse repurchase agreement. See
"Investment Policies and Restrictions--Segregated Accounts."
LENDING OF PORTFOLIO SECURITIES. Each Fund is authorized to lend up to 33
1/3% of its total assets to broker-dealers or institutional investors that
Mitchell Hutchins deems qualified, but only when the borrower maintains 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. Each Fund may reinvest cash
collateral in money market instruments or other short-term liquid investments.
In determining whether to lend securities to a particular broker-dealer or
institutional investor, Mitchell Hutchins will consider, and during the period
of the loan will monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. Each Fund will retain authority to terminate
any loans at any time. Each Fund may pay reasonable fees in connection with a
loan and may pay the borrower or placing broker a negotiated portion of the
interest earned on the cash or money market instruments held as collateral.
Each Fund will receive 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 boards governing each Fund's
securities lending program, PaineWebber has been retained to serve as lending
agent for each Fund. The boards also have authorized the payment of 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 incurs 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 at any time during the coming year that exceed
5% of its net assets.
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A Fund might make a short sale "against the box" 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.
SEGREGATED ACCOUNTS. When a Fund enters into certain transactions to make
future payments to third parties, including 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 and Related Strategies Using Derivative Contracts," segregated
accounts may also be required in connection with certain transactions
involving options or futures contracts (and, for Utility Income Fund, certain
interest rate protection transactions or forward currency contracts.)
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
each Fund may purchase securities on a "when-issued" or delayed delivery
basis. A security purchased on a when-issued or delayed delivery basis is
recorded as an asset on the commitment date and is subject to changes in
market value, generally based upon changes in the level of interest rates.
Thus, fluctuation in the value of the security from the time of the commitment
date will affect a Fund's net asset value. When the Fund agrees to purchase
securities on a when-issued or delayed delivery basis, its custodian
segregates assets to cover the amount of the commitment. See "Investment
Policies and Restrictions--Segregated Accounts." The Fund purchases when-
issued securities only with the intention of taking delivery, but may sell the
right to acquire the security prior to delivery if Mitchell Hutchins deems it
advantageous to do so, which may result in a gain or loss to the Fund.
SPECIAL CONSIDERATIONS CONCERNING UTILITY INCOME FUND--UTILITY
INDUSTRIES. Utility companies in the United States and in foreign countries
are generally subject to regulation. In the United States, most utility
companies are regulated by state and/or federal authorities. Such regulation
is intended to ensure appropriate standards of service and adequate capacity
to meet public demand. Prices are also regulated, with the intention of
protecting the public while ensuring that the rate of return earned by utility
companies is sufficient to allow them to attract capital in order to grow and
continue to provide appropriate services. There can be no assurance that such
pricing policies or rates of return will continue in the future.
The nature of regulation of utility industries is evolving both in the
United States and in foreign countries. Changes in regulation in the United
States increasingly allow utility companies to provide services and products
outside their traditional geographic areas and lines of business, creating new
areas of competition within the industries. Although certain companies may
develop more profitable opportunities, others may be forced to defend their
core businesses and may be less profitable.
The regulation of foreign utility companies may or may not be comparable to
that in the United States. Foreign regulatory systems vary from country to
country, and may evolve in ways different from regulation in the United
States.
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Utility Income Fund's investment policies seek to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility
companies currently are government-owned, thereby limiting current investment
opportunities for the Fund, Mitchell Hutchins believes that, in order to
attract significant capital for growth, foreign governments may seek global
investors through the privatization of their utility industries.
Privatization, which refers to the trend toward investor ownership of assets
rather than government ownership, is expected to occur in newer, faster-
growing economies and also in more mature economies. In addition, the economic
unification of European markets may improve economic growth, reduce costs and
increase competition in Europe, which will result in opportunities for
investment by the Fund in European utility industries. Of course, there is no
assurance that such favorable developments will occur or that investment
opportunities in foreign markets for the Fund will increase.
The revenues of domestic and foreign utility companies generally reflect the
economic growth and developments in the geographic areas in which they do
business. Mitchell Hutchins takes into account anticipated economic growth
rates and other economic developments when selecting securities of utility
companies. Further descriptions of specific segments within the global utility
industries are set forth below.
Electric. The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric
energy, although many also provide other energy-related services. Domestic
electric utility companies in general recently have been favorably affected by
lower fuel and financing costs and the full or near completion of major
construction programs. In addition, many of these companies recently have
generated cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Some electric utilities have also taken advantage of the right to
sell power outside of their traditional geographic areas. Electric utility
companies have historically been subject to the risks associated with
increases in fuel and other operating costs, high interest costs on borrowings
needed for capital construction programs, costs associated with compliance
with environmental, nuclear facility and other safety regulations and changes
in the regulatory climate. For example, in the United States, the construction
and operation of nuclear power facilities is subject to increased scrutiny by,
and evolving regulations of, the Nuclear Regulatory Commission. Increased
scrutiny might result in higher operating costs and higher capital
expenditures, with the risk that regulators may disallow inclusion of these
costs in rate authorizations.
Telecommunications. The telephone communications industry is a distinct
utility industry segment that is subject to different risks and opportunities.
Companies that provide telephone services and access to the telephone networks
comprise the largest portion of this segment. The telephone industry is large
and highly concentrated. Telephone companies in the United States are still
experiencing the effects of the break-up of American Telephone & Telegraph
Company, which occurred in 1984. Since that date the number of local and long-
distance companies and the competition among such companies has increased. In
addition, since 1984, companies engaged in telephone communication services
have expanded their nonregulated activities into other businesses, including
cellular telephone services, data processing, equipment retailing and software
services. This expansion has provided significant opportunities for certain
telephone companies to increase their earnings and dividends at faster rates
than have been allowed in traditional regulated businesses. Increasing
competition and other structural changes, however, could adversely affect the
profitability of such utilities.
Gas. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate transmission
companies are regulated by the Federal Energy
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Regulatory Commission, which is reducing its regulation of the industry. Many
companies have diversified into oil and gas exploration and development,
making returns more sensitive to energy prices. In the recent decade, gas
utility companies have been adversely affected by disruption in the oil
industry and have also been affected by increased concentration and
competition.
Water. Water supply utilities are companies that collect, purify, distribute
and sell water. In the United States and around the world, the industry is
highly fragmented, because most of the supplies are owned by local
authorities. Companies in this industry are generally mature and are
experiencing little or no per capita volume growth. Mitchell Hutchins believes
that favorable investment opportunities may result from consolidation within
this industry.
There can be no assurance that the positive developments noted above,
including those relating to business growth and changing regulation, will
occur or that risk factors other than those noted above will not develop in
the future.
INVESTMENT LIMITATIONS OF THE FUNDS
FUNDAMENTAL LIMITATIONS. The following investment limitations cannot be
changed for a Fund without the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Fund or (2) 67% or more of the shares of
the Fund present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. If a
percentage restriction is adhered to at the time of an investment or
transaction, later changes in percentage resulting from a change in values of
portfolio securities or the 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 restriction: Mortgage- and asset-backed securities will not be
considered to have been issued by the same issuer by reason of the securities
having the same sponsor, and mortgage- and asset-backed securities issued by a
finance or other special purpose subsidiary that are not guaranteed by the
parent company will be considered to be issued by a separate issuer from the
parent company.
(2) purchase any security if, as a result of that purchase, 25% or more of
the Fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to municipal securities and
except that (a) Financial Services Growth Fund, under normal circumstances,
will invest 25% or more of its total assets in the related group of industries
consisting of the financial services industries and (b) Utility Income Fund,
under normal circumstances, will invest 25% or more of its total assets in the
utility industries as a group. For this purpose, utility industries consist of
companies primarily engaged in the ownership or operation of facilities used
in the generation, transmission or distribution of electricity,
telecommunications, gas, or water.
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(3) issue senior securities or borrow money, except as permitted under the
Investment Company Act of 1940 ("1940 Act") and then not in excess of 33 1/3%
of the Fund's total assets (including the amount of the senior securities
issued but reduced by any liabilities not constituting senior securities) at
the time of the issuance or borrowing, except that the Fund may borrow up to
an additional 5% of its total assets (not including the amount borrowed) for
temporary or emergency purposes.
(4) make loans, except through loans of portfolio securities or through
repurchase agreements, provided that for purposes of this restriction, the
acquisition of bonds, debentures, other debt securities or instruments, or
participations or other interests therein and investments in government
obligations, commercial paper, certificates of deposit, bankers' acceptances
or similar instruments will not be considered the making of a loan.
(5) engage in the business of underwriting securities of other issuers,
except to the extent that the Fund might be considered an underwriter under
the federal securities laws in connection with its disposition of portfolio
securities.
(6) purchase or sell real estate, except that investments in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported by
interests in real estate are not subject to this limitation, and except that
the Fund may exercise rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be
liquidated in an orderly manner.
(7) purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Fund may purchase, sell or
enter into financial options and futures, forward and spot currency contracts,
swap transactions and other financial contracts or derivative instruments.
NON-FUNDAMENTAL LIMITATIONS. The following investment restrictions may be
changed by each board without shareholder approval.
Each Fund will not:
(1) invest more than 10% of its net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities and includes, among other things, repurchase agreements
maturing in more than seven days.
(2) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions and except that the Fund may make
margin deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments.
(3) engage in short sales of securities or maintain a short position, except
that the Fund may (a) sell short "against the box" and (b) maintain short
positions in connection with its use of financial options and futures, forward
and spot currency contracts, swap transactions and other financial contracts
or derivative instruments.
(4) purchase securities of other investment companies, except to the extent
permitted by the 1940 Act and except that this limitation does not apply to
securities received or acquired as dividends, through offers of exchange, or
as a result of reorganization, consolidation, or merger (and except that, a
Fund will not purchase securities of registered open-end investment companies
or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or
12(d)(1)(G) of the 1940 Act).
(5) purchase portfolio securities while borrowings in excess of 5% of its
total assets are outstanding.
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STRATEGIES USING DERIVATIVE CONTRACTS
GENERAL DESCRIPTION OF DERIVATIVE INSTRUMENTS. Mitchell Hutchins may use a
variety of financial instruments ("Derivative Instruments"), including certain
options, futures contracts (sometimes referred to as "futures") and options on
futures contracts, to attempt to hedge a Fund's portfolio. In particular, each
Fund may use the Derivative Instruments described below, except that only
Utility Income Fund may use forward currency contracts. Utility Income Fund
may use these strategies to attempt to enhance income and also may enter into
certain interest rate protection transactions. A Fund may enter into
transactions using 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 these instruments will place at risk a much smaller portion of
its assets. The particular Derivative Instruments that may be used by the
Funds are described below.
OPTIONS ON EQUITY AND DEBT SECURITIES AND FOREIGN CURRENCIES--A call option
is a short-term contract pursuant to which the purchaser of the option, in
return for a premium, has the right to buy the security or currency underlying
the option at a specified price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to deliver the underlying
security or currency against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right
to sell the underlying security or currency at a specified price during the
option term. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security or currency at the exercise price.
OPTIONS ON STOCK INDEXES--A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values
of those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
STOCK INDEX FUTURES CONTRACTS--A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at
a specified price. Although such futures contracts by their terms call for
actual delivery or acceptance of debt securities or currency, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security
or currency, at a specified price at any time during the option term. Upon
exercise of the option, the delivery of the futures position to the holder of
the option
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will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option on the future. The writer of an option, upon exercise, will assume a
short position in the case of a call and a long position in the case of a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by
the parties, at a price set at the time the contract is entered into.
GENERAL DESCRIPTION OF HEDGING STRATEGIES. Hedging strategies can be broadly
categorized as "short hedges" and "long hedges." A short hedge is a purchase
or sale of a Derivative Instrument intended partially or fully to 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 Derivative 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.
Each Fund may purchase and write (sell) covered straddles on securities or
indices of securities. A long straddle is a combination of a call and a put
option purchased on the same security or on the same futures contract, where
the exercise price of the put is equal to the exercise price of the call. A
Fund might enter into a long straddle when Mitchell Hutchins believes it is
likely that the prices of the securities will be more volatile during the term
of the option than the option pricing implies. A short straddle is a
combination of a call and a put written on the same security where the
exercise price of the put is equal to the exercise price of the call. A Fund
might enter into a short straddle when Mitchell Hutchins believes it unlikely
that the prices of the securities will be as volatile during the term of the
option as the option pricing implies.
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that 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 Derivative Instruments may be limited by tax considerations.
See "Taxes."
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In addition to the products, strategies and risks described below and in the
Funds' 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, foreign currency
contracts or other techniques are developed. Mitchell Hutchins may utilize
these opportunities to the extent that they are consistent with each Fund's
investment objective and permitted by each Fund's investment limitations and
applicable regulatory authorities. The Funds' Prospectus or this Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
SPECIAL RISKS OF STRATEGIES USING DERIVATIVE INSTRUMENTS. The use of
Derivative Instruments involves special considerations and risks, as described
below. Risks pertaining to particular Derivative Instruments are described in
the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the ability
of Mitchell Hutchins to predict movements of the overall securities, interest
rate or currency exchange markets, which requires different skills than
predicting changes in the prices of individual securities. While 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 affecting the markets in which
Derivative Instruments are traded rather than the value of the investments
being hedged. The effectiveness of hedges using Derivative Instruments on
indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if 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 increase might be wholly or partially offset by a
decline in the price of the Derivative Instrument. Moreover, if the price of
the Derivative Instrument declined by more than the increase in the price of
the security, 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 Derivative Instruments involving obligations to third parties
(i.e., Derivative Instruments other than purchased options). If the Fund was
unable to close out its positions in such Derivative Instruments, it might be
required to continue to maintain such assets or accounts or make such payments
until the positions expired or matured. These requirements might impair 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 in a Derivative Instrument can be closed out at a time
and price that is favorable to a Fund.
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COVER FOR STRATEGIES USING DERIVATIVE CONTRACTS. 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. Each Fund will comply with SEC
guidelines regarding cover for hedging transactions and will, if the
guidelines so require, set aside cash or liquid securities in a segregated
account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Derivative Instrument is open, unless they
are replaced with similar assets. As a result, the 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, stock indices and,
on foreign currencies. The purchase of call options may serve as a long hedge,
and the purchase of put options may serve as a short hedge. Writing covered
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 may serve 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. If the covered call option is an OTC option, the securities or
other assets used as cover 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 and foreign currencies exist
but are relatively new, and these instruments are primarily traded on the OTC
market. Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between 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
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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.
Generally, the OTC debt options or foreign currency 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-listed
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 a Fund will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency
of the contra party, a Fund might be unable to close out an OTC option
position at any time prior to its expiration.
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 the Fund could cause material losses because the Fund
would be unable to sell the investment used as cover for the written option
until the option expires or is exercised.
A Fund may purchase and write put and call options on stock indices in much
the same manner as the more traditional options discussed above, except the
index options may serve as a hedge against overall fluctuations in the equity
securities market (or market sectors) rather than anticipated increases or
decreases in the value of a particular security.
LIMITATIONS ON THE USE OF OPTIONS. A Fund's use of options is governed by
the following guidelines, which can be changed by its board without
shareholder vote:
(1) Each Fund may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums
on all other options held by that Fund, does not exceed 5% of its total
assets.
(2) The aggregate value of securities underlying put options written by a
Fund determined as of the date the put options are written will not exceed 50%
of a Fund's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock and bond indices and options on
futures contracts) purchased by each Fund that are held at any time will not
exceed 20% of that Fund's net assets.
FUTURES. The Funds may purchase and sell stock index futures contracts,
interest rate futures contracts and, foreign currency futures contracts. A
Fund may also purchase put and call options, and write covered put and call
options, on futures in which it is allowed to invest. The purchase of futures
or call options thereon can serve as a long hedge, and the sale of futures or
the purchase of put options thereon can serve as a short hedge. Writing
covered call options on futures contracts can serve as a limited short hedge,
and writing covered put options on futures contracts can serve as a limited
long hedge, using a strategy similar to that used for writing covered options
on securities or indices.
14
<PAGE>
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 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
15
<PAGE>
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 use of futures
and related options is governed by the following guidelines, which can be
changed by each board without shareholder vote:
(1) If 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, foreign currencies and stock or bond indices and options on
futures contracts) purchased by a Fund that are held at any time will not
exceed 20% of its net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by a Fund will not exceed 5% of its total assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Each Fund may
use options and futures on foreign currencies, as described above, and Utility
Income Fund may use forward currency contracts, as described below, to hedge
against movements in the values of the foreign currencies in which their
securities are denominated. Such currency hedges can protect against price
movements in a security a Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.
The Funds might seek to hedge against changes in the value of a particular
currency when no Derivative Instruments on that currency are available or such
Derivative Instruments are more expensive than certain other Derivative
Instruments. In such cases, the Funds may hedge against price movements in
that currency by entering into transactions using Derivative Instruments on
another currency or a basket of currencies, the value of which Mitchell
Hutchins believes will have a positive correlation to the value of the
currency being hedged. The risk that movements in the price of the Derivative
Instrument will not correlate perfectly with movements in the price of the
currency being hedged is magnified when this strategy is used.
The value of Derivative Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Derivative
Instruments, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the Derivative Instruments
until they reopen.
16
<PAGE>
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Funds might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. Utility Income Fund may enter into forward
currency contracts to purchase or sell foreign currencies for a fixed amount
of U.S. dollars or another foreign currency. Such transactions may serve as
long hedges--for example, the Fund may purchase a forward currency contract to
lock in the U.S. dollar price of a security denominated in a foreign currency
that the Fund intends to acquire. Forward currency contract transactions may
also serve as short hedges--for example, the Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
As noted above, Utility Income Fund also may seek to hedge against changes
in the value of a particular currency by using forward contracts on another
foreign currency or a basket of currencies, the value of which Mitchell
Hutchins believes will have a positive correlation to the values of the
currency being hedged. In addition, the Fund may use forward currency
contracts to shift its exposure to foreign currency fluctuations from one
country to another. For example, if the Fund owned securities denominated in a
foreign currency and Mitchell Hutchins believed that currency would decline
relative to another currency, it might enter into a forward contract to sell
an appropriate amount of the first foreign currency, with payment to be made
in the second foreign currency. Transactions that use two foreign currencies
are sometimes referred to as "cross hedging." Use of a different foreign
currency magnifies the risk that movements in the price of the Hedging
Instrument will not correlate or will correlate unfavorably with the foreign
currency being hedged.
The cost to Utility Income Fund of engaging in forward currency contracts
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because forward currency
contracts are usually entered into on a principal basis, no fees or
commissions are involved. When the Fund enters into a forward currency
contract, it relies on the contra party to make or take delivery of the
underlying currency at the maturity of the contract. Failure by the contra
party to do so would result in the loss of any expected benefit of the
transaction.
As is the case with futures contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that Utility Income Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the contra party, the Fund might be unable to close out a
forward currency contract at any time prior to maturity. In either event, the
Fund would continue to be subject to market risk with respect to the position
and would continue to be required to maintain a position in the securities or
currencies that are the subject of the hedge or to maintain cash or securities
in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, Utility Income Fund
might need to purchase or sell foreign currencies in the spot (cash) market to
the extent such foreign currencies are not
17
<PAGE>
covered by forward contracts. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
LIMITATIONS ON THE USE OF FORWARD CURRENCY CONTRACTS. Utility Income Fund
may enter into forward currency contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
position being hedged by such contracts or (2) the Fund segregates with its
custodian cash or liquid securities in an amount not less than the value of
its total assets committed to the consummation of the contract and not covered
as provided in (1) above, as marked to market daily.
INTEREST RATE PROTECTION TRANSACTIONS. Utility Income Fund may enter into
interest rate protection transactions, including interest rate swaps and
interest rate caps, floors and collars. Interest rate swap transactions
involve an agreement between two parties to exchange payments that are based,
for example, on variable and fixed rates of interest and that are calculated
on the basis of a specified amount of principal (the "notional principal
amount") for a specified period of time. Interest rate cap or floor
transactions involve an agreement between two parties in which the first party
agrees to make payments to the counterparty when a designated market interest
rate goes above (in the case of a cap) or below (in the case of a floor) a
designated level on predetermined dates or during a specified time period.
Interest rate collar transactions involve an agreement between two parties in
which payments are made when a designated market interest rate either goes
above a designated ceiling level or goes below a designated floor level on
predetermined dates or during a specified time period. The Fund intends to use
these transactions as a hedge and not as a speculative investment. Interest
rate protection transactions are subject to risks comparable to those
described above with respect to other hedging strategies.
Utility Income Fund may enter into interest rate swaps, caps, floors and
collars on either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments. Inasmuch as these interest rate protection
transactions are entered into for good faith hedging purposes, and inasmuch as
segregated accounts will be established with respect to such transactions,
Mitchell Hutchins believes such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the
Fund's borrowing restrictions. The net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each interest rate
swap will be accrued on a daily basis, and appropriate Fund assets having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account as described above in "Investment Policies
and Restrictions--Segregated Accounts." The Fund also will establish and
maintain such segregated accounts with respect to its total obligations under
any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, floors and collars it writes.
Utility Income Fund will enter into interest rate protection transactions
only with banks and recognized securities dealers believed by Mitchell
Hutchins to present minimal credit risk in accordance with guidelines
established by its board. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
18
<PAGE>
TRUSTEES, DIRECTORS AND OFFICERS; PRINCIPAL HOLDERS OF SECURITIES
The trustees or directors and executive officers of the Trusts and the
Corporation, their ages, business addresses and principal occupations during
the past five years are:
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
Margo N. Alexander**; 51 Trustee/Director and Mrs. Alexander is president, chief
President executive officer and a director of
Mitchell Hutchins (since January
1995) and an executive vice
president and a director of
PaineWebber (since March 1984).
Mrs. Alexander is president and a
director or trustee of 31
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard Q. Armstrong; 63 Trustee/Director Mr. Armstrong is chairman and prin-
78 West Brother Drive cipal of RQA Enterprises (manage-
Greenwich, CT 06830 ment consulting firm) (since April
1991 and principal occupation since
March 1995). Mr. Armstrong was
chairman of the board, chief exec-
utive officer and co-owner of Adi-
rondack Beverages (producer and
distributor of soft drinks and
sparkling/still waters) (October
1993-March 1995). Mr. Armstrong was
a partner of the New England Con-
sulting Group (management consult-
ing firm) (December 1992-September
1993). He was managing director of
LVMH U.S. Corporation (U.S. subs-
idiary of the French luxury goods
conglomerate, Louis Vuitton Moet
Hennessey Corporation) (1987-1991)
and chairman of its wine and spir-
its subsidiary, Schieffelin & Som-
erset Company (1987-1991). Mr.
Armstrong is a director or trustee
of 30 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<C> <C> <S>
E. Garrett Bewkes, Jr.**; 71 Trustee/Director and Mr. Bewkes is a director of Paine
Chairman of the Webber Group Inc. ("PW Group")
Board of (holding company of PaineWebber and
Trustees/Directors Mitchell Hutchins). Prior to De-
cember 1995, he was a consultant to
PW Group. Prior to 1988, he was
chairman of the board, president
and chief executive officer of
American Bakeries Company. Mr.
Bewkes is a director of Interstate
Bakeries Corporation and NaPro
BioTherapeutics, Inc. Mr. Bewkes is
a director or trustee of 31 in-
vestment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Richard R. Burt; 51 Trustee/Director Mr. Burt is chairman of IEP Advis-
1275 Pennsylvania Ave., N.W. ers, Inc. (international invest-
Washington, D.C. 20004 ments and consulting firm) (since
March 1994) and a partner of
McKinsey & Company (management
consulting firm) (since 1991). He
is also a director of Archer-Dan-
iels-Midland Co. (agricultural
commodities), Hollinger Interna-
tional Co. (publishing), Homestake
Mining Corp., Powerhouse Technolo-
gies Inc. and Wierton Steel Corp.
He was the chief negotiator in the
Strategic Arms Reduction Talks with
the former Soviet Union (1989-1991)
and the U.S. Ambassador to the
Federal Republic of Germany (1985-
1989). Mr. Burt is a director or
trustee of 30 investment companies
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<S> <C> <C>
Mary C. Farrell**; 48 Trustee/Director Ms. Farrell is a managing director,
senior investment strategist and
member of the Investment Policy
Committee of PaineWebber. Ms.
Farrell joined PaineWebber in 1982.
She is a member of the Financial
Women's Association and Women's
Economic Roundtable, and is em-
ployed as a regular panelist on
Wall $treet Week with Louis
Rukeyser. She also serves on the
Board of Overseers of New York
University's Stern School of Busi-
ness. Ms. Farrell is a director
or trustee of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Meyer Feldberg; 56 Trustee/Director Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia Uni-
New York, New York 10027 versity. Prior to 1989, he was
president of the Illinois Institute
of Technology. Dean Feldberg is
also a director of Primedia Inc.,
Federated Department Stores, Inc.
and Revlon, Inc. Dean Feldberg is a
director or trustee of 30 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
George W. Gowen; 68 Trustee/Director Mr. Gowen is a partner in the law
666 Third Avenue firm of Dunnington, Bartholow &
New York, New York 10017 Miller. Prior to May 1994, he was a
partner in the law firm of Fryer,
Ross & Gowen. Mr. Gowen is a direc-
tor of Columbia Real Estate Invest-
ments, Inc. Mr. Gowen is a director
or trustee of 30 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
- ---------------------- ----------------- --------------------
<S> <C> <C>
Frederic V. Malek; 61 Trustee/Director Mr. Malek is chairman of Thayer Cap-
1455 Pennsylvania Ave- ital Partners (merchant bank). From
nue, N.W. January 1992 to November 1992, he
Suite 350 was campaign manager of Bush-Quayle
Washington, D.C. 20004 '92. From 1990 to 1992, he was vice
chairman and, from 1989 to 1990, he
was president of Northwest Airlines
Inc., NWA Inc. (holding company of
Northwest Airlines Inc.) and Wings
Holdings Inc. (holding company of
NWA Inc.). Prior to 1989, he was
employed by the Marriott Corpora-
tion (hotels, restaurants, airline
catering and contract feeding),
where he most recently was an exec-
utive vice president and president
of Marriott Hotels and Resorts. Mr.
Malek is also a director of Ameri-
can Management Systems, Inc. (man-
agement consulting and computer-re-
lated services), Automatic Data
Processing, Inc., CB Commercial
Group, Inc. (real estate services),
Choice Hotels International (hotel
and hotel franchising), FPL Group,
Inc. (electric services), Manor
Care, Inc. (health care) and North-
west Airlines Inc. Mr. Malek is a
director or trustee of 30 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS*; POSITION WITH BUSINESS EXPERIENCE;
AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
------------------ ----------------- --------------------
<S> <C> <C>
Carl W. Schafer; 62 Trustee/Director Mr. Schafer is president of the At-
66 Witherspoon Street lantic Foundation (charitable foun-
#1100 dation supporting mainly oceano-
Princeton, NJ 08542 graphic exploration and research).
He also is a director of Base Ten
Systems, Inc. (software), Roadway
Express, Inc. (trucking), The
Guardian Group of Mutual Funds, The
Harding Loevner Funds, Evans Sys-
tems, Inc. (motor fuels, conve-
nience store and diversified compa-
ny), Electronic Clearing House,
Inc. (financial transactions
processing), Frontier Oil Corpora-
tion and Nutraceutix, Inc. (bio-
technology company). Prior to Janu-
ary 1993, Mr. Schafer was chairman
of the Investment Advisory Commit-
tee of the Howard Hughes Medical
Institute. Mr. Schafer is a direc-
tor or trustee of 30 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Julieanna Berry; 35 Vice President Ms. Berry is a first vice president
and a portfolio manager of Mitchell
Hutchins. Ms. Berry is a vice pres-
ident of two investment companies
for which Mitchell Hutchins serves
as investment adviser.
Karen L. Finkel; 40 Vice President Mrs. Finkel is a senior vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Mrs. Finkel is a
vice president of two investment
companies for which Mitchell
Hutchins serves as investment ad-
viser.
James F. Keegan; 37 Vice President Mr. Keegan is a senior vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Prior to March
1996, he was director of fixed in-
come strategy and research of
Merrion Group, L.P. From 1987 to
1994, he was a vice president of
global investment management of
Bankers Trust Company. Mr. Keegan
is a vice president of three in-
vestment companies for which Mitch-
ell Hutchins serves as investment
adviser.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<S> <C> <C>
John J. Lee; 29 Vice President and Mr. Lee is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins.
Prior to September 1997, he was an
audit manager in the financial
services practice of Ernst & Young
LLP. Mr. Lee is a vice president
and assistant treasurer of 30 in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Thomas J. Libassi; 39 Vice President Mr. Libassi is a senior vice presi-
dent and a portfolio manager of
Mitchell Hutchins. Prior to May
1994, he was a vice president of
Keystone Custodian Funds Inc. with
portfolio management responsibili-
ty. Mr. Libassi is a vice president
of six investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Dennis McCauley; 51 Vice President Mr. McCauley is a managing director
(Managed Investments and chief investment officer--fixed
Trust only) income of Mitchell Hutchins. Prior
to December 1994, he was director
of fixed income investments of IBM
Corporation. Mr. McCauley is a vice
president of 21 investment compa-
nies for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Ann E. Moran; 40 Vice President and Ms. Moran is a vice president and a
Assistant Treasurer manager of the mutual fund finance
department of Mitchell Hutchins.
Ms. Moran is a vice president and
assistant treasurer of 31 invest-
ment companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Dianne E. O'Donnell; 46 Vice President and Ms. O'Donnell is a senior vice pres-
Secretary ident and deputy general counsel of
Mitchell Hutchins. Ms. O'Donnell is
a vice president and secretary of
30 investment companies and vice
president and assistant secretary
for one investment company for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
- ---------------------- ----------------- --------------------
<S> <C> <C>
Emil Polito; 37 Vice President Mr. Polito is a senior vice presi-
dent and director of operations and
control for Mitchell Hutchins. From
March 1991 to September 1993 he was
director of the mutual funds sales
support and service center for
Mitchell Hutchins and Paine-Webber.
Mr. Polito is vice president of 31
investment companies for which
Mitchell Hutchins or PaineWebber
serves as investment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director
47 and general counsel of Mitchell
Hutchins. Prior to May 1994, she
was a partner in the law firm of
Arnold & Porter. Ms. Schonfeld is a
vice president of 30 investment
companies and vice president and
secretary of one investment company
for which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
Paul H. Schubert; 35 Vice President and Mr. Schubert is a senior vice presi-
Treasurer dent and the director of the mutual
fund finance department of Mitchell
Hutchins. From August 1992 to Au-
gust 1994, he was a vice president
of BlackRock Financial Management
Inc. Mr. Schubert is a vice presi-
dent and treasurer of 31 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Nirmal Singh; 42 Vice President Mr. Singh is a senior vice president
and a portfolio manager of Mitchell
Hutchins. Prior to September 1993,
he was a member of the portfolio
management team at Merrill Lynch
Asset Management, Inc. Mr. Singh is
a vice president of four investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH BUSINESS EXPERIENCE;
NAME AND ADDRESS*; AGE TRUST/CORPORATION OTHER DIRECTORSHIPS
---------------------- ----------------- --------------------
<S> <C> <C>
Barney A. Taglialatela; Vice President and Mr. Taglialatela is a vice president
37 Assistant Treasurer and a manager of the mutual fund
finance department of Mitchell
Hutchins. Prior to February 1995,
he was a manager of the mutual fund
finance division of Kidder Peabody
Asset Management, Inc. Mr.
Taglialetela is a vice president
and assistant treasurer of 31 in-
vestment companies for which Mitch-
ell Hutchins or PaineWebber serves
as investment adviser.
Mark A. Tincher; 42 Vice President Mr. Tincher is a managing director
and chief investment officer--U.S.
equity investments of Mitchell
Hutchins. Prior to March 1995, he
was a vice president and directed
the U.S. funds management and eq-
uity research areas of Chase Man-
hattan Private Bank. Mr. Tincher is
a vice president of 13 investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Craig M. Varrelman; 39 Vice President Mr. Varrelman is a senior vice pres-
ident and a portfolio manager of
Mitchell Hutchins. Mr. Varrelman is
a vice president of four investment
companies for which Mitchell
Hutchins or PaineWebber serves as
investment adviser.
Keith A. Weller; 36 Vice President and Mr. Weller is a first vice president
Assistant Secretary and associate general counsel of
Mitchell Hutchins. Prior to May
1995, he was an attorney in private
practice. Mr. Weller is a vice
president and assistant secretary
of 30 investment companies for
which Mitchell Hutchins or
PaineWebber serves as investment
adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Mrs. Alexander, Mr. Bewkes and Ms. Farrell are "interested persons" of each
Fund as defined in the 1940 Act by virtue of their positions with PW Group,
PaineWebber and/or Mitchell Hutchins.
26
<PAGE>
The Trust and the Corporation each pays board members who are not
"interested persons" of the Trust or Corporation ("disinterested members")
$1,000 annually for each series and $150 for each board meeting and each
meeting of a board committee (other than committee meetings held on the same
day as a board meeting). The Trust presently has six operating series and thus
pays each such trustee $6,000 annually, plus any additional amounts due for
board or committee meetings. The Corporation has only one series and thus pays
each such board member $1,500 annually, plus any additional amounts due for
board or committee meetings. Each chairman of the audit and contract review
committees of individual funds within the PaineWebber fund complex receives
additional compensation aggregating $15,000 annually. All board members are
reimbursed for any expenses incurred in attending meetings. Board members and
officers of the Trust and Corporation own in the aggregate less than 1% of the
outstanding shares of each Fund. Because PaineWebber and Mitchell Hutchins
perform substantially all the services necessary for the operation of the
Trust, the Corporation and each Fund, the Trust and Corporation require no
employees. No officer, director or employee of Mitchell Hutchins or
PaineWebber presently receives any compensation from the Trust or Corporation
for acting as a board member or officer.
The table below includes certain information relating to the compensation of
the current board members who held office with the Trust and the Corporation
or with other PaineWebber funds during the years indicated.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL
AGGREGATE COMPENSATION COMPENSATION
COMPENSATION FROM PW FROM THE
FROM PW FINANCIAL TRUSTS/CORPORATION
MANAGED SERVICES AND
INVESTMENTS GROWTH THE FUND
NAME OF PERSON, POSITION TRUST FUND, INC.* COMPLEX**
- ------------------------ ------------ ------------ ------------------
<S> <C> <C> <C>
Richard Q. Armstrong,
Trustee/Director................ $11,900 $2,550 $ 94,885
Richard R. Burt,
Trustee/Director................ 11,000 2,400 87,085
Meyer Feldberg,
Trustee/Director................ 11,900 3,922 117,853
George W. Gowen,
Trustee/Director................ 13,676 2,550 101,567
Frederic V. Malek,
Trustee/Director................ 11,900 2,550 95,844
Carl W. Schafer,
Trustee/Director................ 11,900 2,550 94,885
</TABLE>
- --------
Only independent members of the board are compensated by the Trust or the
Corporation and identified above; board members who are "interested persons,"
as defined by the 1940 Act, do not receive compensation.
* Represents fees paid to each board member during the year ended March 31,
1998.
** Represents total compensation paid to each board member during the calendar
year ended December 31, 1997; no fund within the fund complex has a pension
or retirement plan.
PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1998, the records of the Trusts and Corporation indicate that
no shareholder owned 5% or more of a Fund's shares. The Trusts and Corporation
are not aware of any shareholder who is the beneficial owner of 5% or more of
a Fund's shares.
27
<PAGE>
INVESTMENT ADVISORY AND DISTRIBUTION ARRANGEMENTS
INVESTMENT ADVISORY ARRANGEMENTS. Mitchell Hutchins acts as the investment
adviser and administrator to each Fund pursuant to separate contracts (each an
"Advisory Contract") with the Trust and the Corporation. Under the Advisory
Contracts, each Fund pays Mitchell Hutchins a fee, computed daily and paid
monthly, at the annual rate specified in the Prospectus.
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 board members and officers who are not
"interested persons" (as defined in the 1940 Act) of the Trust/Corporation or
Mitchell Hutchins; (6) all expenses incurred in connection with the board
members' services, including travel expenses; (7) taxes (including any income
or franchise taxes) and governmental fees; (8) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; (9) any
costs, expenses or losses arising out of a liability of or claim for damages
or other relief asserted against the Trust/Corporation or Fund for violation
of any law; (10) legal, accounting and auditing expenses, including legal fees
of special counsel for the independent board members; (11) charges of
custodians, transfer agents and other agents; (12) costs of preparing share
certificates; (13) expenses of setting in type and printing prospectuses,
statements of additional information and supplements thereto, reports and
proxy materials for existing shareholders, and costs of mailing such materials
to shareholders; (14) any extraordinary expenses (including fees and
disbursements of counsel) incurred by the Fund; (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (16) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the board and any committees thereof;
(17) the cost of investment company literature and other publications provided
to board members and officers; and (18) costs of mailing, stationery and
communications equipment.
Under 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 Advisory Contract, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of Mitchell Hutchins in the performance of its duties or from reckless
disregard of its duties and obligations thereunder. Each Advisory Contract
terminates automatically upon assignment and is terminable at any time without
penalty by the Fund's board or by vote of the holders of a majority of the
Fund's outstanding voting securities on 60 days' written notice to Mitchell
Hutchins, or by Mitchell Hutchins on 60 days' written notice to the Fund.
FINANCIAL SERVICES GROWTH FUND. Mitchell Hutchins acts as the investment
adviser and administrator of Financial Services Growth Fund pursuant to an
Advisory Contract with the Fund dated April 1, 1990. Under the Advisory
Contract, the Fund pays Mitchell Hutchins a fee, computed daily and paid
monthly, at the annual rate of 0.70% of the Fund's average daily net assets.
For the fiscal years ended March 31, 1998, March 31, 1997, and March 31, 1996,
the Fund paid (or accrued) to Mitchell Hutchins investment advisory and
administration fees totalling 1,912,197, $771,491 and $625,307, respectively.
UTILITY INCOME FUND. Mitchell Hutchins acts as the investment adviser and
administrator of Utility Income Fund pursuant to an Advisory Contract with
Managed Investments Trust dated April 21, 1988, as supplemented by a separate
Fee Agreement dated May 1, 1992. Under the Advisory Contract, the Trust pays
Mitchell Hutchins an annual fee of 0.70% of the Fund's average net assets,
computed daily and paid monthly.
28
<PAGE>
For the fiscal year ended March 31, 1998, March 31, 1997, and during the four
months ended March 31, 1996, the Trust paid (or accrued) to Mitchell Hutchins
investment advisory and administration fees of $235,331, $314,323 (of which
$30,480 was waived) and $139,394 (of which $69,697 was waived), respectively.
Prior to August 1, 1998, under a service agreement ("Service Agreement")
with each Trust and the Corporation that was reviewed by the applicable boards
annually, PaineWebber provided certain services to the Funds not otherwise
provided by the Funds' transfer agent. Pursuant to the Service Agreement, for
the fiscal years ended March 31, 1998, March 31, 1997, and March 31, 1996,
Financial Services Growth Fund paid (or accrued) to PaineWebber $14,088,
$26,881 and $25,258, respectively. Pursuant to the Service Agreement for the
fiscal year ended March 31, 1998, March 31, 1997, during the four months ended
March 31, 1996 and for the fiscal years ended November 30, 1995 and November
30, 1994, Utility Income Fund paid (or accrued) to PaineWebber $4,244,
$17,118, $7,119, $24,449, and $28,223 respectively. For both Financial
Services Growth Fund and Utility Income Fund, subsequent to July 31, 1997,
PFPC (not the Funds) pays PaineWebber for certain Transfer Agency related
services that PFPC has delegated to PaineWebber.
NET ASSETS. The following table shows the approximate net assets as of June
30, 1998, sorted by category of investment objective, of the investment
companies as to which Mitchell Hutchins serves as adviser or sub-adviser. An
investment company may fall into more than one of the categories below.
<TABLE>
<CAPTION>
NET ASSETS
($ MIL)
INVESTMENT CATEGORY ----------
<S> <C>
Domestic (excluding Money Market).............................. $ 7,856.5
Global......................................................... 3,875.8
Equity/Balanced................................................ 6,513.8
Fixed Income (excluding Money Market).......................... 5,218.7
Taxable Fixed Income......................................... 3,641.0
Tax-Free Fixed Income........................................ 1,577.7
Money Market Funds............................................. 28,628.1
</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 the
Funds' Class A, Class B, Class C and Class Y shares under separate
distribution contracts with each Fund (collectively, "Distribution
Contracts"). Each Distribution Contract requires Mitchell Hutchins to use its
best efforts, consistent with its other businesses, to sell shares of each
Fund. Shares of each Fund are offered continuously. Under separate exclusive
dealer agreements between Mitchell Hutchins and PaineWebber relating to the
Class A, Class B, Class C and Class Y shares (collectively, "Exclusive Dealer
Agreements"), PaineWebber and its correspondent firms sell the Funds' shares.
29
<PAGE>
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares adopted by each Trust or Corporation 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 of each Class of shares for each respective Fund.
Under the Class B Plan and the Class C Plan, each Fund pays Mitchell Hutchins
a distribution fee, accrued daily and payable monthly, at the annual rate of
0.75% of the average daily net assets of the Class B shares and Class C shares
of each respective Fund. There is no distribution plan with respect to any
Fund's Class Y shares.
Among other things, each Plan provides that (1) Mitchell Hutchins will
submit to the board at least quarterly, and the board members will review,
reports regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, (2) the Plan will continue in effect only
so long as it is approved at least annually, and any material amendment
thereto is approved, by the board, including those board members who are not
"interested persons" of their respective Funds and who have no direct or
indirect financial interest in the operation of the Plan or any agreement
related to the Plan, acting in person at a meeting called for that purpose,
(3) payments by a Fund under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the outstanding
shares of the relevant class of the respective Fund and (4) while the Plan
remains in effect, the selection and nomination of board members who are not
"interested persons" of the Funds shall be committed to the discretion of the
board members who are not "interested persons" of their respective Funds.
In reporting amounts expended under the Plans to the board members, 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.
The Funds paid (or accrued) the following fees to Mitchell Hutchins under
the Class A, Class B and Class C Plans during the fiscal year ended March 31,
1998:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH INCOME
FUND FUND
---------- --------
<S> <C> <C>
Class A.................................................. $ 344,946 $ 16,318
Class B.................................................. $1,023,922 $202,158
Class C.................................................. $ 328,008 $ 68,760
</TABLE>
30
<PAGE>
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 year ended March 31,
1998:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES UTILITY
GROWTH INCOME
FUND FUND
--------- --------
<S> <C> <C>
CLASS A
Marketing and advertising.................................. $ 62,225 $ 19,480
Printing of prospectuses and statement of additional
information............................................... $ 1,878 $ 102
Branch network costs allocated and interest expense........ $206,906 $ 37,810
Service fees paid to PaineWebber investment executives..... $131,080 $ 6,200
CLASS B
Marketing and advertising.................................. $ 43,362 $ 60,487
Amortization of commissions................................ $300,489 $ 55,939
Printing of prospectuses and statement of additional
information............................................... $ 1,308 $ 281
Branch network costs allocated and interest expense........ $144,172 $123,175
Service fees paid to PaineWebber investment executives..... $ 97,273 $ 19,205
CLASS C
Marketing and advertising.................................. $ 13,811 $ 20,549
Amortization of commissions................................ $ 93,481 $ 19,597
Printing of prospectuses and statement of additional
information............................................... $ 417 $ 101
Branch network costs allocated and interest expense........ $ 45,923 $ 40,114
Service fees paid to PaineWebber investment executives..... $ 31,160 $ 6,532
</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 Funds' overall Flexible PricingSM system of distribution,
each board considered several factors, including that implementation of
Flexible Pricing would (1) enable investors to choose the purchasing option
best suited to their individual situation, thereby encouraging current
shareholders to make additional investments in each respective Fund and
attracting new investors and assets to the Fund to the benefit of the Fund and
its shareholders, (2) facilitate distribution of the Funds' shares and (3)
maintain the competitive position of the Funds 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 Fund than might otherwise be the
case, (3) the advantages to the shareholders of economies of scale resulting
from growth in the Fund's assets and potential continued growth, (4) the
services provided to the Fund and its shareholders by Mitchell Hutchins, (5)
the services provided by PaineWebber pursuant to its Exclusive Dealer
Agreement with Mitchell Hutchins and (6) Mitchell Hutchins' shareholder
service-related expenses and costs.
31
<PAGE>
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
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service and distribution-related expenses and
costs. The board members also recognized that Mitchell Hutchins' willingness
to compensate PaineWebber and its investment executives, without the
concomitant receipt by Mitchell Hutchins of initial sales charges, was
conditioned upon its expectation of being compensated under the Class B Plan.
In approving the Class C Plan, each board considered all the features of the
distribution system, including (1) the advantage to investors in having no
initial sales charges deducted from the Fund purchase payments and instead
having the entire amount of their purchase payments immediately invested in
Fund shares, (2) the advantage to investors in being free from contingent
deferred sales charges upon redemption for shares held more than one year and
paying for distribution on an ongoing basis, (3) Mitchell Hutchins' belief
that the ability of PaineWebber investment executives and correspondent firms
to receive sales compensation for their sales of Class C shares on an ongoing
basis, along with continuing service fees, while their customers invest their
entire purchase payments immediately in Class C shares and generally do not
face contingent deferred sales charges, would prove attractive to the
investment executives and correspondent firms, resulting in greater growth to
the Fund than might otherwise be the case, (4) the advantages to the
shareholders of economies of scale resulting from growth in the Fund's assets
and potential continued growth, (5) the services provided to the Fund and its
shareholders by Mitchell Hutchins, (6) the services provided by PaineWebber
pursuant to its Exclusive Dealer Agreement with Mitchell Hutchins and (7)
Mitchell Hutchins' shareholder service- and distribution-related expenses and
costs. The board members also recognized that Mitchell Hutchins' willingness
to compensate PaineWebber and its investment executives without the
concomitant receipt by Mitchell Hutchins of initial sales charges or
contingent deferred sales charges upon redemption, was conditioned upon its
expectation of being compensated under the Class C Plan.
With respect to each Plan, the board members considered all compensation
that Mitchell Hutchins would receive under the Plan and the Distribution
Contract, including service fees and, as applicable, initial sales charges,
distribution fees and contingent deferred sales charges. The board members
also considered the benefits that would accrue to Mitchell Hutchins under each
Plan in that Mitchell Hutchins would receive service, distribution and
advisory fees which are calculated based upon a percentage of the average net
assets of each Fund, which fees would increase if the Plan were successful and
the Fund attained and maintained significant asset levels.
32
<PAGE>
Under the Distribution Contracts for Class A shares, 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>
FOR FISCAL YEARS ENDED MARCH 31,
----------------------------------
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
FINANCIAL SERVICES GROWTH FUND
Earned....................................... $2,006,218 $318,111 $ 61,563
Retained..................................... $ 143,106 $ 21,364 $ 7,084
</TABLE>
<TABLE>
<CAPTION>
FOR FISCAL FOR FISCAL FOR FOUR FOR FISCAL
YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1998 1997 1996 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
UTILITY INCOME FUND
Earned.......................... $21,396 $5,958 $3,054 $12,015
Retained........................ $ 1,402 $ 340 $ 174 $ 608
</TABLE>
Mitchell Hutchins earned and retained the following contingent deferred
sales charges paid upon certain redemptions of Class A, Class B and Class C
shares for the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
FINANCIAL
SERVICES
GROWTH FUND UTILITY INCOME FUND
----------- -------------------
<S> <C> <C>
Class A......................................... $ 0 $ 0
Class B......................................... $184,219 $68,280
Class C......................................... $ 24,887 $ 176
</TABLE>
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 a Fund, taking into
account such factors as the price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved. While Mitchell Hutchins generally
seeks reasonably competitive commission rates, payment of the lowest
commission is not necessarily consistent with obtaining the best net results.
Prices paid to dealers in principal transactions, through which most debt
securities and some equity securities are traded, generally include a
"spread," which is the difference between the prices at which the dealer is
willing to purchase and sell a specific security at the time. The 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 fiscal periods indicated, the Funds paid the brokerage commissions set
forth below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
31
------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Financial Services Growth Fund........................ $317,283 $80,638 $56,121
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED FISCAL YEAR FOUR MONTHS ENDED
MARCH 31, ENDED MARCH ENDED MARCH NOVEMBER 30,
1998 31, 1997 31, 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Utility Income Fund............ $15,213 $72,018 $26,304 $74,250
</TABLE>
33
<PAGE>
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 Mitchell Hutchins or its affiliates,
including 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 Mitchell Hutchins and any of its affiliates that is a
member of a national securities exchange 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.
(For the last three fiscal years Financial Services Growth Fund and Utility
Income Fund paid no brokerage commissions to PaineWebber.
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 Mitchell Hutchins and
its affiliates, are similar to those in effect with respect to brokerage
transactions in securities.
Consistent with the interests of the Funds and subject to the review of each
board, Mitchell Hutchins may cause a Fund to purchase and sell portfolio
securities through brokers who provide that Fund with research, analysis,
advice and similar services. In return for such services, the Funds 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 that Fund and its other clients and
that the total commissions paid by the Fund will be reasonable in relation to
the benefits to the Fund over the long term. During the fiscal year ended
March 31, 1998, 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>
Financial Services Growth Fund.......
Utility Income Fund..................
</TABLE>
For purchases or sales with broker-dealer firms that act as principal,
Mitchell Hutchins seeks best execution. Although Mitchell Hutchins may receive
certain research or execution services in connection with these transactions,
Mitchell Hutchins will not purchase securities at a higher price or sell
securities at a lower price than would otherwise be paid if no weight was
attributed to the services provided by the executing dealer. 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 that 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.
34
<PAGE>
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,
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 Contract.
Investment decisions for a Fund and for other investment accounts managed by
Mitchell Hutchins are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for 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.
The Funds' respective portfolio turnover rates for the fiscal periods shown
were:
<TABLE>
<S> <C>
FINANCIAL SERVICES GROWTH FUND
Fiscal year ended March 31, 1998............................................ 23%
Fiscal year ended March 31, 1997............................................ 40%
UTILITY INCOME FUND
Fiscal year ended March 31, 1998............................................ 10%
Fiscal year ended March 31, 1997............................................ 41%
</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.
35
<PAGE>
An "eligible group of related Fund investors" can consist of any combination
of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account ("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds 25%
or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust created
by the individual(s), the beneficiaries of which are the individual and/or
the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers to
Minors Act account created by the individual or the individual's spouse;
(g) an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed
related to that other employer); or
(h) individual accounts related together under one registered investment
adviser having full discretion and control over the accounts. The
registered investment adviser must communicate at least quarterly through a
newsletter or investment update establishing a relationship with all of the
accounts.
RIGHTS OF ACCUMULATION-CLASS A SHARES. Reduced sales charges are available
through a right of accumulation, under which investors and eligible groups of
related Fund investors (as defined above) are permitted to purchase Class A
shares of the 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 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. 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.
36
<PAGE>
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 Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
the Funds are obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Funds during any 90-day period
for one shareholder. This election is irrevocable unless the SEC permits its
withdrawal.
The 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 shares of a Fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A shares, initial sales charges. On or about the
20th of each month for monthly, quarterly, semiannual and annual plans,
PaineWebber will arrange for redemption by the Funds 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
and other distributions, a shareholder's investment may be correspondingly
reduced. A shareholder may change the amount of the systematic withdrawal or
terminate participation in the systematic withdrawal plan at any time without
charge or penalty by written instructions with signatures guaranteed to
PaineWebber or PFPC Inc. ("Transfer Agent"). Instructions to participate in
the plan, change the withdrawal amount or terminate participation in the plan
will not be effective until five days after written instructions with
signatures guaranteed are received by the Transfer Agent. Shareholders may
request the forms needed to establish a systematic withdrawal plan from their
PaineWebber investment executives, correspondent firms or the Transfer Agent
at 1-800-647-1568.
37
<PAGE>
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 PLANSM;
PAINEWEBBER RESOURCE MANAGEMENT ACCOUNT(R) (RMA(R))
Shares of PaineWebber mutual funds (each a "PW Fund" and, collectively, the
"PW Funds") are available for purchase by customers of PaineWebber and its
correspondent firms who maintain Resource Management Accounts ("RMA
accountholders") through the RMA Resource Accumulation Plan ("Accumulation
Plan"). 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 Accumulation 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 Accumulation 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 Accumulation 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 Accumulation Plan. Information about
mutual fund positions and outstanding instructions under the Plan are noted on
the RMA accountholder's account statement. Instructions under the Accumulation
Plan may be changed at any time, but may take up to two weeks to become
effective.
The terms of the Accumulation Plan, or an RMA accountholder's participation
in the Accumulation 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 Accumulation 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
38
<PAGE>
of "dollar cost averaging." By investing a fixed amount in mutual fund shares
at established intervals, an investor purchases more shares when the price is
lower and fewer shares when the price is higher, thereby increasing his or her
earning potential. Of course, dollar cost averaging does not guarantee a
profit or protect against a loss in a declining market, and an investor should
consider his or her financial ability to continue investing through periods of
both low and high share prices. However, over time, dollar cost averaging
generally results in a lower average original investment cost than if an
investor invested a larger dollar amount in a mutual fund at one time.
PAINEWEBBER'S RESOURCE MANAGEMENT ACCOUNT.
In order to enroll in the Accumulation Plan, an investor must have opened an
RMA account with PaineWebber or one of its correspondent firms. The RMA
account is PaineWebber's comprehensive asset management account and offers
investors a number of features, including the following:
. monthly Premier account statements that itemize all account activity,
including investment transactions, checking activity and Gold
MasterCard(R) transactions during the period, and provide unrealized and
realized gain and loss estimates for most securities held in the account;
. comprehensive preliminary 9-month and year-end summary statements that
provide information on account activity for use in tax planning and tax
return preparation;
. automatic "sweep" of uninvested cash into the RMA accountholder's choice
of one of the six RMA money market funds-RMA Money Market Portfolio, RMA
U.S. Government Portfolio, RMA Tax-Free Fund, RMA California Municipal
Money Fund, RMA New Jersey Municipal Money Fund and RMA New York
Municipal Money Fund. Each money market fund attempts to maintain a
stable price per share of $1.00, although there can be no assurance that
it will be able to do so. Investments in the money market funds are not
insured or guaranteed by the U.S. government;
. check writing, with no per-check usage charge, no minimum amount on
checks and no maximum number of checks that can be written. RMA
accountholders can code their checks to classify expenditures. All
canceled checks are returned each month;
. Gold MasterCard, with or without a line of credit, which provides RMA
accountholders with direct access to their accounts and can be used with
automatic teller machines worldwide. Purchases on the Gold MasterCard are
debited to the RMA account once monthly, permitting accountholders to
remain invested for a longer period of time;
. 24-hour access to account information through toll-free numbers, and more
detailed personal assistance during business hours from the RMA Service
Center;
. expanded account protection to $100 million in the event of the
liquidation of PaineWebber. This protection does not apply to shares of
the RMA money market funds or the PW Funds because those shares are held
at the transfer agent and not through PaineWebber; and
. automatic direct deposit of checks into your RMA account and automatic
withdrawals from the account.
The annual account fee for an RMA account is $85, which includes the Gold
MasterCard, with an additional fee of $40 if the investor selects an optional
line of credit with the Gold MasterCard.
39
<PAGE>
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 (1) the date on which such Class B shares
were issued, or (2) 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 does not constitute a taxable event. If the conversion feature ceased
to be available, the Class B shares of the Funds would not be converted and
would continue to be subject to the higher ongoing expenses of the Class B
shares beyond six years from the date of purchase. Mitchell Hutchins has no
reason to believe that this condition for the availability of the conversion
feature will not continue to be met.
VALUATION OF SHARES
Each Fund determines the 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. and foreign stock exchanges are valued at
the last sale price on the day the securities are valued or, lacking any sales
on such day, at the last available bid price. In cases where securities are
traded on more than one exchange, the securities are generally valued on the
exchange considered by Mitchell Hutchins 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 board. In valuing lower rated corporate debt securities it should be
recognized that judgment often plays a greater role than is the case with
respect to securities for which a broader range of dealer quotations and last-
sale information is available. All investments quoted in foreign currency will
be valued daily in U.S. dollars on the basis of the foreign currency exchange
rate prevailing at the time such valuation is determined by the Funds'
custodian.
40
<PAGE>
Foreign currency exchange rates are generally determined prior to the close
of trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events would not be
reflected in a computation of the Funds' net asset value on that day. If
events materially affecting the value of such investments or currency exchange
rates occur during such time period, the investments will be valued at their
fair value as determined in good faith by or under the direction of each
board. The foreign currency exchange transactions of the Funds conducted on a
spot (that is, cash) basis are valued at the spot rate for purchasing or
selling currency prevailing on the foreign exchange market. This rate under
normal market conditions differs from the prevailing exchange rate in an
amount generally less than one-tenth of one percent due to the costs of
converting from one currency to another.
PERFORMANCE INFORMATION
The Funds' performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is
not intended to indicate future performance. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
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> <C> <C>
P(1 + T)n = ERV
a hypothetical initial payment of $1,000 to purchase shares of a
where: P = specified Class
T = average annual total return of shares of that Class
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of that period.
</TABLE>
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. Total return, or "T" in the formula above, is computed by finding
the average annual change in the value of an initial $1,000 investment over
the period. In calculating the ending redeemable value, for Class A shares,
the maximum 4.5% sales charge is deducted from the initial $1,000 payment and,
for Class B and Class C shares, the applicable contingent deferred sales
charge imposed on a redemption of Class B or Class C shares held for the
period is deducted. All dividends and other distributions are assumed to have
been reinvested at net asset value.
The 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.
41
<PAGE>
The following table shows performance information for the Class A, Class B
and Class C shares of the Funds for the periods indicated. No Class Y shares
were outstanding for Utility Income Fund during the periods indicated and
Class Y shares were outstanding for only two days for Financial Services
Growth Fund. All returns for periods of more than one year are expressed as an
average return.
FINANCIAL SERVICES GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended March 31, 1998:
Standardized Return*.......................... 45.10% 45.80% 49.76% NA
Non-Standardized Return....................... 51.92% 50.80% 50.76% NA
Five years ended March 31, 1998:
Standardized Return*.......................... 22.61% 22.65% 22.82% NA
Non-Standardized Return....................... 23.75% 22.83% 22.82% NA
Ten years ended March 31, 1998:
Standardized Return*.......................... 23.12% NA NA NA
Non-Standardized Return....................... 23.69% NA NA NA
Inception** to March 31, 1998:
Standardized Return*.......................... 17.81% 28.12% 25.59% 1.02%
Non-Standardized Return....................... 18.27% 28.12% 25.59% 1.02%
</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.
** The inception date for each Class of shares is as follows: Class A--May 22,
1986, Class B--July 1, 1991, Class C--July 2, 1992 and Class Y--March 30,
1998.
UTILITY INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Fiscal year ended March 31, 1998:
Standardized Return*.................................. 32.90% 33.13% 37.09%
Non-Standardized Return............................... 39.15% 38.13% 38.09%
Inception** to March 31, 1998:
Standardized Return*.................................. 10.52% 10.47% 10.75%
Non-Standardized Return............................... 11.59% 10.76% 10.75%
</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.
** The inception date for each class of shares is July 2, 1993.
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
42
<PAGE>
Stock Price Index ("S&P 500"), the Dow Jones Industrial Average, the Nasdaq
Composite Index, the Russell 2000 Index, the Wilshire 5000 Index, the Lehman
Bond Index, CBOE Real Estate Investment Trust Index, Bloomberg REIT Index,
Keefe Bruyette and Woods Bank Index, Standard & Poor's Bank Composite,
Standard & Poor's Insurance Composite, Standard & Poor's Small Cap Financials
Index, Standard & Poor's Mid Cap Financials Index, Standard & Poor's Super
Composite Financials Index, Standard & Poor's Financials Index, Dow Jones
Utilities Average, NYSE Utilities Index, Standard & Poor's Utilities,
Philadelphia Utility Index, Standard & Poor's Small Utilities, ValueLine
Utilities, Moody's Utility Stocks, 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 MAGAZINE, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S,
FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST AND THE
KIPLINGER LETTERS. Comparisons in Performance Advertisements may be in graphic
form.
The 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(R) 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
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 of the Funds involves greater risks than an investment in
either a money market fund or a CD.
43
<PAGE>
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.
LOGO
The chart is shown for illustrative purposes only and does not represent
either Fund's performance. These returns consist of income and capital
appreciation (or depreciation) and should not be considered an indication or
guarantee of future investment results. Year-to-year fluctuations in certain
markets have been significant and negative returns have been experienced in
certain markets from time to time. Stocks are measured by the S&P 500, an
unmanaged weighted index comprising 500 widely held common stocks and varying
in composition. Unlike investors in bonds and U.S. Treasury bills, common
stock investors do not receive fixed income payments and are not entitled to
repayment of principal. These differences contribute to investment risk.
Returns shown for long-term government bonds are based on U.S. Treasury bonds
with 20-year maturities. Inflation is measured by the Consumer Price Index.
The indexes are unmanaged and are not available for investment.
- --------
Source: Stocks, Bonds, Bills and Inflation 1998 YearbookTM Ibbotson Assoc.,
Chi., (annual updates work by Roger G. Ibbotson & Rex A. Sinquefield).
Over time, stocks have outperformed all other investments by a wide margin,
offering a solid hedge against inflation. From 1926 to 1997, stocks beat all
other traditional asset classes. A $10,000 investment in the stocks comprising
the S&P 500 grew to $18,272,762, significantly more than any other investment.
TAXES
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, net short-term
capital gain and net gains from certain foreign currency transactions)
("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 foreign currencies, or other income
(including gains from options, futures or forward currency contracts) derived
with respect to its business of investing in securities or those currencies
("Income Requirement"); (2) at the close of each quarter of the
44
<PAGE>
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter
of the Fund's taxable year, not more than 25% of the value of its total assets
may be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.
Dividends and other distributions declared by 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 in additional shares) may be eligible for the
dividends-received deduction allowed to corporations. The eligible portion may
not exceed the aggregate dividends received by 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
federal alternative minimum tax.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder
will pay full price for the shares and receive some portion of the price back
as a taxable distribution.
Dividends and interest received by a Fund, and gains realized by a Fund, may
be subject to income, withholding or other taxes imposed by foreign countries
and U.S. possessions ("foreign taxes") that would reduce the yield and/or
total return on its securities. Tax conventions between certain countries and
the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of a Fund's
total assets at the close of its taxable year consists of securities of
foreign corporations, it will be eligible to, and may, file an election with
the Internal Revenue Service that would enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign
taxes paid by it. Pursuant to the election, the Fund would treat those taxes
as dividends paid to its shareholders and each shareholder would be required
to (1) include in gross income, and treat as paid by him or her, his or her
proportionate share of those taxes, (2) treat his or her share of those taxes
and of any dividend paid by the Fund that represents income from foreign or
U.S. possessions sources as his or her own income from those sources and (3)
either deduct the taxes deemed paid by him or her in computing his or her
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit against his or her federal income tax. A Fund will
report to its shareholders shortly after each taxable year their respective
shares of foreign taxes paid and the income from sources within, and taxes
paid to, foreign countries and U.S. possessions if it makes this election. If
a Fund makes this election, individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and all of whose foreign source income is "qualified passive income" may
elect each year to be exempt from the extremely complicated foreign tax credit
limitation and will be able to claim a foreign tax credit without having to
file the detailed Form 1116 that otherwise is required. Financial Services
Growth Fund is not expected to be eligible to make this election.
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.
45
<PAGE>
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--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 that stock (collectively "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a
taxable dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders. If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain
(the excess of net long-term capital gain over net short-term capital loss)--
which may have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain are not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
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 the stock over a Fund's
adjusted basis therein as of the end of that year. Pursuant to the election, a
Fund also may deduct (as an ordinary, not capital, loss) the excess, if any,
of its adjusted basis in PFIC stock over the fair market value thereof as of
the taxable year-end, but only to the extent of any net mark-to-market gains
with respect to that stock included in income by the Fund for prior taxable
years. A Fund's adjusted basis in each PFIC's stock subject to the election
would be adjusted to reflect the amounts of income included and deductions
taken thereunder. Regulations proposed in 1992 provided 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 and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the
character amount, and timing of recognition of the gains and losses a Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
If a Fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures or forward currency contract
or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which
exceeds its adjusted basis--and enters into a "constructive sale" of the same
or substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or a futures or forward currency contract entered
into by a Fund or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is itself
a short sale or such a contract, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale. The
foregoing will not apply, however, to a Fund's transaction during any taxable
year that otherwise would be treated as a constructive sale if the transaction
is closed within 30 days after the end of that year and the Fund holds the
46
<PAGE>
appreciated financial position unhedged for 60 days after that closing (i.e.,
at no time during that 60-day period is the Fund's risk of loss regarding that
position reduced by reason of certain specified transactions with respect to
substantially similar or related property, such as having an option to sell,
being contractually obligated to sell, making a short sale, or granting an
option to buy substantially identical stock or securities).
OTHER INFORMATION
Prior to December 14, 1995, Financial Services Growth Fund was known as
"PaineWebber Regional Financial Growth Fund Inc." Prior to November 10, 1995,
each Fund's Class C shares were known as "Class D" shares.
Managed Investments Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of
Utility Income Fund could, under certain circumstances, be held personally
liable for the obligations of the Trust or Fund. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations
of the Trust or the Fund and requires that notice of such disclaimer be given
in each note, bond, contract, instrument, certificate or undertaking made or
issued by the trustees or by any officers or officer by or on behalf of the
Trust or the Fund, the trustees or any of them in connection with the Trust.
The Declaration of Trust provides for indemnification from a Fund's property
for all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations, a possibility that
Mitchell Hutchins believes is remote and not material. Upon payment of any
liability incurred by a shareholder solely by reason of being or having been a
shareholder of a Fund, the shareholder paying such liability will be entitled
to reimbursement from the general assets of the Fund. The trustees intend to
conduct each Fund's operations in such a way as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund.
CLASS-SPECIFIC EXPENSES. Each Fund may determine to allocate certain of its
expenses (in addition to distribution fees) to the specific classes of the
Fund's shares to which those expenses are attributable. For example, a Fund's
Class B shares bear higher transfer agency fees per shareholder account than
those borne by Class A, Class C or Class Y shares. The higher fee is imposed
due to the higher costs incurred by the transfer agent in tracking shares
subject to a contingent deferred sales charge because, upon redemption, the
duration of the shareholder's investment must be determined in order to
determine the applicable charge. Moreover, the tracking and calculations
required by the automatic conversion feature of the Class B shares will cause
the transfer agent to incur additional costs. Although the transfer agency fee
will differ on a per account basis as stated above, the specific extent to
which the transfer agency fees will differ between the classes as a percentage
of net assets is not certain, because the fee as a percentage of net assets
will be affected by the number of shareholder accounts in each class and the
relative amounts of net assets in each class.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue, N.W., Washington, D.C. 20036-1800, serves as counsel to the 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 the Funds.
FINANCIAL STATEMENTS
Each Fund's Annual Report to Shareholders for the fiscal year ended March
31, 1998 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and reports of
independent auditors appearing therein are incorporated herein by this
reference.
47
<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
a "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues;
AA. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term 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 CAA 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.
48
<PAGE>
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 pay interest and repay principal is extremely strong;
AA. An obligation rated AA differs from the highest rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong; A. An obligation rated A is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt 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,
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 obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment that other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B. An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC. An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC. An obligation rated CC is currently highly vulnerable to nonpayment.
C. The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on the
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 over the
applicable grace period has not expired unless Standard & Poor's 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;
R. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
49
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION DO NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Restrictions..................................... 1
Hedging and Other Strategies Using Derivative Contracts.................. 10
Trustees, Directors and Officers; Principal Holders of Securities........ 19
Investment Advisory and Distribution Arrangements........................ 28
Portfolio Transactions................................................... 33
Reduced Sales Charges, Additional Exchange and Redemption Information and
Other Services.......................................................... 35
Conversion of Class B Shares............................................. 40
Valuation of Shares...................................................... 40
Performance Information.................................................. 41
Taxes.................................................................... 44
Other Information........................................................ 47
Financial Statements..................................................... 47
Appendix................................................................. 48
</TABLE>
(C)1998 PaineWebber Incorporated
PaineWebber
Financial Services Growth Fund
PaineWebber
Utility Income Fund
- --------------------------------------------------------------------------------
Statement of Additional Information
August 1, 1998
- --------------------------------------------------------------------------------
LOGO
<PAGE>
PART C. OTHER INFORMATION
--------------------------
Item 23. Exhibits
--------
(1) Restated Articles of Incorporation (filed herewith)
(2) Restated By-Laws (filed herewith)
(3) Instruments defining the rights of holders of Registrant's shares of
common stock 1/
-
(4) Investment Advisory and Administration Contract (filed herewith)
(5) (a) Distribution Contract with respect to Class A shares (filed
herewith)
(b) Distribution Contract with respect to Class B shares (filed
herewith)
(c) Distribution Contract with respect to Class C shares 2/
-
(d) Distribution Contract with respect to Class Y shares 3/
-
(e) Exclusive Dealer Agreement with respect to Class A shares (filed
herewith)
(f) Exclusive Dealer Agreement with respect to Class B shares (filed
herewith)
(g) Exclusive Dealer Agreement with respect to Class C shares 2/
-
(h) Exclusive Dealer Agreement with respect to Class Y shares 3/
-
(6) Bonus, profit sharing or pension plans - none
(7) Custodian Agreement (filed herewith)
(8) Transfer Agency Agreement (filed herewith)
(9) Opinion and consent of counsel (filed herewith)
(10) Auditors' Consent (filed herewith)
(11) Financial statements omitted from prospectus-none
(12) Letter of investment intent (filed herewith)
(13) (a) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
A shares (filed herewith)
(b) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
B shares (filed herewith)
(c) Plan of Distribution pursuant to Rule 12b-1 with respect to Class
C shares (filed herewith)
(14) and
(27) Financial Data Schedule (filed herewith)
(15) Plan pursuant to Rule 18f-3 3/
-
__________________
1/ Incorporated by reference from Articles Sixth, Seventh, Eighth, Eleventh
- -
and Twelfth of the Registrant's Restated Articles of Incorporation and from
Articles II, VIII, X, XI, and XII of the Registrant's Restated By-Laws.
C-1
<PAGE>
2/ Incorporated by reference from Post-Effective Amendment No. 12 to the
- -
registration statement on Form N-1A, SEC File No. 33-33231, filed
December 11, 1995.
3/ Incorporated by reference from Post-Effective Amendment No. 15 to the
- -
registration statement on Form N-1A, SEC File No. 33-33231, filed July
31, 1996.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None
Item 25. Indemnification
---------------
Section 10.1 of ARTICLE TENTH of the Articles of Incorporation
provides that to the maximum extent permitted by the law, no director or officer
of the Registrant shall be liable to the Registrant or its stockholders for
money damages.
Section 10.2 of ARTICLE TENTH further provides that to the maximum
extent permitted by law, the Registrant shall indemnify and advance expenses as
provided in the By-Laws to its present and past directors, officers, employees
and agents, and persons who are serving or have served at the request of the
Registrant as a director, officer, employee or agent in similar capacities for
other entities.
Section 10.3 of ARTICLE TENTH further provides that the Registrant may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Registrant, or is or was serving at
the request of the Registrant as a director, officer, employee or agent of
another 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.
Additionally, Section 10.4 of ARTICLE TENTH provides that any repeal
or modification of ARTICLE TENTH or adoption or modification of any other
provision of the Articles or By-Laws inconsistent with ARTICLE TENTH shall be
prospective only, to the extent that such repeal or modification would, if
applied retroactively, adversely affect any limitation of liability of any
director or officer of the Registrant or indemnification to any person covered
by ARTICLE TENTH with respect to any act or omission which occurred prior to
such repeal, modification or adoption.
Section 9.01 of the By-Laws sets forth the procedures by which the
Registrant will indemnify its directors, officers, employees and agents.
Section 9.02 of Article IX of the By-Laws further provides that the Registrant
may purchase and maintain insurance or other sources of reimbursement to the
extent permitted by law on behalf of any person who is or was a director,
officer, employee or agent of the Registrant, or is or was serving at the
request of the Registrant as a director, officer, employee, or agent 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 or arising
out of his or her position.
Section 9 of the Investment Advisory and Administration Contract
between Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") and the
Registrant 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 or 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 9
further provides that any person, even though also an officer, director,
employee or agent of Mitchell Hutchins, who may be or become an officer,
director or employee of the Registrant shall be deemed, when rendering services
to any series or the Registrant or acting with respect to any business of such
series or the Registrant, to be rendering such service to or acting solely for
any series or the Registrant and not as an officer, director, employee, or agent
or one under the control or direction of Mitchell Hutchins even though paid by
it.
C-2
<PAGE>
Section 9 of each Distribution Contract provides that the Registrant
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 furnished by Mitchell Hutchins to the Registrant 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 Registrant, its officers and directors free and harmless of any claims
arising out of any alleged untrue statement or any alleged omission of material
fact contained in information furnished by Mitchell Hutchins for use in the
Registration Statement or arising out of an agreement between Mitchell Hutchins
and any retail dealer, or arising out of supplementary literature or advertising
used by Mitchell Hutchins in connection with each Distribution Contract.
Section 9 of each Exclusive Dealer Agreement contains provisions
similar to Section 9 of each Distribution Contract, with respect to PaineWebber
Incorporated ("PaineWebber").
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding or payment pursuant to any insurance policy) is
asserted against the Registrant by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Mitchell Hutchins, a Delaware corporation, is a registered investment
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 27. 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.
MANAGED HIGH YIELD PLUS FUND INC.
MITCHELL HUTCHINS PORTFOLIOS
MITCHELL HUTCHINS SERIES TRUST
PAINEWEBBER AMERICA FUND
C-3
<PAGE>
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PAINEWEBBER INDEX TRUST
PAINEWEBBER INVESTMENT SERIES
PAINEWEBBER INVESTMENT TRUST
PAINEWEBBER INVESTMENT TRUST II
PAINEWEBBER MANAGED ASSETS TRUST
PAINEWEBBER MANAGED INVESTMENTS TRUST
PAINEWEBBER MASTER SERIES, INC.
PAINEWEBBER MUNICIPAL SERIES
PAINEWEBBER MUTUAL FUND TRUST
PAINEWEBBER OLYMPUS FUND
PAINEWEBBER SECURITIES TRUST
STRATEGIC GLOBAL INCOME FUND, INC.
2002 TARGET TERM TRUST INC.
b) Mitchell Hutchins is the principal underwriter for the Registrant.
PaineWebber acts as exclusive dealer for the shares of the Registrant. The
directors and officers of Mitchell Hutchins, their principal business addresses,
and their positions and offices with Mitchell Hutchins are identified in its
Form ADV, as filed with the Securities and Exchange Commission (registration
number 801-13219). The directors and officers of PaineWebber, their principal
business addresses, and their positions and offices with PaineWebber are
identified in its Form ADV, as filed with the Securities and Exchange Commission
(registration number 801-7163). The foregoing information is hereby
incorporated herein by reference. The information set forth below is furnished
for those directors and officers of Mitchell Hutchins or PaineWebber who also
serve as directors or officers of the Registrant. Unless otherwise indicated,
the principal business address of each person named in 1285 Avenue of the
Americas, New York, New York 10019.
<TABLE>
<CAPTION>
Positions and Offices With
Name Positions With Registrant Underwriter or Exclusive Dealer
- ---- ------------------------- -------------------------------
<S> <C> <C>
Margo N. Alexander Director and President President, Chief Executive Officer and
Director of Mitchell Hutchins and
Executive Vice President of PaineWebber
Mary C. Farrell Director Managing Director, Senior Investment
Strategist and Member of the Investment
Policy Committee of PaineWebber
Karen Finkel Vice President Senior Vice President and a Portfolio
Manager of Mitchell Hutchins
John J. Lee Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
Ann E. Moran Vice President and Assistant Vice President and a Manager of the
Treasurer Mutual Fund Finance Department of
Mitchell Hutchins
Dianne E. O'Donnell Vice President and Secretary Senior Vice President and Deputy General
Counsel of Mitchell Hutchins
Emil Polito Vice President Senior Vice President and Director of
Operations and Control of Mitchell
Hutchins
Victoria E. Schonfeld Vice President Managing Director and General Counsel of
Mitchell Hutchins
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices With
Name Positions With Registrant Underwriter or Exclusive Dealer
- ---- ------------------------- -------------------------------
<S> <C> <C>
Paul H. Schubert Vice President and Treasurer Senior Vice President and Director of the
Mutual Fund Finance Department of
Mitchell Hutchins
Barney A. Taglialatela Vice President and Assistant Vice President and Manager of the Mutual
Treasurer Fund Finance Department of Mitchell
Hutchins
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 First Vice President and Associate
Secretary General Counsel of Mitchell Hutchins
</TABLE>
(c) None
Item 28. Location of Accounts and Records
--------------------------------
The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Mitchell Hutchins, 1285 Avenue of the Americas, New York,
New York 10019. All other accounts, books and documents required by Rule 31a-1
are maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
None.
C-5
<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 29th day of July, 1998.
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
By: /s/ Dianne E. O'Donnell
---------------------------------
Dianne E. O'Donnell
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Director July 29, 1998
- --------------------------------------------
Margo N. Alexander* (Chief Executive Officer)
/s/ E. Garrett Bewkes, Jr. Director and Chairman July 29, 1998
- --------------------------------------------
E. Garrett Bewkes, Jr.* of the Board of Directors
/s/ Richard Q. Armstrong Director July 29, 1998
- --------------------------------------------
Richard Q. Armstrong*
/s/ Richard R. Burt Director July 29, 1998
- --------------------------------------------
Richard R. Burt*
/s/ Mary C. Farrell Director July 29, 1998
- --------------------------------------------
Mary C. Farrell*
/s/ Meyer Feldberg Director July 29, 1998
- --------------------------------------------
Meyer Feldberg*
/s/ George W. Gowen Director July 29, 1998
- --------------------------------------------
George W. Gowen*
/s/ Frederic V. Malek Director July 29, 1998
- --------------------------------------------
Frederic V. Malek*
/s/ Carl W. Schafer Director July 29, 1998
- --------------------------------------------
Carl W. Schafer*
/s/ Paul H. Schubert Vice President and Treasurer (Chief July 29, 1998
- --------------------------------------------
Paul H. Schubert Financial and Accounting Officer)
</TABLE>
<PAGE>
SIGNATURES (CONTINUED)
Signature affixed by Elinor W. Gammon pursuant to powers of attorney dated
May 21, 1996 and incorporated by reference from Post-Effective Amendment
No. 25 to the registration statement of PaineWebber RMA Tax-Free Fund,
Inc., SEC File 2-78310, filed June 27, 1996.
<PAGE>
Exhibit No. 1
RESTATEMENT OF ARTICLES OF INCORPORATION
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
PaineWebber Financial Services Growth Fund Inc., a Maryland
corporation, desires to restate its existing Articles of Incorporation by
adopting the following Restatement of Articles of Incorporation, as approved by
a majority of the Board of Directors on May 13, 1998. The provisions set forth
in this Restatement of Articles of Incorporation, which do not amend the
existing Articles of Incorporation, restate all the provisions of the charter
currently in effect and otherwise permitted by Maryland General Corporate Law.
FIRST:
------
I, Elinor W. Gammon, whose post office address is 1900 M Street, N.W.,
Washington, D.C. 20036, being at least twenty-one years of age, under and by
virtue of the General Laws of the State of Maryland authorizing the formation of
corporations, is acting as the sole incorporator with the intention of forming a
corporation.
SECOND: Name.
-------------
The name of the Corporation is PaineWebber Financial Services Growth
Fund Inc. ("Corporation").
THIRD: Corporate Purposes.
---------------------------
The purposes for which the Corporation is formed are to act as an
open-end management investment company under the Investment Company Act of 1940,
as amended, and to exercise and enjoy all of the powers, rights and privileges
granted to, or conferred upon, corporations of a similar character by the Public
General Laws of the State of Maryland now or hereafter in force, including, but
not limited to, the following:
(a) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to
purchase, subscribe for or otherwise acquire, hold for investment
or otherwise, to trade and deal in, write, sell, assign,
negotiate, transfer, exchange, lend, pledge or otherwise dispose
of or turn to account or realize upon, securities (which term
"securities" shall, for the purposes of these Articles of
Incorporation, without limiting the generality thereof, be deemed
to include any stocks, shares, bonds, debentures, bills, notes,
mortgages or other obligations or evidences of indebtedness, and
any options, certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe
for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets; and any
negotiable or non-negotiable instruments and money market
instruments, including bank certificates of deposit, finance
paper, commercial paper, bankers' acceptances and all kinds of
repurchase or reverse
<PAGE>
repurchase agreements) created or issued by any United States or
foreign issuer (which term "issuer" shall, for the purpose of
these Articles of Incorporation, without limiting the generality
thereof, be deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combinations,
organizations, governments or subdivisions, agencies or
instrumentalities of any government); and to exercise, as owner
or holder of any securities, all rights, powers and privileges in
respect thereof including the right to vote thereon; to aid by
further investment any issuer, any obligation of or interest in
which is held by the Corporation or in the affairs of which the
Corporation has any direct or indirect interest; to guarantee or
become surety on any or all of the contracts, stocks, bonds,
notes, debentures and other obligations of any corporation,
company, trust, association or firm; and to do any and all acts
and things for the preservation, protection, improvement and
enhancement in value of any and all such securities.
(b) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation
heretofore or hereafter engaged in any business similar to any
business which the Corporation has the power to conduct, and to
hold, utilize, enjoy and in any manner dispose of the whole or
any part of the rights, property and business so acquired, and to
assume in connection therewith any liabilities of any such
person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which
may be capable of being used for any of the purposes of the
Corporation; and to use, exercise, develop, grant licenses in
respect of, sell and otherwise turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such
terms and conditions, for such purposes and for such amount or
kind of consideration (including without limitation thereto,
securities) now or hereafter permitted by the laws of the State
of Maryland, by the Investment Company Act of 1940 and by these
Articles of Incorporation, as its Board of Directors may
determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its capital stock
in any manner and to the extent now or hereafter permitted by the
laws of the State of Maryland, by the Investment Company Act of
1940 and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more
offices in Maryland and elsewhere in any part of the world,
without restriction or limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in
foreign countries, all of the powers, rights and privileges
granted to, or conferred upon, corporations by the Public General
Laws of the State of Maryland now or hereafter in force.
2
<PAGE>
(h) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary,
suitable or proper for the accomplishment of such purposes or for
the attainment of any object or the furtherance of any power
hereinbefore set forth, either alone or in association with
others, to do every other act or thing incidental or appurtenant
to or growing out of or connected with its business or purposes,
objects or powers, and, subject to the foregoing, to have and
exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force
from time to time.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to, or
inference from, the terms of any other clause of this or any other Article of
these Articles of Incorporation, and shall each be regarded as independent and
construed as a power as well as an object and a purpose, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the general powers of the
Corporation now or hereafter conferred by the laws of Maryland, nor shall the
expression of one thing be deemed to exclude another though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever that
precludes it from being classified as an ordinary business corporation under the
laws of the State of Maryland; nor shall it carry on any business, or exercise
any powers in any other jurisdiction except to the extent that the same may
lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power to:
(a) acquire (by purchase, lease or otherwise) and hold, use,
maintain, develop and dispose of (by sale or otherwise) any
property, real or personal, and any interest therein;
(b) borrow money and, in connection with such borrowing, issue notes
or other evidence of indebtedness; and
(c) buy, hold, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange,
including the purchase and sale of futures contracts and options
on futures contracts related thereto, subject to any applicable
provisions of law.
FOURTH: Address and Resident Agent.
------------------------------------
The post office address of the principal office of the Corporation in
this State is c/o CSC - Lawyers Incorporating Service Company, 11 East Chase
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is CSC - Lawyers Incorporating Service Company, and
the post office address of the resident agent is 11 East Chase Street,
Baltimore, Maryland 21202.
3
<PAGE>
FIFTH: Capital Stock.
----------------------
Section 5.1. Authority to Issue. The total number of shares of
----------- ------------------
capital stock which the Corporation shall have authority to issue is three
hundred million (300,000,000) shares, $.001 par value per share ("Shares"),
having an aggregate par value of $300,000. The Shares may be issued by the
Board of Directors in such separate and distinct series ("Series") and classes
of Series ("Classes") as the Board of Directors shall from time to time create
and establish. The Board of Directors shall have full power and authority, in
its sole discretion, to create and establish Series and Classes having such
preferences, rights, voting powers, terms of conversion, restrictions,
limitations on dividends, qualifications, and terms and conditions of redemption
as shall be fixed and determined from time to time by resolution or resolutions
providing for the issuance of such Shares adopted by the Board of Directors. In
event of establishment of Classes, 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 as any other
Class of that Series, except as provided in these Articles of Incorporation
(provided that additional terms of conversion may be adopted in accordance with
Section 6.8(3)(e) of these Articles) and except that expenses allocated to the
Class of a Series may be borne solely by such Class as shall be determined by
the Board of Directors and a Class of a Series may have exclusive voting rights
with respect to matters affecting only that Class. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class or Series may be charged to and borne
solely by such Class or Series and the bearing of expenses solely by a Class or
Series may be appropriately reflected (in a manner determined by the Board of
Directors) and cause differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the Shares of each Class or
Series. In addition, the Board of Directors is hereby expressly granted
authority to increase or decrease the number of Shares of any Series or Class,
but the number of Shares of any Series or Class shall not be decreased by the
Board of Directors below the number of Shares thereof then outstanding.
The Board of Directors of the Corporation is authorized from time to
time to classify or to reclassify, as the case may be, any unissued Shares of
the Corporation in separate Series or Classes. The Shares of said Series or
Classes shall have such preferences, rights, voting powers, terms of conversion,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as shall be fixed and determined from time to time by
the Board of Directors. The Corporation may hold as treasury shares, reissue
for such consideration and on such terms as the Board of Directors may
determine, or cancel, at their discretion from time to time, any Shares
reacquired by the Corporation. No holder of any of the Shares shall be entitled
as of right to subscribe for, purchase, or otherwise acquire any Shares of the
Corporation which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
4
<PAGE>
Section 5.2. Redemption by Stockholders. Each holder of Shares shall
----------- --------------------------
have the right at such times as may be permitted by the Corporation to require
the Corporation to redeem all or any part of his or her Shares at a redemption
price per Share equal to the net asset value per Share at such time as the Board
of Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price per Share shall be the net asset value next
determined (in accordance with Section 5.4) after receipt by the Corporation of
a request for redemption in proper form less such charges as are determined by
the Board of Directors and described in the Corporation's Registration Statement
under the Securities Act of 1933. The Board of Directors may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment
of the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of net asset
value, or may be in cash. Notwithstanding the foregoing, the Board of Directors
may postpone payment of the redemption price and may suspend the right of the
holders of Shares to require the Corporation to redeem Shares during any period
or at any time when and to the extent permissible under the Investment Company
Act of 1940.
Section 5.3. Redemption by the Corporation. The Board of Directors
----------- -----------------------------
may cause the Corporation to redeem at current net asset value all Shares owned
or held by any one Stockholder having an aggregate current net asset value of
less than five hundred dollars ($500). No such redemption shall be effected
unless the Corporation has given the Stockholder at least sixty (60) days'
notice of its intention to redeem the Shares and an opportunity to purchase a
sufficient number of additional Shares to bring the aggregate current net asset
value of his or her Shares to five hundred dollars ($500). Upon redemption of
Shares pursuant to this Section, the Corporation shall promptly cause payment of
the full redemption price to be made to the holder of Shares so redeemed.
Section 5.4. Net Asset Value per Share. The net asset value of each
----------- -------------------------
Share of the Corporation, or each Series or Class, shall be the quotient
obtained by dividing the value of the net assets of the Corporation, or if
applicable of the Series (being the value of the assets of the Corporation or of
the particular Series less its actual and accrued liabilities exclusive of
capital stock and surplus), by the total number of outstanding Shares of the
Corporation, or of the Series. Such determination may be made on a Series-by-
Series basis or made or adjusted on a Class-by-Class basis, as appropriate and
shall include any expenses allocated to a specific Series or Class thereof. The
Board of Directors shall have the power and duty to determine from time to time
the net asset value per Share at such times and by such methods as it shall
determine, subject to any restrictions or requirements under the Investment
Company Act of 1940, as amended, and the rules, regulations and interpretations
thereof promulgated or issued by the Securities and Exchange Commission or
insofar as permitted by any order of the Securities and Exchange Commission
applicable to the Corporation. The Board of Directors may delegate such power
and duty to any one or more of the directors and officers of the Corporation,
the Corporation's administrator, investment adviser, custodian or depository of
the Corporation's assets, or another agent of the Corporation.
Section 5.5. Establishment of Series or Class. The establishment of
----------- --------------------------------
any Series or Class shall be effective upon the adoption of a resolution by a
majority of the Directors setting forth
5
<PAGE>
such establishment and designation and the relative rights and preferences of
the Shares of such Series or Class. At any time that there are no Shares
outstanding of any particular Series or Class previously established and
designated, the Directors may by a majority vote abolish that Series or Class
and the establishment and designation thereof.
Section 5.6. Assets and Liabilities of Series. All consideration
----------- --------------------------------
received by the Corporation for the issuance 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, 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 Board of Directors between and among one or more of the
Series in such manner as the Board of Directors, in its sole discretion, deems
fair and equitable. Each such allocation shall be conclusive and binding upon
the Stockholders 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 Corporation. 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 or Class
thereof shall be borne by that Series or Class. Any general liabilities,
expenses, costs, charges, or reserves of the Corporation which are not readily
identifiable as belonging to any particular Series or Class shall be allocated
and charged by the Board of Directors between or among any one or more of the
Series or Classes in such a manner as the Board of Directors in its sole
discretion deems fair and equitable. Each such allocation shall be conclusive
and binding upon the Stockholders of all Series or Classes for all purposes.
Section 5.7. Dividends. Dividends and distributions on Shares with
----------- ---------
respect to each Series or Class may be declared and paid with such frequency and
in such form and amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine.
All dividends and distributions of Shares of a particular Series 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.
The Board of Directors shall have the power, in its sole discretion,
to distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to avoid
liability of the Corporation, or each Series of the Corporation, for federal
income tax in respect of that year.
6
<PAGE>
The foregoing shall not limit the authority of the Board of Directors to make
distributions greater than or less than the amount necessary to qualify as a
regulated investment company and to avoid liability of the Corporation, or any
Series of the Corporation, for such tax.
Dividends and distributions may be paid in cash, property or Shares,
or a combination thereof, as determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in effect at the time. Any
such dividend or distribution paid in Shares will be paid at the current net
asset value thereof as defined in Section 5.4.
Section 5.8. Classes of Stock. Seventy-five million (75,000,000)
----------- ----------------
Shares of the Corporation are designated Class A Common Stock; seventy-five
million (75,000,000) Shares of the Corporation are designated Class B Common
Stock; seventy-five million (75,000,000) Shares of the Corporation are
designated Class C Common Stock; and seventy-five million (75,000,000) Shares of
the Corporation are designated Class Y Common Stock. The Class A Common Stock,
Class B Common Stock, Class C Common Stock and Class Y Common Stock of each
Series represent interests in the same investment portfolio. Shares of each
Class of Common Stock shall be subject to all provisions of Article FIFTH hereof
relating to stock of the Corporation generally and shall have the same
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, except as follows:
(1) The dividends and distributions of investment income and capital
gains with respect to the Class A Common Stock, Class B Common Stock, Class C
Common Stock and Class Y Common Stock shall be in such amount as may be declared
from time to time by the Board of Directors, and such dividends and
distributions may vary between the Classes to reflect differing allocations of
the expenses of each Series of the Corporation between the Classes to such
extent and for such purposes as the Board of Directors may deem appropriate.
(2) The proceeds of the redemption of a Share of Common Stock
(including a fractional share) shall be reduced by the amount of any applicable
contingent deferred sales charge payable on such redemption to the distributor
of the Common Stock pursuant to the terms of the issuance of the Shares (to the
extent consistent with the Investment Company Act of 1940, as amended, or
regulations or exemptions thereunder) and the Corporation shall promptly pay to
such distributor the amount of such contingent deferred sales charge.
(3) (a) Each Share of the Class B Common Stock, other than a Share
purchased through the reinvestment of a dividend or a distribution with respect
to the Class B Common Stock, shall be converted automatically, and without any
action or choice on the part of the holder thereof, into Shares of the Class A
Common Stock, at the relative net asset value of each Class, at the time of the
calculation of the net asset value of such Class of Shares on the date that is
the first Business Day (as defined in such Series' prospectus and/or statement
of additional information) of the month in which the sixth anniversary of the
issuance of such Shares of the Class B Common Stock 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
7
<PAGE>
Shares of an eligible PaineWebber fund occurred, if such Shares were exchanged
directly, or through a series of exchanges, for the Corporation's Class B Shares
(the "Conversion Date")). The Board of Directors shall adopt a resolution
setting forth a list of eligible PaineWebber funds for purposes of this
paragraph.
(b) Each Share of the Class B Common Stock purchased through the
reinvestment of a dividend or a distribution with respect to the Class B Common
Stock and the dividends and distributions on such Shares shall be segregated in
a separate sub-account on the stock records of the Corporation 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 Shares of the Class A Common Stock. 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 (3)(a) hereof bears to the total number of Shares of the Class B
Common Stock of the holder on the Conversion Date not purchased through the
automatic reinvestment of dividends or distributions with respect to the Class B
Common Stock.
(c) The number of Shares of the Class A Common Stock into which a
Share of the Class B Common Stock is converted pursuant to Paragraphs (3)(a) and
(3)(b) 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 Common
Stock 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 Common Stock for purposes of sales and redemptions
thereof at the time of the calculation of the net asset value on the Conversion
Date.
(d) On the Conversion Date, the Shares of the Class B Common Stock
converted into Shares of the Class A Common Stock will cease to accrue dividends
and will no longer be outstanding and the rights of the holders thereof will
cease (except the right to receive declared but unpaid dividends to the
Conversion Date).
(e) The Board of Directors shall have full power and authority to
adopt such other terms and conditions concerning the conversion of Shares of the
Class B Common Stock to Shares of the Class A Common Stock as they deem
appropriate; provided such terms and conditions are not inconsistent with the
terms contained in this Section 5.8 and subject to any restrictions or
requirements under the Investment Company Act of 1940, as amended, and the
rules, regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission or any conditions or limitations contained in
an order issued by the Securities and Exchange Commission applicable to the
Corporation.
SIXTH: Issuance of Common Stock.
---------------------------------
Section 6.1. Issuance of New Stock. The Board of Directors is
----------- ---------------------
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
Stockholders) all or any portion or portions of the entire authorized
8
<PAGE>
but unissued Shares of the Corporation, and all or any portion or portions of
the Shares of the Corporation from time to time in its treasury, for cash or for
any other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation be issued or sold for a consideration or
considerations less in amount or value than the par value of the Shares so
issued or sold, and provided further that in no event shall any Shares of the
Corporation be issued or sold, except as a stock dividend distributed to
Stockholders, for a consideration (which shall be net to the Corporation after
underwriting discounts or commissions) less in amount or value than the net
asset value of the Shares so issued or sold determined as of such time as the
Board of Directors shall have by resolution prescribed. In the absence of such a
resolution, such net asset value shall be that next determined after an
unconditional order in proper form to purchase such Shares is accepted, except
that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 6.2. Issuance of Fractional Shares. The Corporation may
----------- -----------------------------
issue and sell fractions of Shares having pro rata all the rights of full
Shares, including, without limitation, the right to vote and to receive
dividends, and wherever the words "Share" or "Shares" are used in these Articles
or in the By-Laws they shall be deemed to include fractions of Shares, where the
context does not clearly indicate that only full Shares are intended.
SEVENTH: Voting.
-----------------
On each matter submitted to a vote of the Stockholders, each holder of
a Share shall be entitled to one vote for each Share and fractional votes for
fractional Shares standing in his or her name on the books of the Corporation;
provided, however, that when required by the Investment Company Act of 1940, as
amended, or rules thereunder or when the Board of Directors has determined that
the matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of a particular Series or Class, and
each holder of Shares thereof shall be entitled to votes equal to the full and
fractional Shares of the Series or Class standing in his or her name on the
books of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares outstanding and entitled to vote shall constitute a
quorum for the transaction of business at a Stockholders' meeting, except that
where any provision of law or of these Articles of Incorporation permit or
require that holders of any Series or Class shall vote as a Series or Class,
one-third of the aggregate number of Shares of that Series or Class outstanding
and entitled to vote shall constitute a quorum for the transaction of business
by that Series or Class.
Notwithstanding any provision of law requiring a greater proportion
than a majority of the votes of all Shares of the Corporation or of all Series
or Classes (or of any Series or Class entitled to vote thereon as a separate
Series or Class) to take or authorize any action, in accordance with the
authority granted by Section 2-104(b)(5) of the Maryland Corporations and
Associations Code, the Corporation is hereby authorized to take such action upon
the concurrence of a majority of the aggregate number of Shares entitled to vote
thereon (or of a
9
<PAGE>
majority of the aggregate number of Shares of a Series or Class entitled to vote
thereon as a separate Series or Class). The right to cumulate votes in the
election of directors is expressly prohibited.
EIGHTH: Board of Directors.
----------------------------
All corporate powers and authority of the Corporation (except as
otherwise provided by statute, these Articles of Incorporation, or the By-Laws
of the Corporation) shall be vested in and exercised by the Board of Directors.
The number of directors constituting the Board of Directors shall be such number
as may from time to time be fixed in or in accordance with the By-Laws of the
Corporation, provided that after stock is issued to more than one Stockholder,
such number shall not be less than three. Except as provided in the By-Laws,
the election of directors may be conducted in any way approved at the meeting
(whether of Stockholders or directors) at which the election is held, provided
that such election shall be by ballot whenever requested by any person entitled
to vote. The names of the persons who shall act as directors of the Corporation
until their respective successors are duly chosen and qualified are Margo N.
Alexander, Richard Q. Armstrong, E. Garrett Bewkes, Jr., Richard R. Burt, Mary
C. Farrell, Meyer Feldberg, George W. Gowen, Frederic V. Malek and Carl W.
Schafer.
NINTH: Contracts.
------------------
Section 9.1. Contracts in General. The Board of Directors may in its
----------- --------------------
discretion from time to time enter into an exclusive or nonexclusive
distribution contract or contracts providing for the sale of Shares whereby the
Corporation may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such Shares (such other party
being herein sometimes called the "underwriter"), and in either case on such
terms and conditions as may be prescribed in the By-Laws, if any, and such
further terms and conditions as the Board of Directors may in its discretion
determine not inconsistent with the provisions of these Articles of
Incorporation and such contract may also provide for the repurchase of Shares of
the Corporation by such other party or parties as agent of the Corporation. The
Board of Directors may also in its discretion from time to time enter into an
investment advisory or management contract or contracts whereby the other party
to such contract shall undertake to furnish to the Board of Directors 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 Board of Directors may in its discretion determine.
Section 9.2. Parties to Contracts. Any contract of the character
----------- --------------------
described in Section 9.1 or for services as administrator, custodian, transfer
agent or disbursing agent or related services may be entered into with any
corporation, firm, trust or association, although any one or more of the
directors or officers of the Corporation may be an officer, director, trustee,
stockholder 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 such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Corporation 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
10
<PAGE>
inconsistent with the provisions of this Article TENTH. The same person
(including a firm, corporation, trust, or association) may be the other party to
contracts entered into pursuant to Section 9.1 above, and any individual may be
financially interested or otherwise affiliated with persons who are parties to
any or all of the contracts mentioned in this Section 9.2.
TENTH: Liability of Directors and Officers.
--------------------------------------------
Section 10.1. Liability. To the maximum extent permitted by
------------ ---------
applicable law (including Maryland law and the Investment Company Act of 1940)
as currently in effect or as may hereafter be amended, no director or officer of
the Corporation shall be liable to the Corporation or its stockholders for money
damages.
Section 10.2. Indemnification. To the maximum extent permitted by
------------ ---------------
applicable law (including Maryland law and the Investment Company Act of 1940)
currently in effect or as may hereafter be amended, the Corporation shall
indemnify and advance expenses as provided in the By-Laws to its present and
past directors, officers, employees and agents, and persons who are serving or
have served at the request of the Corporation as a director, officer, employee
or agent in similar capacities for other entities.
Section 10.3. Insurance. The Corporation may purchase and maintain
------------ ---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another 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 Corporation would have the power to
indemnify him or her against such liability.
Section 10.4. Modification. Any repeal or modification of this
------------ ------------
Article TENTH by the Stockholders of the Corporation, or adoption or
modification of any other provision of the Articles of Incorporation or By-Laws
inconsistent with this Article TENTH, shall be prospective only, to the extent
that such repeal or modification would, if applied retrospectively, adversely
affect any limitation on the liability of any director or officer of the
Corporation or indemnification available to any person covered by these
provisions with respect to any act or omission which occurred prior to such
repeal, modification or adoption.
ELEVENTH: Amendment.
---------------------
Section 11.1. Articles of Incorporation. The Corporation reserves
------------- -------------------------
the right from time to time to make any amendment of these Articles of
Incorporation, now or hereafter authorized by law, including any amendment which
alters contract rights, as expressly set forth in these Articles of
Incorporation, of any outstanding Shares. Any amendment to these Articles of
Incorporation may be adopted at a meeting of the Stockholders upon receiving an
affirmative vote of a majority of all votes entitled to be cast thereon.
Section 11.2. By-Laws. Except as may otherwise be provided in the
------------ -------
By-Laws, the Board of Directors of the Corporation is expressly authorized to
make, alter, amend and repeal By-Laws
11
<PAGE>
or to adopt new By-Laws of the Corporation, without any action on the part of
the Stockholders; but the By-Laws made by the Board of Directors and the power
so conferred may be altered or repealed by the Stockholders.
IN WITNESS WHEREOF, PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
has caused these presents to be signed in its name and on its behalf by its Vice
President and attested by the Corporation's Assistant Secretary on this 11/th/
day of June, 1998, who swear under penalty of perjury to the best of their
knowledge, information and belief, that the matters and facts set forth in these
Articles are true in all material respects.
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
By: /s/ Dianne E. O'Donnell
-----------------------
Attest: /s/ Keith A. Weller
-------------------
12
<PAGE>
Exhibit No.2
PAINEWEBBER FINANCIAL SERVICES GROWTH FUND INC.
A Maryland Corporation
BY-LAWS
As Restated
May 13, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I NAME OF CORPORATION, LOCATION OF OFFICES
AND SEAL.................................................... 1
Section 1.01. Name:.......................................... 1
Section 1.02. Principal Offices:............................. 1
Section 1.03. Seal........................................... 1
ARTICLE II STOCKHOLDERS.................................................. 1
Section 2.01. Annual Meetings:............................... 1
Section 2.02. Special Meetings:.............................. 1
Section 2.03. Place of Meetings:............................. 2
Section 2.04. Notice of Meetings:............................ 2
Section 2.05. Voting - In General:........................... 2
Section 2.06. Stockholders Entitled to Vote:................. 2
Section 2.07. Voting - Proxies:.............................. 3
Section 2.08. Quorum:........................................ 3
Section 2.09. Absence of Quorum:............................. 3
Section 2.10. Stock Ledger and List of Stockholders:......... 3
Section 2.11. Action Without Meeting:........................ 4
ARTICLE III BOARD OF DIRECTORS............................................ 4
Section 3.01. Number and Term of Office:..................... 4
Section 3.02. Qualification of Directors:.................... 4
Section 3.03. Election of Directors:......................... 4
Section 3.04. Removal of Directors:.......................... 4
Section 3.05. Vacancies and Newly Created Directorships:..... 5
Section 3.06. General Powers:................................ 5
Section 3.07. Power to Issue and Sell Stock:................. 5
Section 3.08. Power to Declare Dividends:.................... 5
Section 3.09. Annual and Regular Meetings:................... 6
Section 3.10. Special Meetings:.............................. 6
Section 3.11. Notice:........................................ 6
Section 3.12. Waiver of Notice:.............................. 7
Section 3.13. Quorum and Voting:............................. 7
Section 3.14. Compensation:.................................. 7
Section 3.15. Action Without a Meeting:...................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV EXECUTIVE COMMITTEE AND OTHER COMMITTEES...................... 7
Section 4.01. How Constituted:............................... 7
Section 4.02. Powers of the Executive Committee:............. 8
Section 4.03. Proceedings, Quorum and Manner of Acting:...... 8
Section 4.04. Other Committees:.............................. 8
ARTICLE V OFFICERS...................................................... 8
Section 5.01. General:....................................... 8
Section 5.02. Election, Term of Office and Qualifications:... 8
Section 5.03. Resignation:................................... 9
Section 5.04. Removal:....................................... 9
Section 5.05. Vacancies and Newly Created Offices:........... 9
Section 5.06. Chairman of the Board:......................... 9
Section 5.07. President:..................................... 9
Section 5.08. Vice President:................................ 10
Section 5.09. Treasurer and Assistant Treasurers:............ 10
Section 5.10. Secretary and Assistant Secretaries:........... 10
Section 5.11. Subordinate Officers:.......................... 11
Section 5.12. Remuneration:.................................. 11
Section 5.13. Surety Bonds:.................................. 11
ARTICLE VI CUSTODY OF SECURITIES......................................... 11
Section 6.01. Employment of a Custodian:..................... 11
Section 6.02. Action Upon Termination of Custodian Agreement: 11
Section 6.03. Other Arrangements:............................ 12
ARTICLE VII EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES................ 12
Section 7.01. General:....................................... 12
Section 7.02. Checks, Notes, Drafts, Etc.:................... 12
Section 7.03. Voting of Securities:.......................... 12
ARTICLE VIII CAPITAL STOCK................................................. 12
Section 8.01. Share Certificates:............................ 12
Section 8.02. Transfer of Capital Stock:..................... 13
Section 8.03. Transfer Agents and Registrars:................ 13
Section 8.04. Transfer Regulations:.......................... 13
Section 8.05. Fixing of Record Date:......................... 14
Section 8.06. Lost Stolen or Destroyed Certificates:......... 14
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX INDEMNIFICATION AND INSURANCE................................................. 14
Section 9.01. Indemnification of Officers, Directors, Employees 14
and Agents:.................................................. 14
Section 9.02. Insurance of Officers, Directors, Employees and Agents:........ 15
Section 9.03. Non-Exclusivity:............................................... 16
Section 9.04. Amendment:..................................................... 16
ARTICLE X MISCELLANEOUS................................................................. 16
Section 10.01. Fiscal Year:................................................... 16
Section 10.02. Accountant:.................................................... 16
Section 10.03. Books and Records:............................................. 17
Section 10.04. Waiver of Notice:.............................................. 17
ARTICLE XI AMENDMENTS.................................................................... 17
Section 11.01. General:....................................................... 17
Section 11.02. By Stockholders Only:.......................................... 17
</TABLE>
iii
<PAGE>
ARTICLE I
---------
NAME OF CORPORATION, LOCATION OF OFFICES
----------------------------------------
AND SEAL
--------
Section 1.01. Name:
----
The name of the Corporation is PaineWebber Financial Services Growth Fund
Inc.
Section 1.02. Principal Offices:
-----------------
The principal office of the Corporation in the State of Maryland shall be
located in the City of Baltimore. The Corporation may establish and maintain
such other offices and places of business as the board of directors may, from
time to time, determine.
Section 1.03. Seal
----
The corporate seal of the Corporation shall be circular in form and shall
bear the name of the Corporation, the year of its incorporation, and the words
"Corporate Seal, Maryland." The form of the seal shall be subject to alteration
by the board of directors 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
director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same.
ARTICLE II
----------
STOCKHOLDERS
------------
Section 2.01. Annual Meetings:
---------------
There shall be no stockholders' meetings for the election of directors and
the transaction of other proper business except as required by law or as
hereinafter provided.
Section 2.02. Special Meetings:
----------------
Special meetings of the stockholders may be called at any time by the
chairman of the board, the president or by a majority of the board of directors.
Special meetings of the stockholders shall be called by the secretary upon the
written request of the holders of shares entitled to vote not less than 25% of
all the shares entitled to be voted at such meeting, provided that (a) such
request shall state the purposes of such meeting and the matters proposed to be
acted on, and (b) the stockholders requesting such meeting shall have paid to
the Corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the secretary shall determine and specify to such
stockholders. No special meeting need be called upon the request of the holders
of shares entitled to vote less than a majority of all the shares entitled to be
voted at such meeting to consider any matter which is substantially the same as
a matter voted upon at any special meeting of the stockholders held during the
preceding 12 months.
<PAGE>
Section 2.03. Place of Meetings:
-----------------
All stockholders' meetings shall be held at 1285 Avenue of the Americas,
New York, New York, except that the board of directors may fix a different place
of meeting, have one or more offices, and keep the books of the Corporation at
any other place within the United States as they may from time to time
determine, or, in the case of meetings as shall be specified in each notice or
waiver of notice of the meeting.
Section 2.04. Notice of Meetings:
------------------
The secretary shall cause notice of the place, date and hour, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, to be mailed, not less than 10 nor more than 90 days before the date of
the meeting, to each stockholder entitled to vote at such meeting, at his or her
address as it appears on the records of the Corporation at the time of such
mailing. Notice of any stockholders' meeting need not be given to any
stockholder who shall sign a written waiver of such notice whether before or
after the time of such meeting, which waiver shall be filed with the record of
such meeting, or to any stockholder who shall attend such meeting in person or
by proxy. Notice of adjournment of a stockholders' meeting to another time or
place need not be given, if such time and place are announced at the meeting.
Section 2.05. Voting - In General:
-------------------
At every stockholders' meeting each stockholder shall be entitled to one
vote for each share and a fractional vote for each fraction of a share of stock
of the Corporation validly issued and outstanding and held by such stockholder,
except that no shares held by the Corporation shall be entitled to a vote.
Except as otherwise specifically provided in the Articles of Incorporation or
these By-Laws or as required by provisions of the Investment Company Act of
1940, as amended from time to time, all matters shall be decided by a vote of
the majority of the votes validly cast at a meeting at which a quorum is
present. 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 2.06. Stockholders Entitled to Vote:
-----------------------------
If, pursuant to Section 8.05 hereof, a record date has been fixed for the
determination of stockholders entitled to notice of or to vote at any
stockholders' meeting, each stockholder of the Corporation shall be entitled to
vote, in person or by proxy, each share of stock and fraction of a share of
stock standing in his or her name on the books of the Corporation on such record
date and outstanding at the time of the meeting. If no record date has been
fixed for the determination of stockholders, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be (a) at the close of business (i) on the day ten days
before the day on which notice of the meeting is mailed or (ii) on the day 90
days before the meeting, whichever is the closer date to the meeting; or, (b) if
notice is waived by all stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held.
2
<PAGE>
Section 2.07. Voting - Proxies:
----------------
A stockholder may vote the stock he or she owns of record by written proxy
executed by the stockholder himself or herself or by his or her duly authorized
attorney in fact. The right to vote by proxy shall exist only if the proxy is
authorized to act by (1) a written instrument, dated not more than eleven months
prior to the meeting and executed either by the stockholder 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 State of Maryland) or (2)
such electronic, telephonic, computerized or other alternative means as may be
approved by a resolution adopted by the Directors. A proxy with respect to
stock 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 Corporation receives
from any one of them written notice to the contrary and a copy of the instrument
or order which so provides. A proxy purporting to be executed by or on behalf
of a stockholder shall be deemed valid unless challenged at or prior to its
exercise.
Section 2.08. Quorum:
------
Except as otherwise provided in the Articles of Incorporation, the presence
at any stockholders' meeting, in person or by proxy, of stockholders entitled to
cast one third of the votes thereat shall be necessary and sufficient to
constitute a quorum for the transaction of business.
Section 2.09. Absence of Quorum:
-----------------
In the absence of a quorum, the holders of a majority of the shares present
at the meeting in person or by proxy, or, if no stockholder entitled to vote is
present thereat in person or by proxy, any officer present thereat entitled to
preside or act as secretary of such meeting, may adjourn the meeting without
determining the date of the new meeting or, from time to time, without further
notice to a date not more than 120 days after the original record date. Any
business that might have been transacted at the meeting originally called may be
transacted at any such adjourned meeting at which a quorum is present.
Section 2.10. Stock Ledger and List of Stockholders:
-------------------------------------
It shall be the duty of the assistant secretary of the Corporation or such
other person or entity named by the board of directors to cause an original or
duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a stockholder of
record of the Corporation for more than six months next preceding such request,
who owns in the aggregate 5% or more of the outstanding capital stock of the
Corporation, may submit (unless the Corporation at the time of the request
maintains a duplicate stock ledger at its principal office in Maryland) a
written request to any officer of the Corporation or its resident agent in
Maryland for a list of the stockholders of the Corporation. Within 20 days
after such a request, there shall be prepared and filed at the Corporation's
principal office in Maryland a list containing the names and addresses of all
stockholders of the Corporation and the number of shares of each class held
3
<PAGE>
by each stockholder, certified as correct by an officer of the Corporation, by
its stock transfer agent, or by its registrar.
Section 2.11. Action Without Meeting:
----------------------
Any action to be taken by stockholders may be taken without a meeting if
all stockholders entitled to vote on the matter consent to the action in writing
and the written consents are filed with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 3.01. Number and Term of Office:
-------------------------
The board of directors shall consist of nine directors, which number may be
increased or decreased by a resolution of a majority of the entire board of
directors; provided that the number of directors shall not be less than three
nor more than fifteen; and further provided that if there is no stock
outstanding the number of directors may be less than three but not less than
one, and if there is stock outstanding and so long as there are less than three
stockholders, the number of directors may be less than three but not less than
the number of stockholders. Each director (whenever selected) shall hold office
until his or her successor is elected and qualified or until his or her earlier
death, resignation or removal.
Section 3.02. Qualification of Directors:
--------------------------
Except for the initial board of directors, at least one of the members of
the board of directors shall be a person who is not an interested person of the
Corporation, as defined in the Investment Company Act of 1940, as amended.
Section 3.03. Election of Directors:
---------------------
Initially the director or directors of the Corporation shall be that person
or those persons named as such in the Articles of Incorporation. Thereafter,
except as otherwise provided in Section 3.04 and 3.05 hereof, the directors
shall be elected by the stockholders on a date fixed by the Board of Directors.
A plurality of all the votes cast at a meeting at which a quorum is present in
person or by proxy is sufficient to elect a director.
Section 3.04. Removal of Directors:
--------------------
At any stockholders' meeting duly called, provided a quorum is present, any
director may be removed (either with or without cause) by the vote of the
holders of a majority of the shares represented at the meeting, and at the same
meeting a duly qualified person may be elected in his or her stead by a majority
of the votes validly cast.
4
<PAGE>
Section 3.05. Vacancies and Newly Created Directorships:
-----------------------------------------
If any vacancies shall occur in the board of directors by reason of death,
resignation, removal or otherwise, or if the authorized number of directors
shall be increased, the directors then in office shall continue to act, and such
vacancies (if not previously filled by the stockholders) may be filled by a
majority of the directors then in office, although less than a quorum, except
that a newly created directorship may be filled only by a majority vote of the
entire board of directors, provided that in either case immediately after
filling such vacancy, at least two-thirds of the directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first
stockholders' meeting, less than a majority of the directors of the Corporation
holding office at that time were so elected by the stockholders, a meeting of
the stockholders shall be held promptly and in any event within 60 days for the
purpose of electing directors to fill any existing vacancies in the board of
directors unless the Securities and Exchange Commission shall by order extend
such period.
Section 3.06. General Powers:
--------------
(a) The property, affairs and business of the Corporation shall be managed
by or under the direction of the board of directors, which may exercise all the
powers of the Corporation except those powers vested solely in the stockholders
of the Corporation by statute, by the Articles of Incorporation, or by these By-
Laws.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his or her successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07. Power to Issue and Sell Stock:
-----------------------------
The board of directors may from time to time issue and sell or cause to be
issued and sold any of the Corporation's authorized shares to such persons and
for such consideration as the board of directors shall deem advisable, subject
to the provisions of Article Sixth of the Articles of Incorporation.
Section 3.08. Power to Declare Dividends:
--------------------------
(a) The board of directors, from time to time as it may deem advisable, may
declare and pay dividends in stock, cash or other property of the Corporation,
out of any source available for dividends, to the stockholders according to
their respective rights and interests in accordance with the provisions of the
Articles of Incorporation.
(b) The board of directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
5
<PAGE>
(i) the Corporation's accumulated undistributed net income (determined in
accordance with good accounting practice and the rules and regulations
of the Securities and Exchange Commission then in effect) and not
including profits or losses realized upon the sale of securities or
other properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year. Such statement shall adequately disclose the
source or sources of such payment and the basis of calculation, and
shall be in such form as the Securities and Exchange Commission may
prescribe.
Section 3.09. Annual and Regular Meetings:
---------------------------
The annual meeting of the board of directors for choosing officers and
transacting other proper business shall be held at such time and place as the
board may determine. The board of directors from time to time may provide by
resolution for the holding of regular meetings and fix their time and place
within or outside the State of Maryland. Except as otherwise provided under the
Investment Company Act of 1940, as amended, notice of such annual and regular
meetings need not be given, provided that notice of any change in the time or
place of such meetings shall be sent promptly to each director not present at
the meeting at which such change was made in the manner provided for notice of
special meetings. Except as otherwise provided under the Investment Company Act
of 1940, as amended, members of the board of directors or any committee
designated thereby may participate in a meeting of such board or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time; and participation by such means shall constitute presence in person at a
meeting.
Section 3.10. Special Meetings:
----------------
Special meetings of the board of directors shall be held whenever called by
the chairman of the board, the president (or in the absence or disability of the
president by any vice president), the treasurer, or by any two directors, at the
time and place within or outside the State of Maryland specified in the
respective notices or waivers of notice of such meetings.
Section 3.11. Notice:
------
Except as otherwise provided, notice of any special meeting shall be given
by the secretary to each director, by mailing to him or her, postage prepaid,
addressed to him or her at his or her address as registered on the books of the
Corporation or, if not so registered, at his or her last known address, a
written or printed notification of such meeting at least two days before the
meeting, or by delivering such notice to him or her at least two days before the
meeting, or by facsimile transmission to him or her at least two days before the
meeting, or by sending to him or her at least 24 hours before the meeting, by
prepaid telegram, addressed to him or her at his or her said registered address,
if any, or if he or she has no such registered address, at his or her last known
address, notice of such meeting.
6
<PAGE>
Section 3.12. Waiver of Notice:
----------------
No notice of any meeting need be given to any director who attends such
meeting in person or to any director who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting), whether
before or after the time of the meeting.
Section 3.13. Quorum and Voting:
-----------------
At all meetings of the board of directors the presence of a majority or
more of the number of directors then in office shall constitute a quorum for the
transaction of business, provided that there shall be present no fewer than two
directors except when there is no stock outstanding, at which time the initial
director will constitute a quorum. In the absence of a quorum, a majority of
the directors present may adjourn the meeting, from time to time, until a quorum
shall be present. The action of a majority of the directors present at a
meeting at which a quorum is present shall be the action of the board of
directors unless the concurrence of a greater proportion is required for such
action by law, by the Articles of Incorporation or by these By-Laws.
Section 3.14. Compensation:
------------
Each director may receive such remuneration for his or her services as
shall be fixed from time to time by resolution of the board of directors.
Section 3.15. Action Without a Meeting:
------------------------
Except as otherwise provided under the Investment Company Act of 1940, as
amended, any action required or permitted to be taken at any meeting of the
board of directors may be taken without a meeting if written consents thereto
are signed by all members of the board and such written consents are filed with
the records of the meetings of the board.
ARTICLE IV
----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 4.01. How Constituted:
---------------
By resolution adopted by the board of directors, the board may designate an
executive committee, consisting of not less than two directors.
7
<PAGE>
Section 4.02. Powers of the Executive Committee:
---------------------------------
Except as further limited by the board of directors, when the board of
directors is not in session the executive committee shall have and may exercise
all powers of the board of directors in the management of the business and
affairs of the Corporation that may lawfully be exercised by an executive
committee, except the power to declare a dividend, to authorize the issuance of
stock, to recommend to stockholders any matter requiring stockholders' approval,
to amend the By-Laws, or to approve any merger or share exchange which does not
require shareholder approval.
Section 4.03. Proceedings, Quorum and Manner of Acting:
----------------------------------------
In the absence of an appropriate resolution of the board of directors, the
executive committee and any committee appointed under section 4.04 may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two directors. In the absence of any member of any such committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the board of directors to act in the place of
such absent member. All action by any committee shall be reported to the board
of directors at its next meeting following such action.
Section 4.04. Other Committees:
----------------
The board of directors may appoint other committees, each consisting of one
or more persons, who need not be directors. Each such committee shall have such
powers and perform such duties as may be assigned to it from time to time by the
board of directors, but shall not exercise any power which may lawfully be
exercised only by the board of directors or a committee thereof.
ARTICLE V
---------
OFFICERS
--------
Section 5.01. General:
-------
The officers of the Corporation shall be a president, one or more vice-
presidents, a secretary and a treasurer. The board of directors may elect, but
shall not be required to elect, a chairman of the board and a comptroller.
Section 5.02. Election, Term of Office and Qualifications:
-------------------------------------------
The officers of the Corporation (except those appointed pursuant to Section
5.07 hereof) shall be chosen by the board of directors at its first meeting or
such subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not chosen at
any annual meeting, such officers may be chosen at any subsequent regular or
special meeting of the board. Except as provided in Sections 5.03, 5.04 and
5.05 hereof, each officer chosen by the board of directors shall hold office
until the next annual
8
<PAGE>
meeting of the board of directors and until his or her successor shall have been
chosen and qualified. The president shall be chosen from among the directors of
the Corporation and may hold such office only so long as he or she continues to
be a director. No other officer need be a director. Any person may hold one or
more offices of the Corporation except that the president may not hold the
office of vice president, the secretary may not hold the office of assistant
secretary, and the treasurer may not hold the office of assistant treasurer;
provided further that a person who holds more than one office may not act in
more than one capacity to execute, acknowledge or verify an instrument required
by law to be executed, verified or acknowledged by more than one officer.
Section 5.03. Resignation:
-----------
Any officer may resign his or her office at any time by delivering a
written resignation to the board of directors, the president, the secretary, or
any assistant secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 5.04. Removal:
-------
Any officer may be removed from office whenever in the board's judgment the
best interest of the Corporation will be served thereby, by the vote of a
majority of the board of directors given at the regular meeting or any special
meeting called for such purpose. In addition, any officer or agent appointed in
accordance with the provisions of Section 5.07 hereof may be removed, either
with or without cause, by any officer upon whom such power of removal shall have
been conferred by the board of directors.
Section 5.05. 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 board of directors
at any regular or special meeting or, in the case of any office created pursuant
to Section 5.11 hereof, by any officer upon whom such power shall have been
conferred by the board of directors.
Section 5.06. Chairman of the Board:
---------------------
The chairman of the board, if there be such an officer, shall have such
powers and perform duties as may be assigned to him from time to time by the
board of directors.
Section 5.07. President:
---------
The president shall be the chief executive officer of the Corporation and,
when present, shall preside at all stockholders' meetings and at all meetings of
the board of directors. Subject to the supervision of the board of directors,
he shall have general charge of the business, affairs and property of the
Corporation and general supervision over its officers, employees and agents.
Except as the board of directors may otherwise order, he may sign in the name
and on behalf of
9
<PAGE>
the Corporation all deeds, bonds, contracts or agreements. He shall exercise
such other powers and perform such duties as from time to time may be assigned
to him by the board of directors.
Section 5.08. Vice President:
--------------
The board of directors 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 may be assigned to them by the board of directors 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, the then 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 5.09. Treasurer and Assistant Treasurers:
----------------------------------
The treasurer shall be the principal financial and accounting officer of
the Corporation. He shall deliver all funds and securities of the Corporation
which may come into his hands to such bank or trust company as the board of
directors shall employ as Custodian. He shall make annual reports in writing of
the business conditions of the Corporation, which reports shall be preserved
upon its records, and he shall furnish such other reports regarding the business
and condition as the board of directors may from time to time require. The
Treasurer shall perform such duties additional to the foregoing as the board of
directors may from time to time designate.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.10. Secretary and Assistant Secretaries:
-----------------------------------
The secretary shall attend to the giving and serving of all notices of the
Corporation and shall act as secretary at, and record all proceedings of, the
meetings of the stockholders and directors in the books to be kept for that
purpose. He shall keep in safe custody the seal of the Corporation, and shall
have charge of the records of the Corporation, including the stock books and
such other books and papers as the board of directors may direct and such books,
reports, certificates and other documents required by law to be kept, all of
which shall at all reasonable times be open to inspection by any director. At
every meeting of the stockholders, he shall receive and take charge of and/or
canvass all proxies and/or ballots, and shall decide all questions touching the
qualifications of voters, the validity of proxies and the acceptance or
rejection of votes. He shall perform such other duties as appertain to his
office or as may be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign, and, in the absence of the
secretary, may perform all the duties of the secretary.
10
<PAGE>
Section 5.11. Subordinate Officers:
--------------------
The board of directors from time to time may appoint such other officers or
agents as it may deem advisable, including one or more assistant treasurers and
one or more assistant secretaries, each of whom shall have such title, hold
office for such period, have such authority and perform such duties as the board
of directors may determine. The board of directors 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 5.12. Remuneration:
------------
The salaries or other compensation of the officers of the Corporation shall
be fixed from time to time by resolution of the board of directors, except that
the board of directors 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 5.11
hereof.
Section 5.13. Surety Bonds:
------------
The board of directors may require any officer or agent of the Corporation
to execute a bond (including, without limitation, any bond required by the
Investment Company Act of 1940, as amended, and the rules and regulations of the
Securities and Exchange Commission) to the Corporation in such sum and with such
surety or sureties as the board of directors may determine, conditioned upon the
faithful performance of his or her duties to the Corporation, including
responsibility for negligence and for the accounting of any of the Corporation's
property, funds or securities that may come into his or her hands.
ARTICLE VI
----------
CUSTODY OF SECURITIES
---------------------
Section 6.01. Employment of a Custodian:
-------------------------
The Corporation shall place and at all times maintain in the custody of a
custodian (including any sub-custodian for the custodian) all funds, securities
and similar investments owned by the Corporation in accordance with the
applicable terms of the 1940 Act. The custodian (and any sub-custodian) shall
be a bank or similar financial institution having not less than $2,000,000
aggregate capital, surplus and undivided profits and shall be appointed from
time to time by the board of directors, which shall fix its remuneration.
Section 6.02. Action Upon Termination of Custodian Agreement:
----------------------------------------------
Upon termination of a custodian agreement or inability of the custodian to
continue to serve, the board of directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the board of directors shall
call as promptly as possible a special meeting of the stockholders to
11
<PAGE>
determine whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the custodian shall deliver and
pay over all property of the Corporation held by it as specified in such vote.
Section 6.03. Other Arrangements:
------------------
The Corporation may make such other arrangements for the custody of its
assets (including deposit arrangements) as may be required by any applicable
law, rule or regulation.
ARTICLE VII
-----------
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
----------------------------------------------
Section 7.01. General:
-------
Subject to the provisions of Sections 5.07, 7.02 and 8.03 hereof, all
deeds, documents, transfers, contracts, agreements and other instruments
requiring execution by the Corporation shall be signed by the president or a
vice president and by the treasurer or secretary or an assistant treasurer or an
assistant secretary, or as the board of directors may otherwise, from time to
time, authorize. Any such authorization may be general or confined to specific
instances.
Section 7.02. Checks, Notes, Drafts, Etc.:
---------------------------
So long as the Corporation shall employ a custodian to keep custody of the
cash and securities of the Corporation, all checks and drafts for the payment of
money by the Corporation may be signed in the name of the Corporation by the
custodian. Except as otherwise authorized by the board of directors, all
requisitions or orders for the assignment of securities standing in the name of
the custodian or its nominee, or for the execution of powers to transfer the
same, shall be signed in the name of the Corporation by the president or a vice
president and by the treasurer or an assistant treasurer. Promissory notes,
checks or drafts payable to the Corporation may be endorsed only to the order of
the custodian or its nominee and only by the treasurer or president or a vice
president or by such other person or persons as shall be authorized by the board
of directors.
Section 7.03. Voting of Securities:
--------------------
Unless otherwise ordered by the board of directors, the president or any
vice president shall have full power and authority on behalf of the Corporation
to attend and to act and to vote, or in the name of the Corporation to execute
proxies to vote, at any meeting of stockholders of any company in which the
Corporation may hold stock. At any such meeting such officer shall possess and
may exercise (in person or by proxy) any and all rights, powers and privileges
incident to the ownership of such stock. The board of directors may by
resolution from time to time confer like powers upon any other person or
persons.
12
<PAGE>
ARTICLE VIII
------------
CAPITAL STOCK
-------------
Section 8.01. Share Certificates:
------------------
Certificates for shares of the capital stock of the Corporation shall be in
such form as the board of directors shall approve and shall be numbered and
shall be entered in the books of the Corporation as they are issued. They shall
exhibit the holder's name and certify the number of shares owned by him or her
and shall be signed by, or in the name of the Corporation by, the president or a
vice-president and the treasurer or an assistant treasurer or the secretary or
an assistant secretary of the Corporation; provided, however, that where any
certificate is signed by a transfer agent or assistant transfer agent or by a
transfer clerk acting on behalf of the Corporation, the signature of any such
president, vice-president, treasurer, assistant treasurer, secretary or
assistant secretary may be facsimile, printed or engraved. If any officer or
officer who shall have signed, or whose facsimile signature or signatures shall
have been used on, any certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates shall nevertheless be adopted
by the Corporation and be issued and delivered as though the person or persons
who signed such certificate or certificates or whose facsimile signature of
signatures shall have been used thereon had not ceased to be such officer or
officers of the Corporation.
Section 8.02. Transfer of Capital Stock:
-------------------------
(a) Transfers of shares of the capital stock of the Corporation shall be
made on the books of the Corporation by the holder of record thereof (in person
or by his or her attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) (i) if a
certificate or certificates have been issued, upon the surrender of the
certificate or certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, or (ii) as otherwise
prescribed by the board of directors.
(b) The Corporation shall be entitled to treat the holder of record of any
share of stock as the absolute owner thereof for all purposes, and accordingly
shall not be bound to recognize any legal, equitable or other claim or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars:
------------------------------
The board of directors may, from time to time, appoint or remove transfer
agents or registrars of shares of the Corporation. Upon any such appointment
being made, all certificates representing shares of the Corporation thereafter
issued shall be countersigned by one of such transfer agents or registrars or by
both and shall not be valid unless so countersigned.
13
<PAGE>
Section 8.04. Transfer Regulations:
--------------------
Except as provided in the Articles of Incorporation, the shares of the
Corporation may be freely transferred, subject to the charging of customary
transfer fees, and the board of directors may, from time to time, adopt rules
and regulations with reference to the method of transfer of the shares of the
Corporation.
Section 8.05. Fixing of Record Date:
---------------------
The board of directors may fix in advance a date as a record date for the
determination of the stockholders entitled to notice of or to vote at any
stockholders' meeting or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action; provided that such record date shall be a
date not more than 90 nor less than 10 days prior to the date on which the
particular action requiring such determination of stockholders of record will be
taken.
Section 8.06. Lost Stolen or Destroyed Certificates:
--------------------------------------
Before issuing a new certificate for shares of the Corporation alleged to
have been lost, stolen or destroyed, the board of directors or any officer
authorized by the board may, in its discretion, require the owner of the lost,
stolen or destroyed certificate (or his or her legal representative) to give the
Corporation a bond or other indemnity, in such form and in such amount as the
board or any such officer may direct and with such surety or sureties as may be
satisfactory to the board or any such officer, sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
ARTICLE IX
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 9.01. Indemnification of Officers, Directors, Employees and
-----------------------------------------------------
Agents:
- ------
The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise (hereinafter
referred to as a "Covered Person"), against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such Proceeding to the maximum extent
permitted by law, now existing or hereafter adopted. Notwithstanding the
foregoing, the following provisions shall apply with respect to indemnification
of the Corporation's directors,
14
<PAGE>
officers, and investment adviser (as defined in the Investment Company Act of
1940, as amended):
(A) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for
any liability arising by reason of such person's willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office or under any contract or
agreement with the Corporation ("disabling conduct").
(B) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding was brought
(a) dismisses the Proceeding for insufficiency of evidence of any
disabling conduct, or (b) reaches a final decision on the merits
that such person was not liable by reason of disabling conduct;
or
(2) absent such a decision, a reasonable determination is made, based
upon a review of the facts, by (a) the vote of a majority of a
quorum of the directors of the Corporation who are neither
interested persons of the Corporation as defined in the
Investment Company Act of 1940, as amended, nor parties to the
Proceeding, or (b) if such quorum is not obtainable, or even if
obtainable, if a majority of a quorum of directors described
above so directs, based upon a written opinion by independent
legal counsel, that such person was not liable by reason of
disabling conduct.
(C) The Corporation may advance expenses in connection with the
preparation and presentation of a defense to any Proceeding 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 Corporation if it is
ultimately determined that he is not entitled to indemnification
hereunder; provided, however, that either
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation
who are neither interested persons of the Corporation as
defined in the Investment Company Act of 1940, as amended,
nor parties to the Proceeding, or independent legal counsel
in a written opinion, shall determine, based on a review of
readily available facts that there is reason to believe that
such person will be found to be entitled to indemnification.
15
<PAGE>
Section 9.02. Insurance of Officers, Directors, Employees and Agents:
------------------------------------------------------
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in or arising out of his or her position.
Section 9.03. Non-Exclusivity:
---------------
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article X shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under the Articles of Incorporation, these By-Laws, agreement, vote of
stockholders or directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office.
Section 9.04. Amendment:
---------
No amendment, alteration or repeal of this Article or the adoption,
alteration or amendment of any other provision of the Articles of Incorporation
or By-Laws inconsistent with this Article, shall adversely affect any right or
protection of any person under this Article with respect to any act or failure
to act which occurred prior to such amendment, alteration, repeal or adoption.
ARTICLE X
---------
MISCELLANEOUS
-------------
Section 10.01. Fiscal Year:
-----------
The fiscal year of the Corporation shall end on such date as the board of
directors may by resolution specify, and the board of directors may by
resolution change such date for future fiscal years at any time and from time to
time.
Section 10.02. Accountant:
----------
(a) The Corporation shall employ an independent certified public accountant
or firm of independent certified public accountants as its accountant to examine
the accounts of the Corporation and to sign and certify financial statements
filed by the Corporation. The accountant's certificates and reports shall be
addressed both to the board of directors and to the stockholders.
(b) A majority of the members of the board of directors who are not
interested persons (as that term is defined in the Investment Company Act of
1940) of the Corporation shall select the accountant at any meeting held within
30 days before or after the beginning of the fiscal year of the Corporation or
before the annual stockholders' meeting (if any) in that year.
16
<PAGE>
Such selection shall be submitted for ratification or rejection at the next
succeeding stockholders' meeting, when and if such meeting is held. If such
meeting shall reject such selection, the accountant shall be selected by
majority vote of the Corporation's outstanding voting securities, either at the
meeting at which the rejection occurred or at a subsequent meeting of
stockholders called for the purpose.
(c) Any vacancy occurring between meetings due to the death or resignation
of the accountant may be filled by a majority of the members of the board of
directors who are not such interested persons.
Section 10.03. Books and Records:
-----------------
(a) The books and records of the Corporation may be kept outside the State
of Maryland at such place or places as the Board of Directors may from time to
time determine, except as otherwise required by law.
(b) The Board of Directors shall, subject to the laws of Maryland, have
power to determine, from time to time, whether and to what extent and at what
times and places and under what conditions and regulations any accounts and
books of the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of
Maryland, unless and until authorized so to do by resolution of the Board of
Directors or of the stockholders.
Section 10.04. Waiver of Notice:
----------------
Whenever any notice whatever is required to be given by these By-Laws or
the Articles of Incorporation or the laws of the State of Maryland, a waiver
thereof in writing, or by facsimile transmission, telegraph, cable, radio or
wireless by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE XI
----------
AMENDMENTS
----------
Section 11.01. General:
-------
Except as provided in Section 11.02 hereof, all By-Laws of the Corporation,
whether adopted by the board of directors or the stockholders, shall be subject
to amendment, alteration or repeal, and new By-Laws may be made, by the
affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law; or
17
<PAGE>
(b) the directors, at any regular or special meeting the notice or waiver
of notice of which shall have specified or summarized the proposed amendment,
alteration, repeal or new By-Law.
Section 11.02. By Stockholders Only:
--------------------
(a) No amendment of any section of these By-laws shall be made except by
the stockholders of the Corporation if the By-laws provide that such section may
not be amended, altered or repealed except by the stockholders.
(b) From and after the issue of any shares of capital stock of the
Corporation, no amendment of this Article XI shall be made except by the
stockholders of the Corporation.
END OF BY-LAWS
18
<PAGE>
Exhibit No. 4
INVESTMENT ADVISORY AND ADMINISTRATION CONTRACT
Contract made as of April 1, 1990, between PAINEWEBBER CLASSIC
REGIONAL FINANCIAL FUND INC., a Maryland corporation ("Fund"), and MITCHELL
HUTCHINS ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended ("1934 Act"), and as an investment adviser under the Investment Advisers
Act of 1940, as amended.
WHEREAS the Fund is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company and
intends to offer for public sale distinct series of shares of common stock
("Series"), each corresponding to a distinct portfolio; and
WHEREAS the Fund desires to retain Mitchell Hutchins as investment
adviser and administrator to furnish certain administrative, investment advisory
and portfolio management services to the Fund and each Series as now exists and
as hereafter may be established, and Mitchell Hutchins is willing to furnish
such services;
NOW, THEREFORE, in consideration of the premises and mutual convenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as
-----------
investment adviser and administrator of the Fund and each Series for the period
and on the terms set forth in this Contract. Mitchell Hutchins accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Duties as Investment Adviser.
----------------------------
(a) Subject to the supervision of the Fund's Board of Directors
("Board"), Mitchell Hutchins will provide a continuous investment program for
each Series, including investment research and management with respect to all
securities and investments and cash equivalents in each Series. Mitchell
Hutchins will determine from time to time what securities and other investments
will be purchased, retained or sold by each Series.
(b) Mitchell Hutchins agrees that in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution; provided that, on behalf of any Series, Mitchell Hutchins may, in its
discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Series with research, analysis, advice and similar
services, and Mitchell Hutchins may pay to those brokers and dealers, in return
for research and analysis, a higher commission or spread than may be charged by
other brokers and dealers,
<PAGE>
subject to Mitchell Hutchins' determining in good faith that such commission or
spread is reasonable in terms either of the particular transaction or of the
overall responsibility of Mitchell Hutchins to such Series and its other clients
and that the total commissions or spreads paid by such Series will be reasonable
in relation to the benefits to the Series over the long term. In no instance
will portfolio securities be purchased from or sold to Mitchell Hutchins, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. Whenever Mitchell Hutchins
simultaneously places orders to purchase or sell the same security on behalf of
a Series and one or more other accounts advised by Mitchell Hutchins, such
orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable to each account. The Fund recognizes that in
some cases this procedure may adversely affect the results obtained for the
Series.
(c) Mitchell Hutchins will oversee the maintenance of all books and
records with respect to the securities transactions of each Series, and will
furnish the Board with such periodic and special reports as the Board reasonably
may request. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Mitchell Hutchins hereby agrees that all records which it maintains for the
Fund are the property of the Fund, agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any records which it maintains for the Fund and
which are required to be maintained by Rule 31a-1 under the 1940 Act, and
further agrees to surrender promptly to the Fund any records which it maintains
for the Fund upon request by the Fund.
(d) Mitchell Hutchins will oversee the computation of the net asset
value and the net income of each Series as described in the currently effective
registration statement of the Fund under the Securities Act of 1933, as amended,
and the 1940 Act and any supplements thereto ("Registration Statement") or as
more frequently requested by the Board.
(e) The Fund hereby authorizes Mitchell Hutchins and any entity or
person associated with Mitchell Hutchins which is a member of a national
securities exchange to effect any transaction on such exchange for the account
of any Series, which transaction is permitted by Section 11(a) of the 1934 Act
and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of
compensation by Mitchell Hutchins or person or entity associated with Mitchell
Hutchins for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).
3. Duties as Administrator. Mitchell Hutchins will administer the
-----------------------
affairs of the Fund and each Series subject to the supervision of the Board and
the following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of
the Fund and each Series, including the oversight of transfer agency, custodial
and accounting services, except as hereinafter set forth; provided, however,
that nothing herein contained shall be deemed to relieve or deprive the Board of
its responsibility for and control of the conduct of the affairs of the Fund and
each Series.
(b) Mitchell Hutchins will provide the Fund and each Series with such
corporate, administrative and clerical personnel (including officers of the
Fund) and services as are reasonably deemed necessary or advisable by the Board,
including the maintenance of certain books and records of the Fund and each
Series.
2
<PAGE>
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Fund's
Registration Statement, proxy material, tax returns and required reports to each
Series' shareholders and the Securities and Exchange Commission and other
appropriate federal or state regulatory authorities.
(d) Mitchell Hutchins will provide the Fund and each Series with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, stationery supplies and
similar items.
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
4. Further Duties. In all matters relating to the performance of
--------------
this Contract, Mitchell Hutchins will act in conformity with the Articles of
Incorporation, By-Laws and Registration Statement of the Fund and with the
instructions and directions of the Board and will comply with the requirements
of the 1940 Act, the rules thereunder, and all other applicable federal and
state laws and regulations.
5. Delegation of Mitchell Hutchins' Duties as Investment Adviser and
-----------------------------------------------------------------
Administrator. With respect to any or all Series, Mitchell Hutchins may enter
- -------------
into one or more contracts ("Sub-Advisory or Sub-Administration Contract") with
a sub-adviser or sub-administrator in which Mitchell Hutchins delegates to such
sub-adviser or sub-administrator any or all its duties specified in Paragraph 2
and 3 of this Contract, provided that each Sub-adviser or sub-administrator
bound thereby all of the duties and conditions to which Mitchell Hutchins is
subject by Paragraph 2, 3 and 4 of this Contract, and further provided that each
Sub-Advisory or Sub-Administration Contract meets all of the requirements of the
1940 Act and rules thereunder.
6. Services Not Exclusive. The services furnished by Mitchell
----------------------
Hutchins hereunder are not to be deemed exclusive and Mitchell Hutchins shall be
free to furnish similar services to others so long as its services under this
Contract are not impaired thereby. Nothing in this Contract shall limit or
restrict the right of any director, officer or employee of Mitchell Hutchins,
who may also be a Director, officer or employee of the Fund, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar nature
or a dissimilar nature.
7. Expenses.
--------
(a) During the term of this Contract, each Series will bear all
expenses, not specifically assumed by Mitchell Hutchins, incurred in its
operations and the offering of its shares.
(b) Expenses borne by each Series will include but not be limited to
the following (or each Series' proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Series and any losses incurred in connection
3
<PAGE>
therewith; (ii) fees payable to and expenses incurred on behalf of the Series by
Mitchell Hutchins under this Contract; (iii) expenses of organizing the Fund and
the Series; (iv) filing fees and expenses relating to the registration and
qualification of the Series' shares and the Fund under federal and/or state
securities laws and maintaining such registrations and qualifications; (v) fees
and salaries payable to the Fund's Directors and officers who are not interested
persons of the Fund or Mitchell Hutchins; (vi) all expenses incurred in
connection with the Directors' services, including travel expenses; (vii) taxes
(including any income or franchise taxes) and governmental fees; (viii) costs of
any liability, uncollectible items of deposit and other insurance and fidelity
bonds; (ix) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Fund or Series for violation of
any law; (x) legal, accounting and auditing expenses, including legal fees of
special counsel for those Directors of the Fund who are not interested persons
of the Fund; (xi) charges of custodians, transfer agents and other agents; (xii)
costs of preparing share certificates; (xiii) expenses of setting in type and
printing prospectuses and supplements thereto, statements of additional
information and supplements thereto, reports and proxy materials for existing
shareholders; (xiv) costs of mailing prospectuses and supplements thereto,
statements of additional information and supplements thereto, reports and proxy
materials to existing shareholders; (xv) any extraordinary expenses (including
fees and disbursements of counsel, costs of actions, suits or proceedings to
which the Fund is a party and the expenses the Fund may incur as a result of its
legal obligation to provide indemnification to its officers, Directors, agents
and shareholders) incurred by the Fund or Series; (xvi) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (xvii) costs of mailing and tabulating proxies
and costs of meetings of shareholders, the Board and any committees thereof;
(xviii) the cost of investment company literature and other publications
provided by the Fund to its Directors and officers; and (xix) costs of mailing,
stationery and communications equipment.
(c) The Fund or a Series may pay directly any expense incurred by it
in its normal operations and, if any such payment is consented to by Mitchell
Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to
this Contract, the Series may reduce the fee payable to Mitchell Hutchins
pursuant to Paragraph 8 hereof by such amount. To the extent that such
deductions exceed the fee payable to Mitchell Hutchins on any monthly payment
date, such excess shall be carried forward and deducted in the same manner from
the fee payable on succeeding monthly payment dates.
(d) Mitchell Hutchins will assume the cost of any compensation for
services provided to the Fund received by the officers of the Fund and by those
Directors who are interested persons of the Fund.
(e) The payment or assumption by Mitchell Hutchins of any expense of
the Fund or a Series that Mitchell Hutchins is not required by this Contract to
pay or assume shall not obligate Mitchell Hutchins to pay or assume the same or
any similar expense of the Fund or a Series on any subsequent occasion.
4
<PAGE>
8. Compensation.
------------
(a) For the services provided and the expenses assumed pursuant to
this Contract, with respect to the Fund, the Fund will pay to Mitchell Hutchins
a fee, computed daily and paid monthly, at an annual rate of 0.70% of such
Series' average daily net assets.
(b) For the services provided and the expenses assumed pursuant to
this Contract with respect to any Series hereafter established, the Fund will
pay to Mitchell Hutchins from the assets of such Series a fee in an amount to be
agreed upon in a written fee agreement ("Fee Agreement") executed by the Fund on
behalf of such Series and by Mitchell Hutchins. All such Fee Agreements shall
provide that they are subject to all terms and conditions of this Contract.
(c) The fee shall be computed daily and paid monthly to Mitchell
Hutchins on or before the first business day of the next succeeding calendar
month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
9. Limitation of Liability of Mitchell Hutchins. Mitchell Hutchins
--------------------------------------------
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by any Series or the Fund in connection with the matters to which this
Contract relates except a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Contract. Any person,
even though also an officer, director, employee, or agent of Mitchell Hutchins,
who may be or become an officer, Director, employee or agent of the Fund shall
be deemed, when rendering services to any Series or the Fund or acting with
respect to any business of such Series or the Fund, to be rendering such service
to or acting solely for the Series or the Fund and not as an officer, director,
employee or agent or one under the control or direction of Mitchell Hutchins
even though paid by it.
10. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written provided that, with respect to any Series, this Contract shall not take
effect unless it has first been approved (i) by a vote of a majority of those
Directors of the Fund who are not parties to this Contract or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and (ii) by vote of a majority of that Series' outstanding
voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from the above written date. Thereafter, if
not terminated, this Contract shall continue automatically for successive
periods of twelve months each, provided that such continuance is specifically
approved at least annually (i) by a vote of a majority of those
5
<PAGE>
Directors of the Fund who are not parties to this Contract or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and (ii) by the Board or with respect to any given Series by
vote of a majority of the outstanding voting securities of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the outstanding voting
securities of such Series on sixty days' written notice to Mitchell Hutchins or
by Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Fund. Termination of this Contract with respect to
any given Series shall in no way affect the continued validity of this Contract
or the performance thereunder with respect to any other Series. This Contract
will automatically terminate in the event of its assignment.
11. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Contract as to any
given Series shall be effective until approved by vote of a majority of such
Series' outstanding voting securities.
12. Governing Law. This Contract shall be construed in accordance
-------------
with the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
13. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person,"
"assignment", "broker," "dealer," "investment adviser," "national securities
exchange," "net assets," "prospectus," "sale," "sell" and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemption
as may be granted by the Securities and Exchange Commission by any rule,
regulation or order. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Contract is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
Attest: PAINEWEBBER CLASSIC REGIONAL
FINANCIAL FUND INC.
/s/ Robin Berger By: /s/ Dianne E. O'Donnell
- ------------------------ ----------------------------
Attest: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
/s/ Robin Berger By: /s/ Joyce N. Fensterstock
- ------------------------ ----------------------------
7
<PAGE>
Exhibit No. 5(a)
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
DISTRIBUTION CONTRACT
CLASS A SHARES
CONTRACT made as of July 7, 1993, between PAINEWEBBER REGIONAL
FINANCIAL GROWTH FUND INC., a Maryland corporation ("Fund"), and MITCHELL
HUTCHINS ASSET MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of
l940, as amended ("l940 Act"), as an open-end management investment company and
currently has one distinct series of shares of common stock ("Series"), which
corresponds to a distinct portfolio; and
WHEREAS the Fund's board of directors ("Board") has established shares
of common stock of the above-referenced Series as Class A shares ("Class A
Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act for its Class A Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class A Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class A Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor
of the Class A Shares of each such Series on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class A Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class A Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to sell Class A Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class A Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class A Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class A Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office plus the applicable initial
sales charge, if any, computed as set forth in the Registration Statement. The
Fund shall promptly furnish Mitchell Hutchins with a statement of each
computation of net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class A Shares.
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class A Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services
2
<PAGE>
under this Contract; provided, however, that Mitchell Hutchins shall not sell or
knowingly provide such list or lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
--------------------------------------------------------------
Delegate Duties as Distributor. With respect to the Class A Shares of any or
- ------------------------------
all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class A Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell
----------------------
Hutchins hereunder are not to be deemed exclusive and Mitchell Hutchins shall be
free to furnish similar services to others so long as its services under this
Contract are not impaired thereby. Nothing in this Contract shall limit or
restrict the right of any director, officer or employee of Mitchell Hutchins,
who may also be a director, officer or employee of the Fund, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar or a
dissimilar nature.
5. Compensation.
-------------
(a) As compensation for its service activities under this contract
with respect to the Class A Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class A Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
retain the initial sales charge, if any, on purchases of Class A Shares as set
forth in the Registration Statement. Mitchell Hutchins is authorized to collect
the gross proceeds derived from the sale of the Class A Shares, remit the net
asset value thereof to the fund upon receipt of the proceeds and retain the
initial sales charge, if any.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class A Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class A
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
3
<PAGE>
(d) Mitchell Hutchins may reallow any or all of the initial sales
charges, contingent deferred sales charges, or service fees which it is paid
under this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering
Class A Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class A Shares. If the Fund
has determined that certificates shall be issued, the Fund will not cause
certificates representing Class A Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund
will cause certificates evidencing Class A Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class A Shares,
including, without limitation, certified copies of any financial state ments
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class A Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class A Shares under the 1933 Act to the end that there will be available for
sale such number of Class A Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Articles of Incorporation or By-Laws to comply with the
laws of any jurisdiction, to maintain an office in any jurisdiction, to change
the terms of the offering of the Class A Shares in any jurisdiction from the
terms set forth in its Registration Statement, to qualify as a foreign
corporation in any jurisdiction, or to consent to service of process in any
jurisdiction other than with respect to claims arising out of the offering of
the Class A Shares. Mitchell Hutchins shall
4
<PAGE>
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses
--------------------
of registering the Class A Shares with the Securities and Exchange Commission
and state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class A Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all
-----------------------------
costs and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class A Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class A Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class A Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement; provided, however, that this indemnity agreement
shall not inure to the benefit of any person
5
<PAGE>
who is also an officer or director of the Fund or who controls the Fund within
the meaning of Section 15 of the 1933 Act, unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the 1933 Act; and further provided, that in no event shall anything contained
herein be so construed as to protect Mitchell Hutchins against any liability to
the Fund or to the shareholders of any Series to which Mitchell Hutchins would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations under this Contract. The Fund shall not be liable
to Mitchell Hutchins under this indemnity agreement with respect to any claim
made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to indemnified defendants in the suit whose approval shall not be
unreasonably withheld. In the event that the Fund elects to assume the defense
of any suit and retain counsel, the indemnified defendants shall bear the fees
and expenses of any additional counsel retained by them. If the Fund does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of
the commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issuance or sale of any of its Class
A Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and directors and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its directors or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the defense of any suit brought to enforce the claim, but if Mitchell
Hutchins elects to assume the defense, the defense shall be conducted by counsel
chosen by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event
6
<PAGE>
that Mitchell Hutchins elects to assume the defense of any suit and retain
counsel, the defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them. If Mitchell Hutchins does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
10. Services Provided to the Fund by Employees of Mitchell Hutchins.
---------------------------------------------------------------
Any person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, director, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
11. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those directors of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such directors collectively being referred to
herein as the "Independent Directors") cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Directors, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class A Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Directors or by vote
of a majority of the outstanding voting securities of the Class A Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
7
<PAGE>
12. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. Governing Law. This Contract shall be construed in accordance
-------------
with the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by either
------
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
15. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER REGIONAL FINANCIAL
GROWTH FUND INC.
/s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
--------------------- --------------------------
Dianne E. O'Donnell
Secretary and Vice President
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Jenny Ann Frank By: /s/ Jack W. Murphy
--------------------- ---------------------------
Jack W. Murphy
First Vice President
8
<PAGE>
Exhibit No. 5(b)
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
DISTRIBUTION CONTRACT
CLASS B SHARES
CONTRACT made as of July 7, 1993, between PAINEWEBBER REGIONAL FINANCIAL
GROWTH FUND INC., a Maryland corporation ("Fund") and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Fund is registered under the Investment Company Act of l940, as
amended ("l940 Act"), as an open-end management investment company and currently
has one distinct series of shares of common stock ("Series"), which corresponds
to a distinct portfolio; and
WHEREAS the Fund's board of directors ("Board") has established shares of
common stock of the above-referenced Series as Class B shares ("Class B
Shares"); and
WHEREAS the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act for its Class B Shares ("Plan") and desires to retain
Mitchell Hutchins as principal distributor in connection with the offering and
sale of the Class B Shares of the above-referenced Series and of such other
Series as may hereafter be designated by the Board and have Class B Shares
established; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
Class B Shares of each such Series on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Mitchell Hutchins as its
-----------
exclusive agent to be the principal distributor to sell and to arrange for the
sale of the Class B Shares on the terms and for the period set forth in this
Contract. Mitchell Hutchins hereby accepts such appointment and agrees to act
hereunder. It is understood, however, that this appointment does not preclude
sales of the Class B Shares directly through the Fund's transfer agent in the
manner set forth in the Registration Statement. As used in this Contract, the
term "Registration Statement" shall mean the currently effective registration
statement of the Fund, and any supplements thereto, under the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act.
<PAGE>
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to sell Class B Shares on a best efforts
basis from time to time during the term of this Contract as agent for the Fund
and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the Class B Shares to the public by a Series, Mitchell Hutchins will
hold itself available to receive purchase orders, satisfactory to Mitchell
Hutchins, for Class B Shares of that Series and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and promptly
transmit such orders as are accepted to the Fund's transfer agent. Purchase
orders shall be deemed effective at the time and in the manner set forth in the
Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell Class B Shares to such registered and qualified retail dealers, including
but not limited to PaineWebber Incorporated ("PaineWebber"), as it may select.
In making agreements with such dealers, Mitchell Hutchins shall act only as
principal and not as agent for the Fund.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at Mitchell Hutchins' principal office. The Fund shall promptly
furnish Mitchell Hutchins with a statement of each computation of net asset
value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, Mitchell Hutchins is authorized but not required on
behalf of the Fund to repurchase Class B Shares presented to it by shareholders
and dealers at the price determined in accordance with, and in the manner set
forth in, the Registration Statement. Such price shall reflect the subtraction
of the contingent deferred sales charge, if any, computed in accordance with and
in the manner set forth in the Registration Statement.
(g) Mitchell Hutchins shall provide ongoing shareholder services,
which include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) Mitchell Hutchins shall have the right to use any list of
shareholders of the Fund or any other list of investors which it obtains in
connection with its provision of services
2
<PAGE>
under this Contract; provided, however, that Mitchell Hutchins shall not sell or
knowingly provide such list or lists to any unaffiliated person.
3. Authorization to Enter into Exclusive Dealer Agreements and to
--------------------------------------------------------------
Delegate Duties as Distributor. With respect to the Class B Shares of any or
- ------------------------------
all Series, Mitchell Hutchins may enter into an exclusive dealer agreement with
PaineWebber or any other registered and qualified dealer with respect to sales
of the Class B Shares or the provision of service activities. In a separate
contract or as part of any such exclusive dealer agreement, Mitchell Hutchins
also may delegate to PaineWebber or another registered and qualified dealer
("sub-distributor") any or all of its duties specified in this Contract,
provided that such separate contract or exclusive dealer agreement imposes on
the sub-distributor bound thereby all applicable duties and conditions to which
Mitchell Hutchins is subject under this Contract, and further provided that such
separate contract or exclusive dealer agreement meets all requirements of the
1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a director, officer or employee of the Fund, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Compensation.
-------------
(a) As compensation for its service activities under this contract
with respect to the Class B Shares, Mitchell Hutchins shall receive from the
Fund a service fee at the rate and under the terms and conditions of the Plan
adopted by the Fund with respect to the Class B Shares of the Series, as such
Plan is amended from time to time, and subject to any further limitations on
such fee as the Board may impose.
(b) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive from the Fund a distribution fee at the rate and under the terms and
conditions of the Plan adopted by the Fund with respect to the Class B Shares of
the Series, as such Plan is amended from time to time, and subject to any
further limitations on such fee as the Board may impose.
(c) As compensation for its activities under this contract with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall
receive all contingent deferred sales charges imposed on redemptions of Class B
Shares of each Series. Whether and at what rate a contingent deferred sales
charge will be imposed with respect to a redemption shall be determined in
accordance with, and in the manner set forth in, the Registration Statement.
3
<PAGE>
(d) Mitchell Hutchins may reallow any or all of the distribution
fees, contingent deferred sales charges, or service fees which it is paid under
this Contract to such dealers as Mitchell Hutchins may from time to time
determine.
6. Duties of the Fund.
-------------------
(a) The Fund reserves the right at any time to withdraw offering
Class B Shares of any or all Series by written notice to Mitchell Hutchins at
its principal office.
(b) The Fund shall determine in its sole discretion whether
certificates shall be issued with respect to the Class B Shares. If the Fund has
determined that certificates shall be issued, the Fund will not cause
certificates representing Class B Shares to be issued unless so requested by
shareholders. If such request is transmitted by Mitchell Hutchins, the Fund will
cause certificates evidencing Class B Shares to be issued in such names and
denominations as Mitchell Hutchins shall from time to time direct.
(c) The Fund shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of Class B Shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of any Series as Mitchell Hutchins
may request, and the Fund shall cooperate fully in the efforts of Mitchell
Hutchins to sell and arrange for the sale of the Class B Shares of the Series
and in the performance of Mitchell Hutchins under this Contract.
(d) The Fund shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
Class B Shares under the 1933 Act to the end that there will be available for
sale such number of Class B Shares as Mitchell Hutchins may be expected to sell.
The Fund agrees to file, from time to time, such amendments, reports, and other
documents as may be necessary in order that there will be no untrue statement of
a material fact in the Registration Statement, nor any omission of a material
fact which omission would make the statements therein misleading.
(e) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares of each Series for sale
under the securities laws of such states or other jurisdictions as Mitchell
Hutchins and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund as a
broker or dealer in such jurisdictions; provided that the Fund shall not be
required to amend its Articles of Incorporation or By-Laws to comply with the
laws of any jurisdiction, to maintain an office in any jurisdiction, to change
the terms of the offering of the Class B Shares in any jurisdiction from the
terms set forth in its Registration Statement, to qualify as a foreign
corporation in any jurisdiction, or to consent to service of process in any
jurisdiction other than with respect to claims arising out of the offering of
the Class B Shares. Mitchell Hutchins shall
4
<PAGE>
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
7. Expenses of the Fund. The Fund shall bear all costs and expenses of
--------------------
registering the Class B Shares with the Securities and Exchange Commission and
state and other regulatory bodies, and shall assume expenses related to
communications with shareholders of each Series, including (i) fees and
disbursements of its counsel and independent public accountant; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of Class B Shares for sale and of the
Fund as a broker or dealer under the securities laws of such jurisdictions as
shall be selected by the Fund and Mitchell Hutchins pursuant to Paragraph 6(e)
hereof, and the costs and expenses payable to each such jurisdiction for
continuing qualification therein.
8. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Fund and other materials used by Mitchell Hutchins in connection
with the sale of Class B Shares under this Contract, including the additional
cost of printing copies of prospectuses, statements of additional information,
and annual and interim shareholder reports other than copies thereof required
for distribution to existing shareholders or for filing with any federal or
state securities authorities; (ii) any expenses of advertising incurred by
Mitchell Hutchins in connection with such offering; (iii) the expenses of
registration or qualification of Mitchell Hutchins as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to Mitchell Hutchins' employees
and others for selling Class B Shares, and all expenses of Mitchell Hutchins,
its employees and others who engage in or support the sale of Class B Shares as
may be incurred in connection with their sales efforts.
9. Indemnification.
---------------
(a) The Fund agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by Mitchell Hutchins to the Fund for use
in the Registration Statement;
5
<PAGE>
provided, however, that this indemnity agreement shall not inure to the benefit
of any person who is also an officer or director of the Fund or who controls the
Fund within the meaning of Section 15 of the 1933 Act, unless a court of
competent jurisdiction shall determine, or it shall have been determined by
controlling precedent, that such result would not be against public policy as
expressed in the 1933 Act; and further provided, that in no event shall anything
contained herein be so construed as to protect Mitchell Hutchins against any
liability to the Fund or to the shareholders of any Series to which Mitchell
Hutchins would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations under this Contract. The Fund shall not be
liable to Mitchell Hutchins under this indemnity agreement with respect to any
claim made against Mitchell Hutchins or any person indemnified unless Mitchell
Hutchins or other such person shall have notified the Fund in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon Mitchell Hutchins or such other person (or after Mitchell Hutchins
or the person shall have received notice of service on any designated agent).
However, failure to notify the Fund of any claim shall not relieve the Fund from
any liability which it may have to Mitchell Hutchins or any person against whom
such action is brought otherwise than on account of this indemnity agreement.
The Fund shall be entitled to participate at its own expense in the defense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity agreement. If the Fund elects to assume the defense of
any such claim, the defense shall be conducted by counsel chosen by the Fund and
satisfactory to indemnified defendants in the suit whose approval shall not be
unreasonably withheld. In the event that the Fund elects to assume the defense
of any suit and retain counsel, the indemnified defendants shall bear the fees
and expenses of any additional counsel retained by them. If the Fund does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants. The Fund agrees to notify Mitchell Hutchins promptly of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of its
Class B Shares.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Fund,
its officers and directors and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its directors or
officers, or any such controlling person may incur under the 1933 Act or under
common law or otherwise arising out of or based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
Mitchell Hutchins to the Fund for use in the Registration Statement, arising out
of or based upon any alleged omission to state a material fact in connection
with such information required to be stated in the Registration Statement
necessary to make such information not misleading, or arising out of any
agreement between Mitchell Hutchins and any retail dealer, or arising out of any
supplemental sales literature or advertising used by Mitchell Hutchins in
connection with its duties under this Contract. Mitchell Hutchins shall be
entitled to participate, at its own expense, in the defense or, if it so elects,
to assume the
6
<PAGE>
defense of any suit brought to enforce the claim, but if Mitchell Hutchins
elects to assume the defense, the defense shall be conducted by counsel chosen
by Mitchell Hutchins and satisfactory to the indemnified defendants whose
approval shall not be unreasonably withheld. In the event that Mitchell Hutchins
elects to assume the defense of any suit and retain counsel, the defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them. If Mitchell Hutchins does not elect to assume the defense of any suit, it
will reimburse the indemnified defendants in the suit for the reasonable fees
and expenses of any counsel retained by them.
10. Services Provided to the Fund by Employees of Mitchell Hutchins. Any
---------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, director, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
11. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those directors of the Fund who are not
interested persons of the Fund, and have no direct or indirect financial
interest in the operation of the Plan relating to the Series or in any
agreements related thereto (all such directors collectively being referred to
herein as the "Independent Directors"), cast in person at a meeting called for
the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of the Independent Directors, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the Class B Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Directors or by vote
of a majority of the outstanding voting securities of the Class B Shares of such
Series on sixty days' written notice to Mitchell Hutchins or by Mitchell
Hutchins at any time, without the payment of any penalty, on sixty days' written
notice to the Fund or such Series. This Contract will automatically terminate
in the event of its assignment.
7
<PAGE>
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
12. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. Governing Law. This Contract shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the l940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
16. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meaning as such terms have in the l940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: PAINEWEBBER REGIONAL FINANCIAL
GROWTH FUND INC.
/s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
---------------------------- -------------------------------------
Dianne E. O'Donnell
Secretary and Vice President
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
/s/ Jenny Ann Frank By: /s/ Jack W. Murphy
---------------------------- -------------------------------------
Jack W. Murphy
First Vice President
8
<PAGE>
Exhibit No. 5(e)
EXCLUSIVE DEALER AGREEMENT
CLASS A SHARES OF
PAINEWEBBER REGIONAL FINANCIAL SERVICES GROWTH FUND INC.
AGREEMENT made as of July 7, 1993, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and PaineWebber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Regional Financial Services Growth Fund Inc. ("Fund")
is a Maryland corporation registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has one distinct series of shares of common
stock ("Series"), which corresponds to a distinct portfolio; and
WHEREAS the Fund's board of directors ("Board") has established shares of
common stock of the above-referenced Series as Class A shares ("Class A Shares")
and has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act
("Plan") with respect to the Class A Shares of the above-referenced Series and
of such other Series as may hereafter be designated by the Board and have Class
A Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class A
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class A Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' exclusive agent
in connection with the offering and sale of such Class A Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
<PAGE>
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for the sale of the Class A Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contract. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class A Shares directly through the Fund's transfer agent in
the manner set forth in the Regis tration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the Class A Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class A Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satis factory to PaineWebber and Mitchell
Hutchins, for the purchase of Class A Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in
the manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class A Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class A Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office, plus the applicable initial sales
charge, if any, as set forth in the Registration Statement. Mitchell Hutchins
shall promptly furnish or arrange for the furnishing to PaineWebber of a
statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class A Shares.
2
<PAGE>
(f) To facilitate redemption of Class A Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class A Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable
contingent deferred sales charge, if any, computed in accordance with and in the
manner set forth in the Registration Statement.
(g) PaineWebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class A Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class A Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class A Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class A Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class A Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer or sell the Class A Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, officer or employee of Mitchell Hutchins or the Fund, to engage in any
other
3
<PAGE>
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar or a dissimilar
nature.
4. Compensation.
------------
(a) As compensation for its service activities under this Agreement
with respect to the Class A Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class A Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class A Shares, PaineWebber shall retain that
portion of the offering price constituting the Discount to Selected Dealers
("Discount"), if any, set forth in the Registration Statement for Class A shares
sold with an initial sales charge under this Agreement. PaineWebber is
authorized to collect the gross proceeds derived from the sale of such Class A
Shares; remit the net asset value thereof to the Fund's Transfer Agent; remit to
Mitchell Hutchins the difference between the offering price of the Class A
Shares and the applicable Discount; and retain said Discount. Whether the
offering price of the Class A Shares includes any initial sales charge out of
which a Discount may be retained by PaineWebber shall be determined in
accordance with the Registration Statement.
(c) Mitchell Hutchins shall pay to PaineWebber such commissions and
other compensation for sales of the Class A Shares by PaineWebber employees,
correspondent firms and other dealers as Mitchell Hutchins and PaineWebber may
from time to time agree upon.
(d) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell
Hutchins shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(e) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class A Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the
4
<PAGE>
distribution of Class A Shares, including, without limitation, certified copies
of any financial statements prepared for the Fund by its independent public
accountant and such reasonable number of copies of the most current prospectus,
statement of additional information, and annual and interim reports of any
Series as PaineWebber may request, and Mitchell Hutchins shall cooperate fully
in the efforts of PaineWebber to sell and arrange for the sale of the Class A
Shares and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the Class A Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales
-----------
and advertising materials relating to the Class A Shares as Mitchell Hutchins in
its discretion determines appropriate. PaineWebber agrees to submit all sales
and advertising materials developed by it relating to the Class A Shares to
Mitchell Hutchins for approval. PaineWebber agrees not to publish or distribute
such materials to the public without first receiving such approval in writing.
Mitchell Hutchins shall assist PaineWebber in obtaining any regulatory approvals
of such materials that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the Class A Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and
-----------------------
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Fund or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of Class A Shares for sale to the public; (ii) any
expenses of advertising incurred by PaineWebber in con nection with such
offering; (iii) the expenses of registration or qualification of PaineWebber as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification; and (iv) all compensation paid to
PaineWebber's Investment Executives or other employees and others for selling
Class A Shares, and all expenses of PaineWebber, its Investment Executives and
employees and others who engage in or support the sale of Class A Shares as may
be incurred in connection with their sales efforts. PaineWebber shall bear such
additional costs and expenses as it and Mitchell Hutchins may agree upon, such
agreement to be evidenced in a writing signed by both parties. Mitchell
Hutchins shall advise the Board of any such agreement as to additional costs and
expenses borne by PaineWebber at their first regular meeting held after such
agreement but shall not be required to obtain prior approval for such agreements
from the Board.
5
<PAGE>
9. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class A Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no event shall anything contained herein be so construed as to
protect PaineWebber against any liability to Mitchell Hutchins or the Fund or to
the shareholders of any Series to which PaineWebber would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and directors,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or directors, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
6
<PAGE>
10. Duration and Termination.
------------------------
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those directors of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto (all such directors
collectively being referred to herein as the "Independent Directors"), cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Directors, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class A Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Directors or by vote of a majority of the
outstanding voting securities of the Class A Shares of such Series on 30 days'
written notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to PaineWebber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution Contract,
provided that Mitchell Hutchins gives notice of termination pursuant to this
provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
7
<PAGE>
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class A Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
------------------- -----------------------
Dianne E. O'Donnell
First Vice President
PAINEWEBBER INCORPORATED
Attest: /s/ Jenny Ann Frank By: /s/ Steven M. Joenk
------------------- -------------------
Steven M. Joenk
Corporate Vice President
8
<PAGE>
Exhibit No. 5(f)
EXCLUSIVE DEALER AGREEMENT
CLASS B SHARES OF
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
AGREEMENT made as of July 7, 1993, between Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a Delaware corporation, and Paine Webber
Incorporated ("PaineWebber"), a Delaware corporation.
WHEREAS PaineWebber Regional Financial Growth Fund Inc. ("Fund") is a
Maryland corporation registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company; and
WHEREAS the Fund currently has one distinct series of shares of common
stock ("Series"), which corresponds to a distinct portfolio; and
WHEREAS the Fund's board of directors ("Board") has established shares of
common stock of the above-referenced Series as Class B shares ("Class B Shares")
and has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act
("Plan") with respect to the Class B Shares of the above-referenced Series and
of such other Series as may hereafter be designated by the Board and have Class
B Shares established; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Fund ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the Class B
Shares of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its exclusive
agent in connection with the offering and sale of the Class B Shares of each
Series and to delegate to PaineWebber performance of certain of the services
which Mitchell Hutchins provides to the Fund under the Distribution Contract;
and
WHEREAS PaineWebber is willing to act as Mitchell Hutchin's exclusive agent
in connection with the offering and sale of such Class B Shares and to perform
such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
<PAGE>
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
exclusive agent to sell and to arrange for sale of the Class B Shares on the
terms and for the period set forth in this Agreement. Mitchell Hutchins also
appoints PaineWebber as its agent for the performance of certain other services
set forth herein which Mitchell Hutchins provides to the Fund under the
Distribution Contact. PaineWebber hereby accepts such appointments and agrees
to act hereunder. It is understood, however, that these appointments do not
preclude sales of Class B Shares directly through the Fund's transfer agent in
the manner set forth in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
Registration Statement of the Fund, and any supplements thereto, under the
Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the Class B Shares on a best efforts
basis from time to time during the term of this Agreement as agent for Mitchell
Hutchins and upon the terms described in this Agreement and the Registration
Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of Class B Shares by a Series to the public, PaineWebber will hold
itself available to receive orders, satisfactory to PaineWebber and Mitchell
Hutchins, for the purchase of Class B Shares and will accept such orders on
behalf of Mitchell Hutchins and the Fund as of the time of receipt of such
orders and will promptly transmit such orders as are accepted to the Fund's
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell Class B Shares to (i) its
correspondent firms and customers of such firms and (ii) such other registered
and qualified retail dealers as it may select, subject to the approval of
Mitchell Hutchins. In making agreements with such dealers, PaineWebber shall
act only as principal and not as agent for Mitchell Hutchins or the Fund.
(d) The offering price of the Class B Shares of each Series shall be
the net asset value per Share as next determined by the Fund following receipt
of an order at PaineWebber's principal office. Mitchell Hutchins shall promptly
furnish or arrange for the furnishing to PaineWebber of a statement of each
computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
Class B Shares.
(f) To facilitate redemption of Class B Shares by shareholders
directly or through dealers, PaineWebber is authorized but not required on
behalf of Mitchell Hutchins and the Fund to repurchase Class B Shares presented
to it by shareholders, its correspondent firms and other dealers at the price
determined in accordance with, and in the manner set forth in, the Registration
Statement. Such price shall reflect the subtraction of the applicable contingent
-2-
<PAGE>
deferred sales charge, if any, computed in accordance with and in the manner set
forth in the Registration Statement.
(g) Painewebber shall provide ongoing shareholder services, which
include responding to shareholder inquiries, providing shareholders with
information on their investments in the Class B Shares and any other services
now or hereafter deemed to be appropriate subjects for the payments of "service
fees" under Section 26(d) of the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice (collectively, "service activities").
"Service activities" do not include the transfer agency-related and other
services for which PaineWebber receives compensation under the Service Contract
between PaineWebber and the Fund.
(h) PaineWebber represents and warrants that: (i) it is a member in
good standing of the NASD and agrees to abide by the Rules of Fair Practice of
the NASD; (ii) it is registered as a broker-dealer with the Securities and
Exchange Commission; (iii) it will maintain any filings and licenses required by
federal and state laws to conduct the business contemplated under this
Agreement; and (iv) it will comply with all federal and state laws and
regulations applicable to the offer and sale of the Class B Shares.
(i) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Fund. PaineWebber shall bear all costs that it incurs
in selling the Class B Shares and in complying with the terms and conditions of
this Agreement as more specifically set forth in paragraph 8.
(j) PaineWebber shall not permit any employee or agent to offer or
sell Class B Shares to the public unless such person is duly licensed under
applicable federal and state laws and regulations.
(k) PaineWebber shall not (i) furnish any information or make any
representations concerning the Class B Shares other than those contained in the
Registration Statement or in sales literature or advertising that has been
prepared or approved by Mitchell Hutchins as provided in paragraph 6 or (ii)
offer to sell the Class B Shares in jurisdictions in which they have not been
approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and PaineWebber shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of PaineWebber who may also be a
director, officer or employee of Mitchell Hutchins or the Fund, to engage in any
other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar or a
dissimilar nature.
-3-
<PAGE>
4. Compensation.
------------
(a) As compensation for its service activities under this Agreement
with respect to Class B Shares, Mitchell Hutchins shall pay to PaineWebber
service fees with respect to Class B Shares maintained in shareholder accounts
serviced by PaineWebber employees, correspondent firms and other dealers in such
amounts as Mitchell Hutchins and PaineWebber may from time to time agree upon.
(b) As compensation for its activities under this Agreement with
respect to the distribution of the Class B Shares, Mitchell Hutchins shall pay
to PaineWebber such commissions for sales of the Class B Shares by PaineWebber
employees, correspondent firms and other dealers and such other compensation as
Mitchell Hutchins and PaineWebber may from time to time agree upon.
(c) Mitchell Hutchins' obligation to pay compensation to PaineWebber
as agreed upon pursuant to this paragraph 4 is not contingent upon receipt by
Mitchell Hutchins of any compensation from the Fund or Series. Mitchell Hutchins
shall advise the Board of any agreements or revised agreements as to
compensation to be paid by Mitchell Hutchins to PaineWebber at their first
regular meeting held after such agreement but shall not be required to obtain
prior approval for such agreements from the Board.
(d) PaineWebber may reallow all or any part of the service fees,
commissions or other compensation which it is paid under this Agreement to its
correspondent firms or other dealers, in such amounts as PaineWebber may from
time to time determine.
5. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Fund reserves the right at any time to
withdraw all offerings of Class B Shares of any or all Series by written notice
to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Fund's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of Class B
Shares, including, without limitation, certified copies of any financial
statements prepared for the Fund by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the Class B Shares
and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws
and regulations applicable to a distributor of the Class B Shares.
6. Advertising. Mitchell Hutchins agrees to make available such sales and
-----------
advertising materials relating to the Class B Shares as Mitchell Hutchins in its
discretion
-4-
<PAGE>
determines appropriate. PaineWebber agrees to submit all sales and advertising
materials developed by it relating to the Class B Shares to Mitchell Hutchins
for approval. PaineWebber agrees not to publish or distribute such materials to
the public without first receiving such approval in writing. Mitchell Hutchins
shall assist PaineWebber in obtaining any regulatory approvals of such materials
that may be required of or desired by PaineWebber.
7. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the Class B Shares. Mitchell Hutchins and its representatives shall have
access to such records during normal business hours for review or copying.
8. Expenses of PaineWebber. PaineWebber shall bear all costs and expenses
-----------------------
of (i) preparing, printing, and distributing any materials not prepared by the
Fund or Mitchell Hutchins and other materials used by PaineWebber in connection
with its offering of Class B Shares for sale to the public; (ii) any expenses of
advertising incurred by PaineWebber in connection with such offering; (iii) the
expenses of registration or qualification of PaineWebber as a dealer or broker
under federal or state laws and the expenses of continuing such registration or
qualification; and (iv) all compensation paid to PaineWebber's Investment
Executives or other employees and others for selling Class B Shares, and all
expenses of PaineWebber, its Investment Executives and employees and others who
engage in or support the sale of Class B Shares as may be incurred in connection
with their sales efforts. PaineWebber shall bear such additional costs and
expenses as it and Mitchell Hutchins may agree upon, such agreement to be
evidenced in a writing signed by both parties. Mitchell Hutchins shall advise
the Board of any such agreement as to additional costs and expenses borne by
PaineWebber at their first regular meeting held after such agreement but shall
not be required to obtain prior approval for such agreements from the Board.
9. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the Class B Shares
provided by Mitchell Hutchins to PaineWebber. However, this indemnity agreement
shall not apply to any claims, demands, liabilities, or expenses that arise out
of or are based upon any such untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished in writing by PaineWebber to Mitchell Hutchins or the Fund for use in
the Registration Statement or in any sales or advertising material; and further
provided, that in no
-5-
<PAGE>
event shall anything contained herein be so construed as to protect PaineWebber
against any liability to Mitchell Hutchins or the Fund or to the shareholders of
any Series to which PaineWebber would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Fund, its officers and directors,
and any person who controls Mitchell Hutchins or the Fund within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Fund, its officers or directors, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the Fund
for use in the Registration Statement; arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such information
not misleading; or arising out of any agreement between PaineWebber and a
correspondent firm or any other retail dealer; or arising out of any sales or
advertising material used by PaineWebber in connection with its duties under
this Agreement.
10. Duration and Termination.
------------------------
(a) This Agreement shall become effective upon the date written
above, provided that, with respect to any Series, this Contract shall not take
effect unless such action has first been approved by vote of a majority of the
Board and by vote of a majority of those directors of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto (all
such directors collectively being referred to herein as the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on
such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (i) by a vote of a majority of the Independent Directors, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or with respect to any given Series by vote of a majority of
the outstanding voting securities of the Class B Shares of such Series.
(c) Notwithstanding the foregoing, with respect to any Series this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any time,
without the payment of any penalty, by vote of the Board, by vote of a
-6-
<PAGE>
majority of the Independent Directors or by vote of a majority of the
outstanding voting securities of the Class B Shares of such Series on 30 days'
written notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
(e) Notwithstanding the foregoing, Mitchell Hutchins may terminate
this Agreement without penalty, such termination to be effective upon the giving
of written notice to Paine Webber in the event that the Plan is terminated or is
amended to reduce the compensation payable to Mitchell Hutchins thereunder or in
the event that the Registration Statement is amended so as to reduce the amount
of compensation payable to Mitchell Hutchins under the Distribution
Contract, provided that Mitchell Hutchins gives notice of termination pursuant
to this provision within 90 days of such amendment or termination of the Plan or
amendment of the Registration Statement.
11. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
------------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the Class B Shares, but
only for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the business of PaineWebber.
13. Governing Law. This Agreement shall be contrued in accordance with the
-------------
laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statue, rule or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Agreement,
the terms "majority of the
-7-
<PAGE>
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: /s/ Jenny Ann Frank By: /s/ Dianne E. O'Donnell
------------------------ ------------------------------
Dianne E. O'Donnell
First Vice President
PAINEWEBBER INCORPORATED
Attest: /s/ Jenny Ann Frank By: /s/ Steven M. Joenk
------------------------ ------------------------------
Steven M. Joenk
Corporate Vice President
-8-
<PAGE>
Exhibit No. 7
CUSTODIAN CONTRACT
Between
PAINEWEBBER CLASSIC REGIONAL FINANCIAL FUND INC.
and
STATE STREET BANK AND TRUST COMPANY
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TABLE OF CONTENTS
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Page
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1. Employment of Custodian and Property to be Held By It............................................. 1
2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian................ 2
2.1 Holding Securities................................................................................ 2
2.2 Delivery of Securities............................................................................ 2
2.3 Registration of Securities........................................................................ 6
2.4 Bank Accounts..................................................................................... 6
2.5 Payments for Shares............................................................................... 7
2.6 Availability of Federal Funds..................................................................... 8
2.7 Collection of Income.............................................................................. 8
2.8 Payment of Fund Monies............................................................................ 8
2.9 Liability for Payment in Advance of Receipt of Securities Purchased............................... 11
2.10 Payments for Repurchases or Redemptions of Shares of the Fund..................................... 12
2.11 Appointment of Agents............................................................................. 12
2.12 Deposit of Fund Assets in Securities System....................................................... 13
2.12A Fund Assets Held in the Custodian's Direct Paper System........................................... 15
2.13 Segregated Account................................................................................ 16
2.14 Ownership Certificates for Tax Purposes........................................................... 17
2.15 Proxies........................................................................................... 18
2.16 Communications Relating to Fund Portfolio Securities.............................................. 18
2.17 Proper Instructions............................................................................... 19
2.18 Actions Permitted Without Express Authority....................................................... 19
2.19 Evidence of Authority............................................................................. 20
3. Duties of Custodian with Respect to the Books of Account and Calculation of Net
Asset Value and Net Income........................................................................ 21
4. Records........................................................................................... 21
5. Opinion of Fund's Independent Accountant.......................................................... 22
6. Reports to fund by Independent Public Accountants................................................. 22
7. Compensation of Custodian......................................................................... 22
8. Responsibility of Custodian....................................................................... 23
9. Effective Period, Termination and Amendment....................................................... 24
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10. Successor Custodian..................................................... 25
11. Interpretive and Additional Provisions.................................. 26
12. Massachusetts Law to Apply.............................................. 27
13. Prior Contracts......................................................... 27
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CUSTODIAN CONTRACT
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This Contract between PaineWebber Classic Regional Financial Fund Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 1285 Avenue of the Americas, New York, New York,
10019 hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH, that in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held By It
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The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the Articles of Incorporation. The Fund agrees to
deliver to the Custodian all securities and cash owned by it, and all payments
of income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock
("Shares") of the Fund as may be issued or sold from time to time. The Custodian
shall not be responsible for any property of the Fund held or received by the
Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section 2.17),
the Custodian shall from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Board of Directors of the
Fund, and provided that the Custodian
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shall have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held by the
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Custodian
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2.1 Holding Securities. The Custodian shall hold and physically segregate for
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the account of the Fund all non-cash property, including all securities
owned by the Fund, other than (a) securities which are maintained pursuant
to Section 2.12 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as a "Securities System" and (b)
commercial paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.12A.
2.2 Delivery of Securities. The Custodian shall release and deliver securities
----------------------
owned by the Fund held by the Custodian or in a Securities System account
of the Custodian or in the Custodian's Direct Paper book entry system
account ("Direct Paper Account") only upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
2
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3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
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securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "stree delivery" custom; provided
that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities
3
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except as may arise from the Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, but only against receipt of adequate collateral as
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agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held responsible for the delivery of
securities owned by the Fund prior to the receipt of such
collateral;
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11) For delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Fund, but only against receipt of
--- ----
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the Fund's currently effective
prospectus and statement of
5
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additional information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
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in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other than
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bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
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authorized in writing the appointment of nominee to be used in common with
other registered investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the Custodian on behalf
of the Fund under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the Custodian to
maintain securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities and
to
6
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notify the Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
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account or accounts in the name of the Fund, subject only to draft or order
by the Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for the Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other banks
or trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified
--------
to act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of the
Board of Directors of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the distributor for
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the Fund's Shares or from the Transfer Agent of the Fund and deposit into
the Fund's account such payments as are received for Shares of the Fund
issued or sold from time to time by the Fund. The Custodian will provide
timely notification to the Fund and the Transfer Agent of any receipt by it
of payments for Shares of the Fund.
7
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2.6 Availability of Federal Funds. Upon mutual agreement between the Fund and
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the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.7 Collection of Income. Subject to the provisions of Section 2.3, the
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Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due the Fund on securities loaned
pursuant to the provisions of Section 2.2(10) shall be the responsibility
of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such information
or data as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is properly
entitled.
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2.8 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
----------------------
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts or
options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.12 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.12A; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Fund
of securities owned by the Custodian along with
9
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written evidence of the agreement by the Custodian to repurchase such
securities from the Fund or (e) for transfer to a time deposit account
of the Fund in any bank, whether domestic or foreign; such transfer
may be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from the
Fund as defined in Section 2.17;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
10
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7) For any other proper purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors or of the Executive Committee of the
Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
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Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of securities for the account of the Fund
is made by the Custodian in advance of receipt of the securities purchased
in the absence of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund. From such
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funds as may be available for the purpose but subject to the limitations
of the Articles of Incorporation and any applicable votes of the Board of
Directors of the Fund pursuant thereto, the Custodian shall, upon receipt
of instructions from the Transfer Agent, make funds available for payment
to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire
funds to or through a commercial bank
11
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designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have
been furnished by the Fund to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
--------
relieve the Custodian of its responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may deposit
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and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in Securities
System provided that such securities are represented in an
account ("Account") of
12
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the Custodian in the Securities System which shall not include any assets
of the Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund which
are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of the
Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and transfer
for the account of the Fund. The Custodian shall transfer securities sold
for the account of the Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund. Copies of
all advices from the Securities System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by
the Custodian and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice and shall
furnish to the Fund copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of the Fund.
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4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of the Custodian subject to the following provisions:
14
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1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than held as
a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account
of the Fund upon the making of any entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of any entry on
the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund copies
of daily transaction sheets reflecting each day's transaction in
the Securities System for the account of the Fund;
15
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6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may reasonably
request from time to time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper Instructions
------------------
establish and maintain a segregated account or accounts for and on behalf
of the Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.12 hereof, (i) in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating
cash or government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purpose of compliance by the
Fund with the procedures required by Investment Company Act Release No.
10666, or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
---
only, in the case of clause (iv), upon receipt of, in addition of Proper
----
Instructions, a certified copy of a resolution of the Board of Directors or
of the
16
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Executive Committee signed by an officer of the Fund and certified by
the Secretary or any Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of the Fund held by it and in
connection with transfers of securities.
2.15 Proxies. The Custodian shall, with respect to the securities held
-------
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.16 Communications Relating to Fund Portfolio Securities. Subject to the
----------------------------------------------------
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of
rights in connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers
of the securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender
17
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or exchange offer. If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the Fund
shall notify the Custodian at least three business days prior to the date
on which the Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this Article
-------------------
2 means a writing signed or initialled by one or more person or persons
as the Board of Directors shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board
of Directors of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors, Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Directors and the Custodian
are satisfied that such procedures afford adequate safeguards for the
Fund's assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any
three-party agreement which requires a segregated asset account in
accordance with Section 2.13.
2.18 Actions Permitted Without Express Authority. The Custodian may in its
-------------------------------------------
discretion, without express authority from the Fund:
18
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1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
--------
shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Directors of the Fund.
2.19 Evidence of Authority. The Custodian shall be protected in acting upon
---------------------
any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors pursuant to
the Articles of Incorporation as described in such vote, and such vote
may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
19
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3. Duties of Custodian with Respect to the Books of Account and Calculation of
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Net Asset Value and Net Income
------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advice the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time to times described from
time to time in the Fund's currently effective prospectus.
4. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested
20
<PAGE>
to do so by the Fund and for such compensation as shall be agreed upon between
the Fund and the Custodian, include certificate numbers in such tabulations.
5. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
6. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
7. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
21
<PAGE>
8. Responsibility of Custodian
---------------------------
So long as and to the extend that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into between the
Custodian and the Fund.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it,
22
<PAGE>
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of Fund
assets to the extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
--------
Custodian shall not act under Section 2.12 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.12A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors has approved the
initial use of the Direct Paper System and the receipt of an annual
23
<PAGE>
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has reviewed the use by the Fund of the Direct Paper System; provided
--------
further, however, that the Fund shall not amend or terminate this Contract in
- -------
contravention of any applicable federal or state regulations, or any provision
of the Articles of Incorporation, and further provided, that the Fund may at any
time by action of its Board of Directors (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
10. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
24
<PAGE>
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any
25
<PAGE>
such interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
--------
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Articles of Incorporation of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
12. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
13. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of April, 1990.
ATTEST PAINEWEBBER CLASSIC REGIONAL FINANCIAL FUND
INC.
/s/ Robin Berger By /s/ Dianne E. O'Donnell
- ------------------------- -----------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Eric Greene By /s/ Thomas E. Sevedlund
- ------------------------- -----------------------------------------
Assistant Secretary Vice President
26
<PAGE>
Exhibit No. 8
TRANSFER AGENCY AND RELATED SERVICES AGREEMENT
----------------------------------------------
THIS AGREEMENT is made as of August 1, 1997 by and between PFPC INC., a
Delaware corporation ("PFPC"), and PAINEWEBBER FINANCIAL SERVICES GROWTH FUND,
INC., a Maryland corporation (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 related services agent to the Fund's
Portfolios (as hereinafter defined) 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 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.
<PAGE>
(d) "CEA" means the Commodities Exchange Act, as amended.
-----
(e) "Oral Instructions" mean oral instructions received by PFPC from
-------------------
an Authorized Person.
(f) "Portfolio" means a series or investment portfolio of the Fund
-----------
identified on Annex A hereto, as the same may from time to time be amended, if
the Fund consists of more than one series or investment portfolio; however, if
the Fund does not have separate series or investment portfolios, then this term
shall be deemed to refer to the Fund itself.
(g) "SEC" means the Securities and Exchange Commission.
-----
(h) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act
-----------------
and the CEA.
(i) "Shares" mean the shares of common stock or beneficial interest
--------
of any series or class of the Fund.
(j) "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 related services agent to the
Fund, and should the Fund have separate Portfolios, those Portfolios which are
listed on Annex A hereto, 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 (or a particular Portfolio, as
---------------------
appropriate) has provided or, where applicable, will provide PFPC with the
following:
2
<PAGE>
(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 Portfolios.
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 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 after such Oral Instructions are received. The fact
that such confirming Written Instructions
3
<PAGE>
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 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
4
<PAGE>
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 to serve as transfer agent,
registrar, dividend disbursing agent and related services agent to each
Portfolio, 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 or under the control 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 or under the control of PFPC shall
be provided by PFPC to the Fund or to an Authorized Person. 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
5
<PAGE>
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 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. COOPERATION 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 this Agreement and provided further that PFPC has complied
with the provisions of this paragraph 10.
6
<PAGE>
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
negotiation 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. The Fund's
liability to PFPC for PFPC's acceptance, processing and/or negotiation of checks
or other methods utilized for the purchase of Shares shall be limited to the
extent of the Fund's policy(ies) of insurance that provide for coverage of such
liability, and the Fund's insurance coverage shall take precedence.
(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,
7
<PAGE>
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 prior written consent.
(d) The members of the Board of the Fund, its officers and Shareholders,
or of 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, its officers 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.
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
8
<PAGE>
insurance shall take precedence, and no provision of this Agreement shall be
construed to relieve an insurer of any 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 or retains in
connection with the provision of services hereunder on or before January 1, 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 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
9
<PAGE>
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 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.
(d) Notwithstanding anything in this Agreement to the contrary, the Fund
shall not be liable to PFPC nor its affiliates for any consequential, special or
indirect losses or damages which PFPC or its affiliates may incur or suffer by
or as a consequence of PFPC's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known by the Fund.
10
<PAGE>
16. DESCRIPTION OF SERVICES.
-----------------------
(a) Services Provided on an Ongoing Basis, If Applicable.
-----------------------------------------------------
(i) Calculate 12b-1 payments to financial intermediaries, including
brokers, 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;
(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 Fund;
(xiv) Provide detailed data for underwriter/broker confirmations;
11
<PAGE>
(xv) Prepare and mail required calendar and taxable year-end tax
and statement information (including forms 1099-DIV and 1099-B
and accompanying statements);
(xvi) Notify on a daily basis the investment adviser, accounting
agent, and custodian of fund activity;
(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 B 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.
(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.
12
<PAGE>
(i) Broker-Dealer Accounts.
----------------------
When a broker-dealer notifies PFPC of a redemption desired by a
customer, and the Fund's or Portfolio's custodian (the
"Custodian") has provided PFPC with funds, PFPC shall (a)
transfer by Fedwire or other agreed upon electronic means such
redemption payment to the broker-dealer for the credit to, and
for the benefit of, the customer's account or (b) shall prepare
and send a redemption check to the broker-dealer, made payable
to the broker-dealer on behalf of its customer.
(ii) Fund-Only Accounts.
------------------
If Shares (or appropriate instructions) are received in proper
form, at the Fund's request Shares may be redeemed before the
funds are provided to PFPC from the 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:
(a) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed by
the recordholder; or
(b) 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,
13
<PAGE>
shall be made after deduction and payment of the required amount of funds to be
withheld in accordance with any applicable tax law or other laws, rules or
regulations. PFPC shall mail to the Fund's shareholders and the IRS and other
appropriate taxing authorities such tax forms, or permissible substitute forms,
and other information relating to dividends and distributions paid by the Fund
(including designations of the portions of distributions of net capital gain
that are 20% rate gain distributions and 28% rate gain distributions pursuant to
IRS Notice 97-64) as are required to be filed and mailed by applicable law, rule
or regulation within the time required thereby. PFPC shall prepare, maintain and
file with the IRS and 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
or Written 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.
14
<PAGE>
(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;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax forms (including substitute forms) and accompanying
information containing the information required by paragraph
16(e).
If requested by the Fund, PFPC will receive and tabulate the proxy 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
jurisdiction 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 Taxpayer 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, their
character (e.g. ordinary income, net capital gain (including
20% rate gain and 28% rate gain), exempt-interest, foreign tax-
credit and dividends received deduction eligible) for federal
income tax purposes and the date and price for all transactions
on a shareholder's account;
15
<PAGE>
(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 Stolen Certificates. PFPC shall place a 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. The lost or stolen certificate will be canceled and
uncertificated Shares will be issued to a shareholder's account only upon:
(i) The shareholder's pledge of a lost instrument bond or such
other appropriate indemnity bond issued by a surety company
approved by PFPC; and
(ii) Completion of a release and indemnification agreement signed by
the shareholder to protect PFPC and its affiliates.
(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.
16
<PAGE>
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 Initial 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 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.
17
<PAGE>
(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. 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 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
18
<PAGE>
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 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.
19
<PAGE>
21. ADDITIONAL PORTFOLIOS. 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 related services 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' 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 or liabilities under this Agreement.
(b) PFPC may delegate to PaineWebber Incorporated its obligation to
perform the services described on Annex B 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 Securities Laws; and (iii) PFPC and such delegate (or
assignee)
20
<PAGE>
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 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.
21
<PAGE>
(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.
(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.
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: /s/ Joseph Grambel
-------------------------------
Title: Vice President
PAINEWEBBER FINANCIAL SERVICES
GROWTH FUND, INC.
By: /s/ Dianne E. O'Donnell
-------------------------------
Title: Secretary and Vice President
22
<PAGE>
ANNEX A
Portfolios
PaineWebber Balanced Fund
PaineWebber Money Market Fund
23
<PAGE>
AUTHORIZED PERSONS APPENDIX
Name (Type) SIGNATURE
__________________________ __________________________
__________________________ __________________________
__________________________ __________________________
__________________________ __________________________
__________________________ __________________________
__________________________ __________________________
24
<PAGE>
ANNEX B
a. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all shareholder
inquiries received by telephone, mail or in-person regarding the Funds and
their accounts
b. Provide timely execution of redemptions, exchanges and non-financial
transactions directed to investment executives and specifically requested
by Fund shareholders
c. Issue checks from proceeds of Fund share redemptions to shareholders as
directed by the shareholders or their agents
d. Process and maintain shareholder account registration information
e. With respect to customer accounts maintained through PaineWebber
Incorporated ("PaineWebber"), review new applications and correspond with
shareholders to complete or correct information
f. Prepare and mail monthly or quarterly consolidated account statements that
reflect PaineWebber Mutual Fund balances and transactions (such information
to be combined with other activity and holdings in investors' brokerage
accounts if this responsibility is delegated to PaineWebber)
g. Establish and maintain a dedicated service center with sufficient
facilities, equipment and skilled personnel to address all branch inquiries
regarding operational issues and performance
h. Capture, process and mail required tax information to shareholders and
report this information to the Internal Revenue Service
i. Provide the capability to margin PaineWebber Mutual Funds held within the
client's brokerage account (if this responsibility is delegated to
PaineWebber)
j. Prepare and provide shareholder registrations for mailing of proxies,
reports and other communications to shareholders
k. Develop, maintain and issue checks from the PaineWebber systematic
withdrawal plan offered within the client's brokerage account (if this
responsibility is delegated to PaineWebber)
l. Maintain duplicate shareholder records and reconcile those records with
those at the transfer agent (if this responsibility is delegated to
PaineWebber)
25
<PAGE>
m. Process and mail duplicate PaineWebber monthly or quarterly statements to
PaineWebber Investment Executives
n. Establish and maintain shareholder distribution options (i.e., election to
have dividends paid in cash, rather than reinvested in Fund shares)
o. Process and mail purchase, redemption and exchange confirmations to Fund
shareholders and PaineWebber Investment Executives
p. Issue dividend checks to shareholders that select cash distributions to
their brokerage account (if this responsibility is delegated to
PaineWebber)
q. Develop and maintain the automatic investment plan offered within the
client's brokerage account (if this responsibility is delegated to
PaineWebber)
r. Provide bank-to-bank wire transfer capabilities related to transactions in
Fund shares
s. Maintain computerized compliance programs for blue sky and non-resident
alien requirements (only with respect to PaineWebber Cashfund, Inc.)
26
<PAGE>
Exhibit No. 9
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
July 30, 1998
PaineWebber Financial Services Growth Fund Inc.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
You have requested our opinion, as counsel to PaineWebber Financial Services
Growth Fund Inc. ("Fund"), as to certain matters regarding the issuance of
certain Shares of the Fund. As used in this letter, the term "Shares" means the
Class A, Class B, Class C and Class Y shares of common stock of the Fund during
the time that Post-Effective Amendment No. 17 to the Fund's Registration
Statement on Form N-1A ("PEA") is effective and has not been superseded by
another post-effective amendment.
As such counsel, we have examined certified or other copies, believed by us
to be genuine, of the Fund's Articles of Incorporation and by-laws and such
resolutions and minutes of meetings of the Fund's Board of Directors as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the State of Maryland that in
our experience are normally applicable to the issuance of shares by registered
investment companies organized as corporations under the laws of that State and
to the Securities Act of 1933 ("1933 Act"), the Investment Company Act of 1940
("1940 Act") and the regulations of the Securities and Exchange Commission
("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the Shares
has been duly authorized by the Fund and that, when sold in accordance with the
terms contemplated by the PEA, including receipt by the Fund of full payment for
the Shares and compliance with the 1933 Act and the 1940 Act, the Shares will
have been validly issued, fully paid and non-assessable.
We hereby consent to this opinion accompanying the PEA when it is filed with
the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
/s/ Kirkpatrick & Lockhart
KIRKPATRICK & LOCKHART LLP
<PAGE>
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference of our report dated May 13,
1998 in this Registration Statement (Form N-1A No. 33-33231) of PaineWebber
Financial Services Growth Fund Inc.
ERNST & YOUNG LLP
New York, New York
July 28, 1998
<PAGE>
ADMINISTRATION EXHIBIT NO. 12
PaineWebber Incorporated
1285 Avenue of the Americas
New York, N.Y. 10019
212 713 2712
Lawrence R Bardfeld
Vice President
Associate General Counsel
PAINEWEBBER
April 29, 1986
Regional Bancshares Investment Fund Inc.
1285 Avenue of the Americas
New York, N.Y. 10019
Gentlemen:
Please be advised that the shares valued at $100,000 of Regional Bancshares
Investment Fund Inc. which we have today purchased from you were purchased for
investment with no present intention of selling such shares, and we do not now
have any intention of selling such shares.
Very truly yours,
/s/ Lawrence R. Bardfeld
- --------------------------------
Lawrence R. Bardfeld
Vice President
<PAGE>
Exhibit No. 13(a)
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC. -- CLASS A SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Regional Financial Growth Fund Inc. ("Fund") is
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company, and currently offers for public sale
a single distinct series of shares of common stock ("Series"), which corresponds
to a distinct portfolio and is the Fund's initial Series; and
WHEREAS, the Fund desires to adopt a Plan of Distribution ("Plan") pursuant
to Rule 12b-1 under the 1940 Act with respect to the Class A shares of the
above-referenced Series and of such other Series as may hereafter be designated
by the Fund's board of directors ("Board") and have Class A shares established;
and
WHEREAS, the Fund has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class A shares
of each such Series;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class
A shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
A shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series' Class A shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Any Series may pay a service fee to Mitchell Hutchins at a lesser
rate than the fee specified in paragraph 1A of this Plan, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in paragraph
4 of this Plan.
2. As Distributor of the Class A shares of each Series, Mitchell Hutchins
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Series' Class A shares or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing
<PAGE>
shareholders; and the preparation, printing and distribution of sales literature
and advertising materials.
3. This Plan shall take effect with respect to the Class A shares of the
Fund's initial Series on the date set forth below, provided that it has first
been approved by the Board as set forth in paragraph 4, but shall not take
effect with respect to the Class A shares of any other Series unless it first
has been approved by a vote of the then sole shareholder of the Class A shares.
4. This Plan shall not take effect with respect to any Series unless it
first has been approved, together with any related agreements, by votes of a
majority of both (a) the Board and (b) those Directors of the Fund who are not
"interested persons" of the Fund and have no direct or indirect financial
interest in the operation of this Plan or any agreements related thereto
("Independent Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on such approval; and until the Directors who approve the
Plan's taking effect with respect to such Series' Class A shares have reached
the conclusion required by Rule 12b-1(e) under the 1940 Act.
5. With respect to any Series for which this Plan was approved as set
forth in paragraphs 3 and 4 prior to the commencement of operations of such
Series, this Plan shall continue in full force and effect until the first
meeting of the Class A shareholders held after the initial offering of such
shares of such Series to the public. If approved at such meeting by a vote of a
majority of the outstanding voting securities of the Class A shares of such
Series, the Plan shall continue in full force and effect with respect to such
Series for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class A shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"service activities," as defined in this Paragraph 6, to the Board in support of
the service fee payable hereunder.
For purposes of this Plan, "service activities" shall mean activities
in connection with the provision by Mitchell Hutchins or PaineWebber of
personal, continuing services to investors in the Class A Shares of the Series;
provided, however, that if the National Association of Securities Dealers, Inc.
("NASD") adopts a definition of "service fee" for purposes of Section 26(d) of
the NASD Rules of Fair Practice that differs from the definition of "service
activities" hereunder, or if the NASD adopts a related definition intended to
define the same concept, the definition of "service activities" in this
Paragraph shall be automatically amended, without further action of the parties,
to conform to such NASD definition. Overhead and other expenses of Mitchell
Hutchins and PaineWebber related to their "service activities," including
telephone
-2-
<PAGE>
and other communications expenses, may be included in the information regarding
amounts expended for such activities.
7. This Plan may be terminated with respect to the Class A shares of any
Series at any time by vote of the Board, by vote of a majority of the
Independent Directors, or by vote of a majority of the outstanding voting
securities of the Class A shares of that Series.
8. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof unless such amendment is
approved by a vote of a majority of the outstanding voting securities of each
Series, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in paragraph 5 hereof.
9. The amount of the service fees payable by any Series to Mitchell
Hutchins under paragraph 1A hereof and the Contract is not related directly to
expenses incurred by Mitchell Hutchins on behalf of such Series in serving as
Distributor of the Class A shares, and paragraph 2 hereof and the Contract do
not obligate the Series to reimburse Mitchell Hutchins for such expenses. The
service fees set forth in paragraph 1A hereof will be paid by the Series to
Mitchell Hutchins until either the Plan or the Contract is terminated or not
renewed. If either the Plan or the Contract is terminated or not renewed with
respect to the Class A shares of any Series, any distribution expenses incurred
by Mitchell Hutchins on behalf of the Series in excess of payments of the
service fees specified in paragraph 1A hereof and the Contract which Mitchell
Hutchins has received or accrued through the termination date are the sole
responsibility and liability of Mitchell Hutchins, and are not obligations of
the Series.
10. While this Plan is in effect, the selection and nomination of the
Directors who are not interested persons of the Fund shall be committed to the
discretion of the Directors who are not interested persons of the Fund.
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Fund shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Plan of Distribution on
the day and year set forth below in New York, New York.
Date: July 1, 1991
ATTEST: PAINEWEBBER REGIONAL FINANCIAL
GROWTH FUND INC.
/s/ Jack W. Murphy By: /s/ Dianne E. O'Donnell
- ------------------------------ --------------------------------------
-4-
<PAGE>
Exhibit No. 13(b)
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.-- CLASS B SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Regional Financial Growth Fund Inc. ("Fund") is
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company, and currently offers for public sale
a single distinct series of shares of common stock ("Series"), which corresponds
to a distinct portfolio and is the Fund's initial Series; and
WHEREAS, the Fund desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class B shares of
the above-referenced Series and of such other Series as may hereafter be
designated by the Fund's board of directors ("Board") and have Class B shares
established; and
WHEREAS, the Fund has entered into a Distribution Contract
("Contract") with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins")
pursuant to which Mitchell Hutchins has agreed to serve as Distributor of the
Class B shares of each such Series;
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class B shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series'
Class B shares, a distribution fee at the rate of 0.75% on an annualized basis
of the average daily net assets of the Series' Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Each Series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
B shares, a service fee at the rate of 0.25% on an annualized basis of the
average daily net assets of the Series Class B shares. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
C. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified in Paragraphs 1A and 1B,
respectively, of this Plan, in either case as agreed upon by the Board and
Mitchell Hutchins and as approved in the manner specified in Paragraph 4 of this
Plan.
<PAGE>
2. As Distributor of the Class B shares of each Series, Mitchell
Hutchins may spend such amounts as it deems appropriate on any activities or
expenses primarily intended to result in the sale of the Class B shares of the
Series or the servicing and maintenance of shareholder accounts, including, but
not limited to, compensation to employees of Mitchell Hutchins; compensation to
and expenses, including overhead and telephone and other communication expenses,
of Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other
selected dealers who engage in or support the distribution of shares or who
service shareholder accounts; the printing of prospectuses, statements of
additional information, and reports for other than existing shareholders; and
the preparation, printing and distribution of sales literature and advertising
materials.
3. This Plan shall not take effect with respect to the Class B
shares of any Series unless it first has been approved by a vote of the then
sole shareholder of the Class B shares of the Series.
4. This Plan shall not take effect with respect to the Class B
shares of any Series unless it first has been approved, together with any
related agreements, by votes of a majority of both (a) the Board and (b) those
Directors of the Fund who are not "interested persons" of the Fund and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related thereto ("Independent Directors"), cast in person at a
meeting (or meetings) called for the purpose of voting on such approval; and
until the Directors who approve the Plan's taking effect with respect to such
Series' Class B shares have reached the conclusion required by Rule 12b-1(e)
under the 1940 Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan
shall take effect and continue in full force and effect until a meeting of the
Class B shareholders held after the initial offering of such shares of such
Series to the public. If approved at such meeting by a vote of a majority of the
outstanding voting securities of the Class B shares of such Series, the Plan
shall continue in full force and effect with respect to the Class B shares of
such Series for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in Paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class B shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts expended for "service activities," as defined in
this Paragraph 6, to the Board in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean
any activities in connection with Mitchell Hutchins' performance of its
obligations under this Plan or the Contract that are not deemed "service
activities." "Service activities" shall mean activities in connection with the
provision by Mitchell Hutchins or PaineWebber of personal, continuing services
to
2
<PAGE>
investors in the Class B shares of the Series; provided, however, that if the
National Association of Securities Dealers, Inc. ("NASD") adopts a definition of
"service fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice
that differs from the definition of "service activities" hereunder, or if the
NASD adopts a related definition intended to define the same concept, the
definition of "service activities" in this Paragraph shall be automatically
amended, without further action of the parties, to conform to such NASD
definition. Overhead and other expenses of Mitchell Hutchins and PaineWebber
related to their "distribution activities" or "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
7. This Plan may be terminated with respect to the Class B shares of
any Series at any time by vote of the Board, by vote of a majority of the
Independent Directors, or by vote of a majority of the outstanding voting
securities of the Class B shares of that Series.
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraph 1A hereof or the amount of service
fees provided for in Paragraph 1B hereof unless such amendment is approved in
the manner provided for initial approval in paragraphs 3 and 4 hereof, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in Paragraph 5 hereof.
9. The amount of the distribution and service fees payable by the
Series to Mitchell Hutchins under Paragraphs 1A and 1B hereof and the Contract
is not related directly to expenses incurred by Mitchell Hutchins on behalf of
such Series in serving as Distributor of the Class B shares, and Paragraph 2
hereof and the Contract do not obligate the Series to reimburse Mitchell
Hutchins for such expenses. The distribution and service fees set forth in
Paragraphs 1A and 1B hereof will be paid by the Series to Mitchell Hutchins
until either the Plan or the Contract is terminated or not renewed. If either
the Plan or the Contract is terminated or not renewed with respect to the Class
B shares of any Series, any distribution expenses incurred by Mitchell Hutchins
on behalf of the Class B shares of the Series in excess of payments of the
distribution and service fees specified in Paragraphs 1A and 1B hereof and the
Contract which Mitchell Hutchins has received or accrued through the termination
date are the sole responsibility and liability of Mitchell Hutchins, and are not
obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Directors who are not interested persons of the Fund shall be committed to the
discretion of the Directors who are not interested persons of the Fund.
11. As used in this Plan, the terms "majority of the outstanding
voting securities" and "interested person" shall have the same meaning as those
terms have in the 1940 Act.
12. The Fund shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Paragraph 6 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Plan of Distribution on the
day and year set forth below in New York, New York.
Date: July 1, 1991
ATTEST: PAINEWEBBER REGIONAL FINANCIAL
GROWTH FUND INC.
/s/ Jack W. Murphy By: /s/ Dianne E. O'Donnell
- ---------------------- ------------------------------------
4
<PAGE>
Exhibit No. 13(c)
PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC. -- CLASS D SHARES
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
WHEREAS, PaineWebber Regional Financial Growth Fund Inc. ("Fund") is
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company, and currently has a single series of
shares of common stock ("Series"), which corresponds to a distinct portfolio and
is the Fund's initial Series; and
WHEREAS, the Fund desires to adopt a Plan of Distribution ("Plan") pursuant
to Rule 12b-1 under the 1940 Act with respect to the Class D shares of the
above-referenced Series and of such other Series as may hereafter be designated
by the Fund's board of directors ("Board") and have Class D shares established;
and
WHEREAS, the Fund has entered into a Distribution Contract ("Contract")
with Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") pursuant to
which Mitchell Hutchins has agreed to serve as Distributor of the Class D shares
of each such Series;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to the Class
D shares of each Series in accordance with Rule 12b-1 under the 1940 Act.
1. A. The following Series of the Fund is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class D shares, distribution fees at the rate (on an annualized basis)
set forth below of the average daily net assets of the Series' Class D shares.
Such fee shall be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
Initial series 0.75%
B. Any Series hereafter established is authorized to pay to Mitchell
Hutchins, as compensation for Mitchell Hutchins' services as Distributor of the
Series' Class D Shares, a distribution fee in the amount to be agreed upon in a
written distribution fee addendum to this Plan ("Distribution Fee Addendum")
executed by the Fund on behalf of such Series. All such Distribution Fee Addenda
shall provide that they are subject to all terms and conditions of this Plan.
C. Each series is authorized to pay to Mitchell Hutchins, as
compensation for Mitchell Hutchins' services as Distributor of the Series' Class
D shares, a service fee at the rate of 0.25%, on an annualized basis, of the
average daily net assets of the Series' Class D shares. Such
<PAGE>
fee shall be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
D. Any Series may pay a distribution or service fee to Mitchell
Hutchins at a lesser rate than the fees specified above, as agreed upon by the
Board and Mitchell Hutchins and as approved in the manner specified in Paragraph
4 of this Plan.
2. As Distributor of the Class D shares of each Series, Mitchell Hutchins
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Class D shares of the Series or
the servicing and maintenance of shareholder accounts, including, but not
limited to, compensation to employees of Mitchell Hutchins; compensation to and
expenses, including overhead and telephone and other communication expenses, of
Mitchell Hutchins, PaineWebber Incorporated ("PaineWebber") and other selected
dealers who engage in or support the distribution of shares or who service
shareholder accounts; the printing of prospectuses, statements of additional
information, and reports for other than existing shareholders; and the
preparation, printing and distribution of sales literature and advertising
materials.
3. This Plan shall not take effect with respect to the Class D shares of
any Series unless it first has been approved by a vote of the then sole
shareholder of the Class D shares of the Series.
4. This Plan shall not take effect with respect to the Class D shares of
any Series unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Directors
of the Fund who are not "interested persons" of the Fund and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Directors who approve the Plan's taking effect with respect to such Series'
Class D shares have reached the conclusion required by Rule 12b-1(e) under the
1940 Act.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall take
effect and continue in full force and effect until a meeting of the Class D
shareholders held after the initial offering of such shares of such Series to
the public. If approved at such meeting by a vote of a majority of the
outstanding voting securities of the Class D shares of such Series, the Plan
shall continue in full force and effect with respect to the Class D shares of
such Series for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in Paragraph 4.
6. Mitchell Hutchins shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended with
respect to the Class D shares of each Series by Mitchell Hutchins under this
Plan and the Contract and the purposes for which such expenditures were made.
Mitchell Hutchins shall submit only information regarding amounts expended for
"distribution activities," as defined in this Paragraph 6, to the Board in
support of the distribution fee payable hereunder and shall submit only
information regarding amounts
2
<PAGE>
expended for "service activities," as defined in this Paragraph 6, to the Board
in support of the service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Mitchell Hutchins' performance of its obligations
under this Plan or the Contract that are not deemed "services activities."
"Service activities" shall mean activities in connection with the provision by
Mitchell Hutchins or PaineWebber of personal, continuing services to investors
in the Class D shares of the Series; provided, however, that if the National
Association of Securities Dealers, Inc. ("NASD") adopts a definition of "service
fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice that
differs from the definition of "service activities" hereunder, or if the NASD
adopts a related definition intended to define the same concept, the definition
of "service activities" in this Paragraph shall be automatically amended,
without further action of the parties, to conform to such NASD definition.
Overhead and other expenses of Mitchell Hutchins and PaineWebber related to
their "distribution activities" or "service activities," including telephone and
other communications expenses, may be included in the information regarding
amounts expended for such activities.
7. This Plan may be terminated with respect to the Class D shares of any
Series at any time by vote of the board, by vote of a majority of the
Independent Directors, or by vote of a majority of the outstanding voting
securities of the Class D shares of that Series.
8. This Plan may not be amended to increase materially the amount of
distribution fees provided for in Paragraph 1A or 1B hereof or the amount of
service fees provided for in Paragraph 1C hereof unless such amendment is
approved in the manner provided for initial approval in paragraphs 3 and 4
hereof, and no material amendment to the Plan shall be made unless approved in
the manner provided for approval and annual renewal in Paragraph 5 hereof.
9. The amount of the distribution and service fees payable by the Series
to Mitchell Hutchins under Paragraphs 1 hereof and the Contract is not related
directly to expenses incurred by Mitchell Hutchins on behalf of such Series in
serving as Distributor of the Class D shares, and Paragraph 2 hereof and the
Contract do not obligate the Series to reimburse Mitchell Hutchins for such
expenses. The distribution and service fees set forth in Paragraph 1 hereof will
be paid by the Series to Mitchell Hutchins until either the Plan or the Contract
is terminated or not renewed. If either the Plan or the Contract is terminated
or not renewed with respect to the Class D shares of any Series, any
distribution expenses incurred by Mitchell Hutchins on behalf of the Class D
shares of the Series in excess of payments of the distribution and service fees
specified in Paragraphs 1 hereof and the Contract which Mitchell Hutchins has
received or accrued through the termination date are the sole responsibility and
liability of Mitchell Hutchins, and are not obligations of the Series.
10. While this Plan is in effect, the selection and nomination of the
Directors who are not interested persons of the Fund shall be committed to the
discretion of the Directors who are not interested persons of the Fund.
3
<PAGE>
11. As used in this Plan, the terms "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
12. The Fund shall preserve copies of this Plan (including any amendments
thereto) and any related agreements and all reports made pursuant to Paragraph 6
hereof for a period of not less than six years from the date of this Plan, the
first two years in an easily accessible place.
IN WITNESS WHEREOF, the Fund has caused this Plan of Distribution to be
executed on the day and year set forth below in New York, New York.
Date: July 1, 1992
ATTEST: PAINEWEBBER REGIONAL
FINANCIAL GROWTH FUND INC.
/s/ Michelle Ehrler By: /s/ Dianne E. O'Donnell
- ---------------------------- ---------------------------
Michelle Ehrler Dianne E. O'Donnell
Secretary and Vice President
4
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<ASSETS-OTHER> 544
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 2,858
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<PAID-IN-CAPITAL-COMMON> 147,713
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<ACCUMULATED-NII-CURRENT> 394
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,421
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59,290
<NET-ASSETS> 209,818
<DIVIDEND-INCOME> 1,765
<INTEREST-INCOME> 963
<OTHER-INCOME> 0
<EXPENSES-NET> (1,456)
<NET-INVESTMENT-INCOME> 1,272
<REALIZED-GAINS-CURRENT> 6,590
<APPREC-INCREASE-CURRENT> 40,641
<NET-CHANGE-FROM-OPS> 48,503
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,011)
<DISTRIBUTIONS-OF-GAINS> (7,773)
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<NUMBER-OF-SHARES-SOLD> 5,640
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<SHARES-REINVESTED> 249
<NET-CHANGE-IN-ASSETS> 147,330
<ACCUMULATED-NII-PRIOR> 271
<ACCUMULATED-GAINS-PRIOR> 4,273
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 850
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,456
<AVERAGE-NET-ASSETS> 137,978
<PER-SHARE-NAV-BEGIN> 23.41
<PER-SHARE-NII> 0.20
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<PER-SHARE-DIVIDEND> (0.21)
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<NAME> PAINEWEBBER FINANCIAL SERVICES GROWTH FUND B
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<NAME> PAINEWEBBER FINANCIAL SERVICES GROWTH FUND B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 148,330
<INVESTMENTS-AT-VALUE> 204,415
<RECEIVABLES> 2,698
<ASSETS-OTHER> 515
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 207,628
<PAYABLE-FOR-SECURITIES> 2,704
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,451
<TOTAL-LIABILITIES> 9,155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139,727
<SHARES-COMMON-STOCK> 6,085
<SHARES-COMMON-PRIOR> 1,818
<ACCUMULATED-NII-CURRENT> 372
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,290
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 56,084
<NET-ASSETS> 198,473
<DIVIDEND-INCOME> 1,669
<INTEREST-INCOME> 911
<OTHER-INCOME> 0
<EXPENSES-NET> (2,075)
<NET-INVESTMENT-INCOME> 505
<REALIZED-GAINS-CURRENT> 6,234
<APPREC-INCREASE-CURRENT> 38,444
<NET-CHANGE-FROM-OPS> 45,183
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (360)
<DISTRIBUTIONS-OF-GAINS> (6,471)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,117
<NUMBER-OF-SHARES-REDEEMED> (1,064)
<SHARES-REINVESTED> 214
<NET-CHANGE-IN-ASSETS> 140,145
<ACCUMULATED-NII-PRIOR> 131
<ACCUMULATED-GAINS-PRIOR> 2,074
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 804
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<GROSS-EXPENSE> 2,075
<AVERAGE-NET-ASSETS> 102,392
<PER-SHARE-NAV-BEGIN> 22.87
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 11.34
<PER-SHARE-DIVIDEND> (0.09)
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<MULTIPLIER> 1,000
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<TOTAL-LIABILITIES> 2,943
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<PER-SHARE-NAV-BEGIN> 22.84
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<NET-CHANGE-IN-ASSETS> 1
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2
<PER-SHARE-NAV-BEGIN> 33.22
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0.34
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33.56
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
